Bank CEOs push back on climate proposals; another company leaves Libra

Wall Street Journal

Bringing in innovation

Ally Financial’s new Chief Information Officer Sathish Muthukrishnan “aims to update the company’s financial tools with more innovations made possible by artificial intelligence, with security baked into the development process. The company is using AI technologies such as Amazon.com’s Alexa for voice-enabled online banking and biometrics for customers to log into the mobile banking app,” the paper says.

“We have to strike a right balance between operating within a regulated bank, and bringing in innovation,” Muthukrishnan told the paper. “He wants to improve the user experience in its digital platforms and personalize financial tools for customers.”

Reachable goals

UBS CEO Sergio Ermotti has lowered the bank’s financial targets, making them easier to clear for himself, “and the four board members vying to replace” him. On Tuesday Ermotti, who “has been in post since 2011 and is expected to retire before the end of 2022,” cut the bank’s financial targets and dividend and buyback plans over the next three years.

“Beating his targets would be a nice send-off. This seems achievable at the reduced level — and with ambitious potential successors keen to prove their skills," the paper said. "While an external candidate is always possible, investors should keep an eye on the internal race to beat the bank’s targets. It won’t just determine the stock performance, but will also provide interesting insight into who might lead the bank next.”

Financial Times

Not their job

The heads of major international banks and financial companies “rejected suggestions that they are not doing enough to combat climate change and resisted calls that they should refuse to work with clients that are major polluters.” Speaking at the World Economic Forum in Davos Tuesday, Citigroup CEO Michael Corbat “said it was not the job of banks to ensure that companies were adopting environmentally friendly business models by unilaterally cutting off finance for polluting businesses.”

“I don’t want to be the sharp end of the spear, meaning I don’t want to have to be the one telling [companies] or enforcing standards in an industry or business,” he said.

“Should we not raise money for a company that is a carbon company or a fossil fuel company?” Goldman Sachs CEO David Solomon asked. “The answer is no, we’re not going to [stop doing] that. There’s a transition that’s going on, and my view is this is going to be a multi-decade transition where we see changes in the way people allocate capital.”

Another one bites the dust

Vodafone, the U.K.-based phone company, has “became the latest big tech company to abandon the controversial Libra project, inflicting a fresh blow to the Facebook-led digital currency initiative.” The firm is the eighth company “to pull out of the ambitious project, which has faced intense scrutiny from global regulators and politicians over concerns it could facilitate money laundering and hurt financial stability.” Vodafone said it would “instead redirect its efforts towards its own mobile money payments service, M-Pesa,” the paper reports.

“We have said from the outset that Vodafone’s desire is to make a genuine contribution to extending financial inclusion,” a spokesperson told the paper. “We remain fully committed to that goal and feel that we can make the most contribution by focusing our efforts on M-Pesa. We will continue to monitor the development of the Libra Association and do not rule out the possibility of future co-operation.”

Bailie bails

Mark Bailie, the head of Royal Bank of Scotland’s newly launched digital unit Bó, is planning to leave the bank later this year, the paper reports. Bailie “had been one of the leading internal candidates to succeed Ross McEwan, who resigned as chief executive last year. However, he was beaten to the post by Alison Rose, who became the first woman to lead one of the U.K.’s big four high street lenders.” His departure “comes less than two months after the formal launch of Bó, the digital banking project that he had worked on for the past two years.”

The making of a unicorn

Meanwhile, Monese, a U.K.-based startup digital bank, “is in talks to raise £100 million from investors in a deal that is expected to make it the latest British technology unicorn.” The company, which provides an app-based bank checking account to consumers and businesses, “has differentiated itself from rivals by targeting people who struggle to access traditional banks, such as recent immigrants who do not have local credit histories.” The company, which was founded in 2013, doubled the number of customers to two million in the second half of last year and is aiming to hit five million by the end of this year.

Looking ahead

The risks to global banks have lessened somewhat due to more stringent capital rules, but “there are new threats on the horizon. They include a surge in loans to highly indebted companies that could quickly fall into difficulty in the event of a recession and struggle to make their repayments.” A session at the World Economic Forum explores the question, “With cheap money keeping fragile companies on life support, will a recession cause a reckoning in corporate debt?”

Elsewhere

Papa's got a brand new bag

Goldman Sachs CEO David Solomon, “who spins electronic dance music under the moniker DJ D-Sol, will be featured at a Sports Illustrated party tied to the NFL’s Super Bowl,” Bloomberg reports.

Quotable

“A bank’s job is to support the communities in which it operates. It is not to dictate outcomes. “We don’t want to find ourselves being the person that dictates winners and losers.” — Citigroup CEO Michael Corbat, pushing back against pressure on banks to favor financing one company over another based on climate change issues