The Fraser era begins; Goldman’s consumer finance chief jumps to Walmart

Receiving Wide Coverage ...

Fraser takes the helm

Jane Fraser, “the first woman to run a major U.S. bank,” takes the reins of Citigroup today, the Wall Street Journal reports. Her job: “to reinvigorate the $2.3 trillion giant.” While she wants to “simplify Citigroup, the original megabank, that won’t be easy.”

‘She will have to juggle responding to regulators’ concerns—an expensive, multiyear project—with a reappraisal of the bank’s strategy. Already Ms. Fraser, 53 years old, has launched a ‘refresh’ she hopes can simplify the bank inside and out, making it easier to run and improve.”

Meanwhile, Citi said it “revised down its fourth-quarter earnings by $323 million after suffering a loss in its legal battle to recoup funds it accidentally sent to creditors of its client Revlon,” the Financial Times reported. The bank “had hoped to claw back $500 million it mistakenly sent to lenders to the cosmetics company, but a federal judge shot down that bid on February 16. Citi said on Friday that it had retrospectively added $390 million of operational expenses to the fourth quarter’s accounts.”

More mountains to climb

Omer Ismail, the Goldman Sachs partner “who helped build its Marcus consumer banking business from scratch, is leaving to take on a similar task at Walmart. Joining Mr. Ismail at Walmart will be David Stark, a former Citigroup executive who joined Goldman in 2015 and helped it land and build credit card offerings with Apple and General Motors.”

“Walmart said in January that it was creating a majority-owned fintech subsidiary in a partnership with venture-capital firm Ribbit Capital.”

“The hires represent a big step in the second big effort by the world’s largest retailer to enter financial services, after it abandoned its plan to start a bank over a decade ago, under pressure from regulators,” the Financial Times said.

Wall Street Journal

Giving away the store?

Macy’s, Gap, Neiman Marcus and other retail chains “that derive much of their income from shoppers who pay with a store credit card” are allowing their customers to use buy now, pay later plans. “For department stores, the new payment plans risk eating into income from store-branded credit-card fees that have helped offset retail sales declines. Moreover, instead of earning a profit from customers who revolve a balance on their store cards, retailers pay fees to the financial-technology companies that offer buy now, pay later plans, including Klarna Bank, Affirm and Afterpay.”

Take your money elsewhere

Germany’s biggest banks “are essentially telling customers to go away. Deutsche Bank and Commerzbank have told new customers since last year to pay a 0.5% annual rate to keep large sums of money with them. The banks say they can no longer absorb the negative interest rates the European Central Bank charges them. Banks are even providing new online tools to help customers take their deposits elsewhere.”

Financial Times

Let’s make a deal

“The pressures of the pandemic and a warm investor reception for recent acquisitions have increased the appetite of midsized U.S. banks for more deals,” the FT says. “Likely buyers include such U.S. regional lenders as U.S. Bank and Citizens Financial, as well as Canada’s TD Bank and Bank of Montreal. Smaller U.S. banks and foreign lenders with weak returns and less reason to remain in the U.S., such as Spain’s Santander, are seen as more likely to sell.”

“Bankers warn that not all prospective deals will be easy to execute. But the pandemic has highlighted the advantages of size in banking. With branches closed or customers wary of visiting them, digital banking has become more important, putting pressure on banks to invest. At the same time, low interest rates and lackluster demand for loans have made it more difficult for lenders to profit from their swollen deposit bases. Greater economies of scale represent a way to increase returns.”

The clouds lift

“Things are looking brighter” for the financial sector, as “rising longer-term rates should boost profitability after many difficult years for sector.”

“In the longer term, financials are expected to benefit from greater consolidation and more cost efficiencies while the industry embraces and benefits from the digital revolution sweeping through finance. In the short-term, banks benefit from a reflating global economy that increases demand for loans and pushes interest rates higher, boosting the profits on lending.”

Making money

“Bitcoin cannot replace the banks,” an FT op-ed instructs, noting that “cryptocurrency hopes are based on a misunderstanding of how money is created.”

“One argument in favor of buying and holding bitcoin is that cryptocurrencies will eventually replace banks themselves, as their services for storing and transferring money will no longer be needed. But [this] shows a flawed understanding of how dollars work, and who creates them now. Most of what currently functions as money in the U.S. and any developed economy does not come from the government. It comes from commercial banks. Banks do not just hold money, or transfer it. They create it.”

New York Times

Beating bitcoin

China is “charging ahead with a national digital currency. The electronic Chinese yuan is now being tested in cities such as Shenzhen, Shanghai and Beijing. No other major power is as far along with a homegrown digital currency.”

“The effort is one of several by central banks around the world to try new forms of digital money that can move faster and give even the most disadvantaged people access to online financial tools. Many countries have taken action as cryptocurrencies such as Bitcoin, which has recently soared in value, have become more popular.”

Quotable

“Any bank that’s below the top four or five, especially in retail banking, has to be asking itself some very serious strategic questions. It’s not foreign versus domestic, it’s all about scale.” A senior executive at a midsized U.S. bank, about the prospects for bank consolidation.