Posted In:

Banking, Earnings


#345
Is Winter Coming Early?

Published:

Jul 18, 2020


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Posted In:

Banking, Earnings

Published:

Jul 18, 2020


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Q2 earnings kicked off in earnest this week, and big banks have provided further proof of the strategic benefits of diversification. The second quarter was expected to be the banks' biggest test in over a decade. Facing soaring unemployment, and with businesses preparing for what could possibly be a deep, sustained downturn, investors entered earnings season with caution.

However, we have seen JPMorgan shares jump on the back of stronger than expected capital markets results, with fixed-income trading revenues surging 99%, while the other Morgan saw a nearly 170% increase. At Citi, trading revenue climbed almost 60% in the quarter. Goldman Sachs fared even better; its quarterly revenue was the second-highest on record at $13.3b. Its traders and investment bankers posted near-record revenue to keep firm wide profits steady. In fact, Goldman is in a better position to weather this first leg of the crisis precisely for lacking a big mortgage or credit-card business, which reduces exposure to unemployment surges or extremely low interest rates.

Fintech has played its catalytic role, as the “tech” continues to allow for greater “fin” efficiency. With traders increasingly able to work remotely, access to information becoming more pervasive and floors going fully virtual (not to mention the start of decentralized solutions), the horizon of possibilities has widened since 2008, despite increased regulatory restrictions. Had Covid-19 hit a decade earlier, it is difficult to imagine a similarly functional (and socially distant) response.

Nevertheless, while diversification is benefiting the bulge brackets in the form of stellar trading results, we are simultaneously seeing these same players set aside record amounts for loan losses. Let’s not forget that a sustained recession would eat into capital reserves as loans go bad, and this could happen at an alarming pace. Regardless of the Fed’s best efforts, the money printer can only go brrrr for so long. And as time goes on, the same sound might introduce the start of a long winter.

Portfolio News


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Ares, Cyrus, and Keyframe partner with Wunder Capital to invest in the U.S. commercial solar market - Amid COVID-19 and broader market turbulence, the commitment of more than $100m demonstrates strong support for commercial solar projects. Portfolio company Wunder’s proprietary technology platform will provide select solar installers and developers with turnkey pre-NTP (notice to proceed) development capital solutions. Read more

Is Winter Coming Early?


Goldman’s traders, bankers keep profit steady while rivals falter - Goldman is considered to be in a better position than larger commercial banks to weather at least this leg of the crisis. Without a big mortgage or credit-card business, it is less exposed to an increase in unemployment or ultralow interest rates. Read more

Three US banks set aside record $28b for loan losses - The pain was partly cushioned by a boom in trading, with JPMorgan fixed-income trading revenues surging 99%. Fixed income trading also rose sharply at Citi, with trading revenue climbing almost 60% in the quarter. Read more

Trading set to triumph in US banks’ second-quarter earnings - Frenzied trading around the coronavirus crisis has boosted markets revenues, while Goldman and Morgan Stanley have also profited from their limited exposure to the widespread loan losses stemming from the pandemic that will set them up to triumph over their Main Street rivals. Read more

Charles Schwab says retail trading kept booming in second quarter amid market comeback- The major online brokers — Charles Schwab, TD Ameritrade, E-Trade and Robinhood — have seen new accounts and trading activity surge this year during the coronavirus recession. Schwab, however, missed on the top and bottom lines of its second quarter earnings, which calls into question the sustainability of the zero-fee model it has pioneered. Read more

Industry News


Wall Street sets high stakes for next fiscal stimulus - The biggest U.S. banks are done reporting second-quarter earnings, and the message to congressional leadership is clear: Congratulations, you staved off the worst-case scenario from April through June. But now what? Read more

Rich heirs care more about profit than their bankers realize - The incoming heirs of dynasties prioritize financial returns over sustainable, do-good strategies just as much as the previous generation did, according to a UBS survey of 121 family offices. Read more

Walmart, Kroger grapple with coin shortage, urge cards instead - First it was toilet paper and face masks, then it was meat. The latest shortage caused by the coronavirus pandemic? Pocket change. Retailers are grappling with a nationwide shortfall of coins that’s left them posting signs at some checkout lines alerting customers to use credit or debit cards -- or pay with exact change, if possible. Read more

Google to invest $10b in India - Google said on Monday that it plans to invest $10b in India over next 5-7 years as the search giant looks to help accelerate adoption of digital services in the key overseas market. Read more

Why Covid-19 is a gift for cyber criminals - A good read from the FT on how this crisis has left us so distracted and disoriented that our defences are down, even as we depend more than ever on all things digital. Read more

Russia’s rookie investors fuel stock market trading boom - A campaign of rate cuts by the central bank on top of Putin announcing a 13% tax on interest from all bank deposits over $14,000 has resulted in an unprecedented surge into the stock market by amateur investors, mimicking a similar craze in the US, UK and China and potentially reshaping how the country’s markets work. Read more

Santander to recruit IT specialists for a new innovation center in Brazil - Banco Santander is to hire 300 IT professionals to work on digital applications at a new innovation hub in Brazil. Read more

Paypal confirms developing cryptocurrency - In the previous year, the European Commission had opened a consultation regarding the regulation of cryptocurrencies and digital assets. Later, last month, the responses were published which were inclusive of a letter from PayPal that stated that the firm has developed capabilities in this particular arena since its withdrawal from Libra. Read more

The comfort of cash in a time of coronavirus - Americans have been hoarding cash during the pandemic, presenting the Federal Reserve with an expensive challenge. Cash use at the till has declined slightly during the pandemic, as consumers accelerate the shift to electronic payments. But just like the period before a natural disaster, there has been a spike in cash withdrawals in the US. Read more

Monzo’s relaunches its Plus premium offering with open banking integrations - The flagship feature of Monzo Plus, priced at £5/month with a 3-month minimum term, is deep open banking integration with other bank and credit card accounts like HSBC, Barclays and Lloyds, letting customers view and move money between these accounts. Read more

Jack Ma's fintech giant Alipay tops 1.3b users globally - The majority of its users came from China, while the rest were brought in by its nine e-wallet partners in India, Thailand, South Korea, the Philippines, Bangladesh, Hong Kong, Malaysia, Indonesia and Pakistan. Read more

Cross-border payment systems have been neglected for too long - Global financial transfers were well over $20t in 2019 and are expected to hit $30t by 2022. Improving cost, speed and reliability of payments would remove frictions that prevent many small businesses reaching out to customers beyond their borders. Read more

Select Financings


Bond - San Francisco based enterprise-grade financial technology platform streamlining the integration between brands and banks raised $32m in Series A funding led by Coatue. Read more

Digital Asset - New York based creator of open source DAML smart contract language raised an undisclosed amount from VMware as part of its Series C round. Read more

Hummingbird RegTech - San Francisco based provider of anti-money laundering (AML) compliance technology raised $8.2m in Series A funding led by Flourish Ventures. Read more

Lanister - London based banking alternative raised £15m in new funding led by Milaya Capital. Read more

Layer - Berlin based productivity platform for spreadsheets raised €5m in Seed funding led by Index Ventures. Read more

Metaco - Swiss based digital asset infrastructure startup raised $17m in Series A funding led by Giesecke+Devrient. Read more

Moneybox - U.K. based savings and investment app raised £30m in Series C funding led by Eight Roads and CNP. Read more

Privacy.com - New York based virtual card payment startup raised $10.2m in Series A funding led by Teamworthy Ventures. Read more

Ravelin - London based company using machine learning to help companies fight fraud when accepting online payments raised $20m in Series C funding led by Draper Esprit. Read more

Robinhood - San Francisco based no-fee digital brokerage raised $320m in Series F funding from new and existing investors including TSG Consumer Partners and IVP. Read more

TradeDepot - Nigeria based e-commerce startup which connects international brands to small businesses in Africa raised $10m in pre-Series B funding led by Partech, International Finance Corporation, Women Entrepreneurs Finance Initiative (We-Fi) and MSA Capital. Read more

Warren - Brazil based digital brokerage raised $22.2m in Series B funding led by QED Investors to further improve the platform and customer experience. Read more


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