Despite fresh all time highs in the stock market on Friday, the big banks aren’t emerging from clouds that have lingered over the industry since the financial crisis.
Though the broader market trades at 18x earnings, JP Morgan and HSBC are trading at 12x, Bank of America at 11x, and Goldman at 9x. With an average earnings multiple around 10x, the banks are now valued at the steepest discount to the market recorded in more than four decades.
Investors are clearly worried about the sector’s profitability and growth. And last week, the storm grew stronger as Deutsche Bank cut 18k jobs in an effort to slash their cost structure by 25%.
So, why exactly have the clouds lingered in Bankville despite the longest bull-run in recent history?
One key driver is the narrowing spread, and more recent “inversion,” in short-term versus long-term interest rates. Core to the banking business model is paying out short-term rates on deposits while raking in longer-term rates on loans. With little or negative spread, the banks profit margins get squeezed.
As a result, banks appear to be heightening their focus on fee-based revenue. This includes wealth management (which Deutsche is now refocusing on), as well as home financings. According to Goldman, mortgage rates are now low enough that 45% of homeowners may be eligible to refinance - which could be a boon for leaders such as Wells Fargo.
Despite these reasons for optimism, it's unclear the storm is going to STOP anytime soon.
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Vestwell appoints two fintech leaders to its board - Vestwell announced the appointment of two new members to the company’s Board of Directors, Rana Yared, Partner and Managing Director of Goldman Sachs, and Lori Hardwick, CEO of Wealth Tech at RedRock Strategic Partners and Chairman of Riskalyze. Rana and Lori join following Vestwell's April $30m Series B round, which is being used to fuel innovation and scale the company’s retirement technology platform. Read more
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Stormy Weather in BankVille
Nervous investors to check for rates squeeze on US bank earnings - While the stock market hits fresh highs, US bank stocks have trailed the S&P 500 by 14% over the past year. Earnings multiples are 40-50% below the broader market. Read more
Deutsche Bank chief rebukes executives over suit-fitting on cuts day - Of course they did! A couple of senior Deutsche Bank managers called high-end tailors to their London office as thousands of traders lost jobs. The CEO then gave them a buzz. “I expect the two colleagues won’t forget my call,” said CEO Christian Sewing. Read more
AssetMark Financial - California based provider of wealth management tools and technology announced its plan to raise $250m in its IPO during the week of July 15th. Read more
Bolt - San Francisco based provider of a streamlined online checkout platform for small businesses raised $68m in Series B funding co-led by Activant Capital and Tribe Capital. Read more
Clause - New York based provider of digital contract management solutions raised $5.5m in Series A funding led by Galaxy Digital. Read more
Creditas - Brazil based provider of a digital platform offering secured consumer loans raised $231m in Series D funding led by SoftBank. Read more
Fawry - Egypt based provider of digital payment services announced plans for an upcoming IPO on the Egyptian Exchange, looking to raise $150m. Read more
Jacobi - Australia based provider of a platform that helps institutional investors with asset risk management, modelling, and analytics raised A$7.7m in Series A funding, co-led by Illuminate Venture Partners, 8VC, and Credit Ease Venture Fund. Read more
Kyash - Japan based provider of a payment app offering connected Visa cards, with the goal of becoming Japan's first challenger bank, raised $14m in Series B funding, co-led by Goodwater Capital and Mitsubishi UFJ Capital. Read more
Landbay - London based platform that finances landlords to help them buy properties to rent out raised £1b from an undisclosed financial institution to finance mortgages on its platform. Read more
Lulalend - South Africa based provider of short-term loans to small and medium sized businesses raised $6.5m in Series A financing co-led by IFC and Quona Capital. Read more
NiYo Solutions - Bangalore, India based neo-bank raised $35m in Series B funding led by Horizons Ventures, Tencent, and JS Capital. Read more
OPay - Lagos, Nigeria based provider of mobile payment services, which was founded by the Norwegian browser company Opera, raised $50m in funding led by Sequoia China, IDG Capital, and Source Code Capital. Read more
Open – Bangalore, India based startup that operates a neo-bank to help businesses automate and run their finances, has raised $30m in Series B funding, led by Tiger Global. Read more
Provenance Blockchain - San Francisco based provider of a blockchain platform for the financial industry raised funding (undisclosed amount) from a Singapore-based investment arm of Recruit Holdings. This funding follows Provenance Blockchain's $20m security token offering (STO) in April. Read more
Qover - Belgium based provider of digital insurance raised €8m in funding led by Alven and Portag3 Ventures. Read more
Remitly - Seattle based provider of mobile remittance services raised $220m in Series E funding, comprised of $135m in equity investment led by Generation Investment Management and $85m in debt from Barclays, Bridge Bank, Goldman Sachs, and Silicon Valley Bank. Read more
Sensibill - Toronto based provider of software used to scan and digitize physical receipts raised $31.5m in Series B funding led by Radical Ventures. Read more
Soldo - United Kingdom based provider of multi-user spending accounts for businesses raised $61m in Series B funding co-led by Battery Ventures and Dawn Capital. Read more
WayPay - Royal Bank of Canada (RBC) has acquired WayPay, a Burlington, Ontario cloud-based provider of accounts payable automation and payment optimization. Read more
Zopa - United Kingdom based peer to peer lender announced it is looking to raise $235m to propel the company towards its mission of becoming a full stack retail bank. Read more
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