Industry News

Banks, retailers prepare for battle; fintech startups surrender


| Thursday, February 23, 2017

American Banker

Good behavior: Lloyds Banking Group announced a special £2.2 billion dividend payout to shareholders after its annual net profit more than quadrupled to its highest level in a decade and its provisions for bad conduct dropped sharply. The British bank, which is now less than 5% owned by the U.K. government, set aside only £1 billion last year to compensate customers who bought insurance products they didn't need, compared to £4 billion in 2015. Pre-tax profit rose to £4.2 billion for the year, up from £1.6 billion a year earlier, its best performance since the financial crisis. Wall Street Journal, Financial Times

Wall Street Journal

Bring it on: Banks and retailers are gearing up to renew their battle over debit-card swipe fees. The Financial Choice Act proposed by Rep. Jeb Hensarling, R-Texas, the chairman of the House Financial Services Committee, is expected to call for a repeal of the so-called Durbin amendment, which rolled back the fees that banks charge merchants on debit card transactions and is part of the Dodd-Frank law. But retailers won't be taking that lying down and "will be putting up a big fight," said Laura Knapp Chadwick, director of commerce and entrepreneurship policy for the National Restaurant Association. "We're hoping it doesn't get ugly on the House floor, but we are preparing to go down that route."

Financial Times

More diverse: Boards of big American banks are more diverse than those of most other large U.S. industries, although the ratio of women is growing more slowly than the rest of corporate America. Women made up 26% of directors at 21 of the largest banking and capital markets companies last year, according to PwC's Governance Insights Center, more than any of the other seven industry groups PwC studied.

Costly help: Wells Fargo's directors have hired their own lobbying group to help them deal with the fallout from the bank's phony accounts scandal. The board paid $150,000 to the lobbying firm of Brownstein Hyatt Farber Schreck at the height of the scandal late last year for "issues related to congressional investigations." Corporate governance specialists interviewed by the FT called it "an unusual move for the board of a listed business." Wells didn't say if the firm is still being retained by the bank or if the bank itself paid the fee.

Slow going: Investment banks are in for another year of low returns, the Coalition research group warns. While banks' fixed income, currencies and commodities (FICC) divisions reported their first annual revenue increases since 2012 last year, the return on equity at the top 12 investment banks was just 7.7%, once the costs of noncore divisions are included. That is well below the double-digit returns banks aspire to, and is not likely to improve soon. "The environment is still quite challenging and a lot of the negative factors that have played against the banks are still there," said George Kuznetsov, Coalition's head of research, citing regulatory burdens and margin pressures.

New York Times

If you can't beat 'em: Tech startups in Silicon Valley who hoped to become the Amazon or Facebook of banking are finding out that they have no choice but to work with the banks they hoped to displace. For example, Brett King, the founder of Moven, has opened only 60,000 new bank accounts in the past six years, so instead he's "selling his software to the banks he once scorned, who use it as a component of their mobile apps."

He's "just one of the many technology entrepreneurs who have since recently run into the enormous moats that surround and protect the existing financial industry," the Times reports. And that moat is likely to get deeper and broader under the Trump administration, which wants to cut back on financial regulations, which will only help established banks even more.

The paper looks at problems home foreclosures are causing SolarCity, the leading installer of rooftop solar panels. Among other things: "When a customer loses a home to a bank, the ownership of the solar panels can become unclear. Banks often consider them part of the overall property as fixtures. SolarCity has argued that the panels are its 'personal property.'"

Elsewhere

More uses for blockchain: Financial companies are exploring more uses for blockchain, including live oil trading and private equities trading. Finance Magnates, CoinDesk here and here.

Quotable

"A lot of people set out saying, 'We are going to displace the banks. We realized along the way that you really have no choice but to work with the banks." — Venture capitalist Sheel Mohnot.

This article was licensed through Dow Jones Direct.
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