If there was a common theme in the first batch of third-quarter results to issue from American banks before the opening bell on Tuesday it was that consumer lending had a good summer. In the case of JPMorgan Chase, the bigger picture for the firm was also rosy, with overall revenue and profit for the quarter both rising by eight percent, to reach $30.1 and $9.1 billion respectively. Growth in credit cards was one of the reasons cited for this performance. One consultant quoted by CNBC praised the bank for "particularly impressive gains in consumer banking, despite the pressure on net interest margins".
Retail bankers at Citigroup had reasons to be cheerful also, with revenue at its consumer unit up by four percent: among other bright spots, there has been continued growth in interest-earning balances on Citi-branded cards, which saw a revenue increase of 11 percent to reach $2.3bn. The bank also singled out an increase in cards revenues in its Latin American units as a primary driver of profitability there. Overall, the firm narrowly beat analyst expectations to report revenues of $18.6bn (up one percent year-on-year) and net income of $4.9bn, an increase of six percent.
The consumer trend was shared by Bank of America, with net income in that area rising by five percent to $3.3 billion; revenue for consumer banking operations went up by three percent (to $9.7bn), which the bank attributed to better net interest income. Spending on credit and debit cards was up by seven percent, to $162bn. "Our client activity, the expansion of our client base, and our ability to gain market share across most of our businesses in the quarter, all reflect responsible growth", commented chairman and chief executive, Brian Moynihan.
Unlike its traditional rivals, Wells Fargo's results failed to meet analyst expectations, though it too saw a positive trend in consumer banking as mortgages and car loans both played leading roles in a $5.0bn rise in loans; meanwhile, according to the bank, "credit card loans increased $809 million, primarily due to seasonality". At the Point of Sale, debit cards purchase volume reached $92.6bn for the quarter, a six percent rise over the prior-year period, while credit cards' purchase volume at the POS was $20.4bn, a five percent rise. On Monday, Charles Scharf takes over as chief executive and president of a company still struggling to overcome 2016's fake-accounts scandal: restoring trust will be top of his agenda. For Goldman Sachs, which has been building up its Main Street brand, Marcus, one of the key balance sheet highlights was the fact that "deposits increased more than $30 billion (year-on-year) to $183 billion, with consumer deposits of $55 billion now representing the firm's largest source of deposit funding". The big picture for Goldman was disappointing however, also missing expectations.
Oh, to be a fly on the wall at the first meeting of the Libra Association in Geneva on Monday. There might not have been actual empty chairs where, had they not pulled out, representatives from Visa, Mastercard, PayPal, Stripe, Mercado Pago and the parent company of Booking.com were supposed to sit, but this collective absence was, if anything, more momentous than the presence of those remaining. The final board, where one would have expected some of these payments heavyweights to feature, is now composed of appointees from Andreessen Horowitz, PayU, bitcoin specialist Xapo and Kiva Microfunds (a non-profit), along with Libra boss David Marcus. The idea of nationalising the likes of Google or Facebook and making them into utilities has periodically been floated in the US: an earlier, Rooseveltian phase of American political history might have seen it become a reality. But with Libra, the potential innovation is so systemically fundamental that a form of state takeover may in fact begin to seem desirable. It is hard to see central banks, left to their own devices, progressing as far as Mr Marcus and his team have managed to do at the technical level. Look back at the transcript of Bank of England governor Mark Carney's speech to a roomful of his peers from around the world in Wyoming two months ago and these lines jump out: "the deficiencies of the IMFS [international monetary and financial system] have become increasingly potent. Even a passing acquaintance with monetary history suggests that this centre won't hold....While the rise of the Renminbi may over time provide a second-best solution to the current problems with the IMFS, first best would be to build a multipolar system." Why not just use Libra?
Finally, a survey conducted by the Bank of England on Machine Learning (ML) in British financial services may have drawn responses from a comparatively small user set (106 respondents), but there were some interesting findings, with firms stressing the need for official guidance to interpret regulation correctly in an ML context and urging regulators to keep pace with developments happening technologically, rather than dealing with the winner as it emerges from the marketplace. Firms believe, concluded the survey organisers, that "ML does not necessarily create new risks, but could be an amplifier of existing ones. Such risks, for instance ML applications not working as intended, may occur if model validation and governance frameworks do not keep pace with technological developments." As well as system alerts to catch unexpected outcomes, financial firms are apparently being careful to bake in a 'human-in-the-loop' mechanism.
To end, links to some other stories of interest this week...
Brazil: Google Pay enables debit card payments
China: Ingenico launches payment methods for int'l e-commerce vendors
UK: HSBC to relaunch First Direct brand
US: Credit quality at U.S. Bancorp a mixed bag in 3Q19
US: SEC puts a stop to Telegram's $1.7bn Gram crypto plans
The Weekly News Digest from Verisk Financial Research highlights significant developments that have recently occurred in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value that is often missing from the rolling news cycle.
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