YouSaid · the spoken record

Richard Ramsden

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24
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2016-01-06
most recent
2016-01-06
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1
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  1. “I think the answer is you will see growth in 2016. So just the mechanics of interest rates going up is going to add something between 5 to 10% to the earnings power of these banks. Second, we are starting to see loan growth pick up after eight years of it being very, very weak, which in turn, I think, will help to drive some growth in bank balance sheets. And third, we are expecting that credit losses are going to remain relatively low just because unemployment is just so benign. I mean, we are expecting unemployment in the US will breach the 5% number on the way down. Unemployment historically has been the single largest driver of banks losing money on their loan portfolios. That's continuing to improve.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  2. “Yeah, and again, I think the way it's been delivered is new, and some of the technologies are definitely a lot better than what existed 10 years ago. But that type of competition for a bank is something that they have had to contend with for the last 30 or 40 years. It's just the mechanism of delivery has changed. What's important to keep in mind is that some of these companies are targeting borrowers that historically have not been that attractive to the banking industry because they just don't fit their risk profile. So what's interesting is that you're starting to see some joint ventures between banks and some of these online lending platforms. And again, I think the way the bank is looking at this is win-win. Some of these firms actually do have better technology platforms, but we have access to a lot more clients than they do. So why don't we embed their offering into the whole suite of things that we go out and offer to our clients? And if there is a client that wants to borrow money that doesn't meet our risk profile.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  3. “And that's all fairly around. Yeah, so that isn't particularly new. There's been intense competition on the lending side for many, many years. I think the banks know how to deal with that. I think where there is more concern is some of the innovation on the payment side. I think there's been a lot of frustration over the years as to why does it take so long to transfer money? If I want to transfer you $100, I hit send my bank and it takes two or three days for that to show up with you. Why is that not instantaneous? And you are seeing some of these new technologies allow you to send money instantaneously to people who do not bank with the same bank. The banks are looking at those technologies very closely and I do think they have a very strong incentive to either adopt them or replicate them because there really is a value proposition there.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  4. “It depends which part of the value chain you look at. So you're seeing disruption in the banking industry really on two fronts. The first is you've got this whole proliferation of online lending platforms. So these are companies which are really cutting the bank out and going straight to either consumers or corporates and offering them either a better deal on credit or offering them credit in cases where the banks just are not willing to step in because it doesn't meet their risk profile.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  5. “Yeah, so that technology could really improve the efficiency for banks as well as improve the customer experience. And I think the banks are investing a lot of time and money in understanding that technology, and they are very keen to adopt it. One of the things you have to realize, though, the bar for the industry to adopt new technologies is very high. The banking industry is unique in one respect, which is that you cannot be right 99.99% of the time. You need to be right 100% of the time just because of the number of transactions that are processed and the value of those transactions. So these types of technologies typically only get adopted once you can really prove that they're robust, that they're secure, and they're going to do what you think they're going to do without any unintended consequences. But I do think it's an area you will hear a lot more about over the next three or four years.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  6. “Take as long as a day. The transaction is instantaneous, but it takes 19 hours for everybody to get their cash because of time differences and because of other frictions. Blockchain technology potentially offers the ability to settle that transaction instantaneously, which means that you enter into the transaction and you clear the transaction within seconds. And I think that is a very, very valuable technology both for clients, but also for the banking industry. Because what it means is that they're not at risk.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  7. “I think blockchain potentially could be one of the more important technologies the banking industry adopts over the next few years. And as you talked about, blockchain is something that came out of Bitcoin. One of the issues the banking industry has had over the last few years has been the time it takes to settle a transaction is a lot longer than I think people would like. I'll give you an example of this. If we as a firm enter into a dollar yen transaction with a client, they're selling dollars and they're buying yen, that transaction takes roughly 19 hours to effectively settle. So everyone doesn't get paid for 19 hours. Now, why is that?”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  8. “the new wave of ATM machines that will be rolled out will have a whole range of kind of know-your-client technologies embedded into it, whether it's IRIS scanning or fingerprint type technologies, which again will allow the bank to do higher value transactions with you without you being physically present because their confidence that the person that you claim to be being the person that you actually are is just that much higher.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  9. “It is allowing them to lower their costs, which in turn allows them to give a better deal to consumers and corporates. But frankly, I think consumers really prefer this technology. It's a lot more efficient. And in many cases, it's a lot more secure because of things like fingerprint technology. So the banks have a very strong incentive to adopt this technology.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  10. “They're adapting very quickly, and I actually think the banks have been very surprised at the take-up in terms of some of the mobile technologies. One interesting stat, for those of you who bank at some of the larger institutions, you can now take a picture of a check and deposit it remotely without having to go to the branch. That technology was only introduced in 2010. Roughly 60% now of checks are deposited remotely through people taking a picture of them on their iPhone and depositing them without having to go to a branch. That type of ramp is historically unprecedented. Now, in turn, what that is doing is it is allowing banks to go back and rationalize some of their fixed cost distribution networks. So you are for the first time in history seen a decline in the number of branches, a decline in the number of ATMs. Banks are moving to much smaller branches. Service centers centers. So it really is changing. I think the way the banks are looking at this is when.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  11. “The reality is that technology has played a very important role in the banking industry for the last 50 years. If you just take a trip down memory lane in the early 1980s when ATM technology was introduced, everybody thought that that was going to be the death of a bank teller. In actual fact, over a period of 10 years, even though the number of ATMs in the US banking industry went through the roof, the number of tellers only declined marginally. Then in the late 1990s, everybody was very focused on the internet. Everybody thought that the internet was going to put a lot of banks out of business. The banks were actually very early adopters of internet technology. They incorporated it into their offering that they gave to their clients. And it very soon just became another distribution channel. It didn't really put a lot of banks out of business. More recently, there's been a lot more focus on mobile type technologies.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  12. “Yeah, so most banks in the US are actually domestic. 90% plus of revenues that the US banking industry generates actually come from within the US. You do have a few banks which have got exposures overseas in some of the emerging markets. And what we've seen over the last few years is that some of those markets have got a lot more difficult. So Brazil is obviously going through a very protracted and a very deep downturn. Russia, because they are very energy dependent, has also started to go through a recession. And in turn, that has slowed growth in those regions. In turn, I think that has impacted the revenue growth for some of those banks, and it has impacted credit quality. But those exposures tend to be pretty small in the overall context of those banks.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  13. “Another spot of weakness around the world has been emerging markets and the prospect of rising US rates is really a negative cycle for a lot of emerging markets along with lower commodity prices. How are banks responding to that, particularly those big multinational banks that operate in emerging markets?”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  14. “Directly is quite small. The average bank in the US has less than 2% of their loan portfolio directly exposed to energy companies, which means that 98% is exposed to other industries, many of which are frankly benefiting from lower energy prices in the form of lower input prices.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  15. “As we've talked about, the impact on consumers is positive. I mean, the windfall effect from lower energy prices has been really very significant in terms of the amount that it's added to net disposable income for consumers. On the corporate side, obviously companies which are directly exposed to energy are starting to see increased levels of stress. I think the oil price is down over 60% over the last year. That's had a real impact on the revenues of these companies, and they obviously haven't been able to reduce expenses to offset that decline. Now, as a result of that, we are starting to see some stresses in energy portfolios. So we're starting to see a mild pickup in bad debt. So that's companies that cannot repay the debt that they've taken on. And we've also started to see banks start to reserve against the probability of bad debts continuing to rise. The reality, though, is that the banks' exposure to”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  16. “Yeah, I think the obvious place to look at is going to be what happens to the mortgage market. You've had a massive refinance wave within mortgages, borrowing costs on a 30-year mortgage have been at all-time lows. As interest rates start to go up, there is going to be an impact on the cost of borrowing for mortgages. And is that going to impact the housing market in some way?”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  17. “Expand, you will start to see some revenue growth, and that's obviously going to help the industry. Now, there's a couple of things that hurt the industry. The first is as interest rates go up, loans become more expensive, which in turn makes it at the margin more expensive for borrowers to repay or service that debt. So there is a risk that as interest rates start to go up, that you start to see bad debts on loans creep up from very, very low levels. And secondly, as interest rates go up, the cost of borrowing is going to go up as well, which in turn could impact.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  18. “So at the conference and in the wake of the Fed's decision, a lot of investors and executives have moved from worrying about whether the Fed will tighten to how quickly it will tighten and what the pace is. What's at stake for the banks there and how are they thinking about the velocity of the Fed's increase in rates? Changing interest rates has a dramatic impact on both revenues for banks, but also for a whole bunch of other risk metrics. So at the simplest level, again, as interest rates start to go up, banks who have all this excess cash can invest that cash at a higher yield. Interest rates have just gone up 25 or 50 basis points rather than getting zero on your cash, you're not getting 25 or 50 basis points. And it doesn't cost you anything more to do that. In addition, you've got a whole bunch of loans that sit on your balance sheet that price off prime rates or LIBOR rates. And as interest rates go up, those just reprice automatically. So you will start to see margins.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  19. “And by and large, they've said, well, the only thing holding us back is this lack of consumer spending. So you could see a more virtuous cycle. I think that's exactly right. And I think what's interesting is you initially saw a pickup in larger corporate activity, but small business activity really took a long time to pick up. And again, I think what stood out this year is that especially over the last six months, you've seen a real pickup in small business lending and small business activity. And when you ask the banks, look, why is that happening? I think it's happening because a lot of smaller companies have put off CapEx decisions or investment decisions for a long period of time because they have been concerned about the environment. But it's getting to the point where they cannot delay those decisions any further, i.e. the truck they have is falling apart, or they have no option other than to expand the amount of manufacturing capacity they have because demand is starting to pick up. That, I think, is a very good sign.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  20. “If you look at the amount of cash that is sitting in consumer checking accounts, it is 75 to 100% higher than where it was in 2007. So consumers are sitting on a lot more cash. They have the lowest level of leverage in their balance sheet that you've seen in 15 years. And despite the fact that there's been this huge windfall effect from lower oil prices, their propensity to go out and spend that has actually been quite low. Very slow. The good news is that that does seem to be changing. You are starting to see consumer lending pick up. You are starting to see consumer spending pick up. And in turn, I think that is going to be an important engine of growth for the US economy going into next year. In a way, we saw the same cycle on the corporate side. Three years after the crisis, corporates had really rejiggered their balance sheets much safer. And people were wondering, where's the activity? And then the last year and a half, we've really seen corporates get a...”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  21. “That stood out. One of the banks said, if you look at payments that they see across their platform, and keep in mind, banks have a really good pulse of the economy because they see all the spending that's taking place on credit cards and on debit cards. They said that, look, if you adjust for the fact that consumers are spending less on gas today because gas prices are lower, consumers spending is up somewhere between 5 and 5.5% relative to where we were a year ago. Especially given that that's a major component of a services economy like the US. It's hugely important. And I think, look, the surprise to a lot of people over the last few years has been that the economy has been improving gradually, but consumer spending and consumer lending, the willingness for consumers to borrow, has really been a lot lower than you would have anticipated. There's been real risk of aversion amongst consumers. I mean, just to give you one number that I think is interesting.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  22. “Paid you less on your deposits, but as they have gone out and invested those deposits either in loans or in other securities, the yield on those securities and loans have come down dramatically. So over the last six or seven years, the amount of interest income that the banks generate has dropped by almost a third. So that's put a lot of pressure on the revenues and on the profitability of the banking industry. Goldman Sachs research just hosted its annual financial services conference here in New York. There were representatives from 70 of the most prominent firms in the industry, including all the major banks. What did you hear about the operating environment that they're expecting for next year, especially in the backdrop of this slight increase in the interest rate? So that was a very big theme of the conference. And I think almost every bank that presented said that we are starting to see an improvement both in confidence levels, both amongst small businesses, but also consumers, but also activity levels. So I think a few interesting things.”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  23. “Changes in the composition of bank balance sheets and I think that's put them on a much more stable footing. The biggest issue the banks have been dealing with over the last five years has been a lack of growth. So if you look at revenues in the banking industry, they're pretty much declined every year since 2009. Is that partly function of all that stability and cautiousness and conservative approach to balance sheet? That's 100% right. So I think what's happened is you've increased the amount of capital, you've reduced the amount of risk, and that has come really at the expense of revenues and revenue growth. But that's also been compounded by the fact that interest rates have been close to zero for the best part of the last seven years. At the most simple level, the way the bank makes money is they take deposits from someone like you, they pay you something for those deposits, and then they go out and lend those deposits to someone else. What's happened as interest rates have gone down is they have”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT

  24. “Changes that I think we've seen in more than 50 years. And I think in the wake of what happened in 2008, there was a lot of regulation that was put in place, and the banks have really been adopting to that over the last five or six years. If you look at the banking industry today, I think it's fair to say that it's never been more stable relative to any point over the last 30 or 40 years. A few interesting metrics that I think stand out if you look at the amount of capital in the banking industry, it's more than doubled since 2008. This is in the US. In the US, yep. But capital levels across banking industries around the world have gone up. If you look at the amount of liquidity, so just the amount of cash that the banks have sitting on their balance sheets, it's more than tripled. And if you look at the types of loan portfolios that banks hold today, they look quite different to 10 years ago in that they tend to be much more prime in nature. They tend to be skewed towards either investment-grade corporates or higher net worth type individuals. So you've seen a lot of...”

    2016-01-06 · Goldman Sachs Exchanges · Beyond the Fed Hike: The Business of Banking in 2016 · IDENTIFIED FROM THE TRANSCRIPT