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CNBC’s Hugh Son joins ‘The Exchange’ to discuss Goldman Sachs pivoting its growth strategy away from consumer banking, the missteps of Goldman Sachs CEO David Soloman and expectations for Goldman’s investor day.
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Tag: Banks
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Why Goldman’s consumer ambitions failed, and what it means for CEO David Solomon
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David Solomon, chief executive officer of Goldman Sachs Group Inc., during an event on the sidelines on day three of the World Economic Forum (WEF) in Davos, Switzerland, on Thursday, Jan. 19, 2023.
Stefan Wermuth | Bloomberg | Getty Images
When David Solomon was chosen to succeed Lloyd Blankfein as Goldman Sachs CEO in early 2018, a spasm of fear ran through the bankers working on a modest enterprise known as Marcus.
The man who lost out to Solomon, Harvey Schwartz, was one of several original backers of the firm’s foray into consumer banking and was often seen pacing the floor in Goldman’s New York headquarters where it was being built. Would Solomon kill the nascent project?
The executives were elated when Solomon soon embraced the business.
Their relief was short-lived, however. That’s because many of the decisions Solomon made over the next four years — along with aspects of the firm’s hard-charging, ego-driven culture — ultimately led to the collapse of Goldman’s consumer ambitions, according to a dozen people with knowledge of the matter.
The idea behind Marcus — the transformation of a Wall Street powerhouse into a Main Street player that could take on giants such as Jamie Dimon’s JPMorgan Chase — captivated the financial world from the start. Within three years of its 2016 launch, Marcus — a nod to the first name of Goldman’s founder — attracted $50 billion in valuable deposits, had a growing lending business and had emerged victorious from intense competition among banks to issue a credit card to Apple’s many iPhone users.
Solomon at risk?
But as Marcus morphed from a side project to a focal point for investors hungry for a growth story, the business rapidly expanded and ultimately buckled under the weight of Solomon’s ambitions. Late last year, Solomon capitulated to demands to rein in the business, splitting it apart in a reorganization, killing its inaugural loan product and shelving an expensive checking account.
The episode comes at a sensitive time for Solomon. More than four years into his tenure, the CEO faces pressure from an unlikely source — disaffected partners of his own company, whose leaks to the press in the past year accelerated the bank’s strategy pivot and revealed simmering disdain for his high-profile DJ hobby.
Goldman shares have outperformed bank stock indexes during Solomon’s tenure, helped by the strong performance of its core trading and investment banking operations. But investors aren’t rewarding Solomon with a higher multiple on his earnings, while nemesis Morgan Stanley has opened up a wider lead in recent years, with a price to tangible book value ratio roughly double that of Goldman.
That adds to the stakes for Solomon’s second-ever investor day conference Tuesday, during which the CEO will provide details on his latest plan to build durable sources of revenue growth. Investors want an explanation of what went wrong at Marcus, which was touted at Goldman’s previous investor day in 2020, and evidence that management has learned lessons from the costly episode.
Origin story
“We’ve made a lot of progress, been flexible when needed, and we’re looking forward to updating our investors on that progress and the path ahead,” Goldman communications chief Tony Fratto said in a statement. “It’s clear that many innovations since our last investor day are paying off across our businesses and generating returns for shareholders.”
The architects of Marcus couldn’t have predicted its journey when the idea was birthed offsite in 2014 at the vacation home of then-Goldman president Gary Cohn. While Goldman is a leader in advising corporations, heads of state and the ultrawealthy, it didn’t have a presence in retail banking.
They gave it a distinct brand, in part to distance it from negative perceptions of Goldman after the 2008 crisis, but also because it would allow them to spin off the business as a standalone fintech player if they wanted to, according to people with knowledge of the matter.
“Like a lot of things that Goldman starts, it began not as some grand vision, but more like, ‘Here’s a way we can make some money,’” one of the people said.
Ironically, Cohn himself was against the retail push and told the bank’s board that he didn’t think it would succeed, according to people with knowledge of the matter. In that way, Cohn, who left in 2017 to join the Trump administration, was emblematic of many of the company’s old guard who believed that consumer finance simply wasn’t in Goldman’s DNA.
Cohn declined to comment.
Paradise lost
Once Solomon took over, in 2018, he began a series of corporate reorganizations that would influence the path of the embryonic business.
From its early days, Marcus, run by ex-Discover executive Harit Talwar and Goldman veteran Omer Ismail, had been purposefully sheltered from the rest of the company. Talwar was fond of telling reporters that Marcus had the advantages of being a nimble startup within a 150-year-old investment bank.
The first of Solomon’s reorganizations came early in his tenure, when he folded it into the firm’s investment management division. Ismail and others had argued against the move to Solomon, feeling that it would hinder the business.
Solomon’s rationale was that all of Goldman’s businesses catering to individuals should be in the same division, even if most Marcus customers had only a few thousand dollars in loans or savings, while the average private wealth client had $50 million in investments.
In the process, the Marcus leaders lost some of their ability to call their own shots on engineering, marketing and personnel matters, in part because of senior hires made by Solomon. Marcus engineering resources were pulled in different directions, including into a project to consolidate its technology stack with that of the broader firm, a step that Ismail and Talwar disagreed with.
“Marcus became a shiny object,” said one source. “At Goldman, everyone wants to leave their mark on the new shiny thing.”
‘Who the f— agreed to this?’
Besides the deposits business, which has attracted $100 billion so far and essentially prints money for the company, the biggest consumer success has been its rollout of the Apple Card.
What is less well-known is that Goldman won the Apple account in part because it agreed to terms that other, established card issuers wouldn’t. After a veteran of the credit-card industry named Scott Young joined Goldman in 2017, he was flabbergasted at one-sided elements of the Apple deal, according to people with knowledge of the matter.
“Who the f— agreed to this?” Young exclaimed in a meeting shortly after learning of the details of the deal, according to a person present.
Some of the customer servicing aspects of the deal ultimately added to Goldman’s unexpectedly high costs for the Apple partnership, the people said. Goldman executives were eager to seal the deal with the tech giant, which happened before Solomon became CEO, they added.
Young declined to comment about the outburst.
The rapid growth of the card, which was launched in 2019, is one reason the consumer division saw mounting financial losses. Heading into an economic downturn, Goldman had to set aside reserves for future losses, even if they don’t happen. The card ramp-up also brought regulatory scrutiny on the way it dealt with customer chargebacks, CNBC reported last year.
Pushing back against the boss
Beneath the smooth veneer of the bank’s fintech products, which were gaining traction at the time, there were growing tensions: disagreements with Solomon over products, acquisitions and branding, said the people, who declined to be identified speaking about internal Goldman matters.
Ismail, who was well-regarded internally and had the ability to push back against Solomon, lost some battles and held the line on others. For instance, Marcus officials had to entertain potential sponsorships with Rihanna, Reese Witherspoon and other celebrities, as well as study whether the Goldman brand should replace that of Marcus.
The CEO was said to be enamored of the rise of fast-growing digital players such as Chime and believed that Goldman needed to offer a checking account, while Marcus leaders didn’t think the bank had advantages there and should continue as a more focused player.
One of the final straws for Ismail came when Solomon, in his second reorganization, made his strategy chief, Stephanie Cohen, co-head of the consumer and wealth division in September 2020. Cohen, who is known as a tireless executive, would be even more hands-on than her predecessor, Eric Lane, and Ismail felt that he deserved the promotion.
Within months, Ismail left Goldman, sending shock waves through the consumer division and deeply angering Solomon. Ismail and Talwar declined to comment for this article.
Boom and bust
Ismail’s exit ushered in a new, ultimately disastrous era for Marcus, a dysfunctional period that included a steep ramp-up in hiring and expenses, blown product deadlines and waves of talent departures.
Now run by two former tech executives with scant retail experience, ex-Uber executive Peeyush Nahar and Swati Bhatia, formerly of payments giant Stripe, Marcus was, ironically, also cursed by Goldman’s success on Wall Street in 2021.
The pandemic-fueled boom in public listings, mergers and other deals meant that Goldman was en route to a banner year for investment banking, its most profitable ever. Goldman should plow some of those volatile earnings into more durable consumer banking revenues, the thinking went.
“People at the firm including David Solomon were like, ‘Go, go, go!’” said a person with knowledge of the period. “We have all these excess profits, you go create recurring revenues.”
‘Only the beginning’
In April 2022, the bank widened testing of its checking account to employees, telling staff that it was “only the beginning of what we hope will soon become the primary checking account for tens of millions of customers.”
But as 2022 ground on, it became clear that Goldman was facing a very different environment. The Federal Reserve ended a decade-plus era of cheap money by raising interest rates, casting a pall over capital markets. Among the six biggest American banks, Goldman Sachs was most hurt by the declines, and suddenly Solomon was pushing to cut expenses at Marcus and elsewhere.
Amid leaks that Marcus was hemorrhaging money, Solomon finally decided to pull back sharply on the effort that he had once championed to investors and the media. His checking account would be repurposed for wealth management clients, which would save money on marketing costs.
Now it is Ismail, who joined a Walmart-backed fintech called One in early 2021, who will be taking on the banking world with a direct-to-consumer digital startup. His former employer Goldman would largely content itself with being a behind-the-scenes player, providing its technology and balance sheet to established brands.
For a company with as much self-regard as Goldman, it would mark a sharp comedown from the vision held by Solomon only months earlier.
“David would say, ‘We’re building the business for the next 50 years, not for today,’” said one former Goldman insider. “He should’ve listened to his own sound bite.”
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CNBC ‘Halftime Report’ investment committee debates a bet on financials
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CNBC’s ‘Halftime Report’ investment committee, Brenda Vingiello, Jason Snipe, Jim Lebenthal and Steve Weiss, discuss the financials trade and whether now might be a good time to get in.
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Wells Fargo’s Mark Smith advises investors to look to banks if rates stay higher for longer
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Mark Smith, Wells Fargo Advisors SVP, and Jason Trennert, Strategas chairman, joins ‘The Exchange’ to discuss JPMorgan CEO Jamie Dimon’s comments earlier today about a recession and the markets overall.
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Watch CNBC’s full interview with JPMorgan CEO Jamie Dimon on the economy, inflation and community banking
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CNBC’s Jim Cramer joins the ‘Halftime Report’ with Jamie Dimon, JPMorgan CEO, to discuss the company’s investment in underserved areas around the country, the Fed, inflation and the state of the U.S. economy.
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JPMorgan CEO Jamie Dimon on the Fed: We lost control of inflation
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CNBC’s Jim Cramer joins the ‘Halftime Report’ with Jamie Dimon, JPMorgan CEO, to discuss the Fed and its handling of inflation.
02:19
Thu, Feb 23 202312:44 PM EST
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JPMorgan CEO Jamie Dimon says a soft landing is still likely
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CNBC’s Jim Cramer joins the ‘Halftime Report’ with Jamie Dimon, JPMorgan CEO, to discuss artificial intelligence and inflation’s impact on the economy.
02:04
Thu, Feb 23 202312:42 PM EST
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JPMorgan CEO Jamie Dimon says he always has a recession playbook, but isn’t using it right now
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CNBC’s Jim Cramer joins the ‘Halftime Report’ with Jamie Dimon, JPMorgan CEO, to discuss the company’s investment in underserved areas in the country and the state of the economy.
02:35
Thu, Feb 23 202312:40 PM EST
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Wells Fargo, others lays off mortgage bankers
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CNBC's Hugh Son breaks down the housing market as U.S. mortgage rates jump to their highest levels since November.
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Op-ed: Financials may get more love amid sustained higher interest rates
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Credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months.
Valentinrussanov | E+ | Getty Images
Financial stocks were so out of favor for most of 2022 that perhaps their tickers should have been appended with a Nathaniel Hawthorne-esque “U” — for “unloved.” Yet after some decent gains so far this year, the sector could draw suitors aplenty as 2023 progresses.
The present allure of financial stocks, stemming from low valuations and high levels of capital, is especially strong as higher interest rates are making lending money more profitable.
As of mid-February, the Financial Select Sector SPDR ETF had recovered about half its 2022 losses. Amid this comeback, robust earnings have kept the sector’s price-earnings ratios low, as reflected by XLF’s P/E of 14.5 in mid-February.
Buckets are out at the banks
Low share prices are the norm
Despite gains this year, share prices of this sector are still quite low, considering good earnings and a long history of corporate performance.
One reason for the low prices is fear of recession. But even if the most widely anticipated recession ever actually becomes reality, assuming that the short-and-shallow camp turns out to be right, financial sector earnings could easily prove more resilient than normally expected in a downturn.
Also tamping down prices is long-term market perception, said Christopher Davis, portfolio manager and chairman of Davis Advisors in New York. Several months ago, he made the case that financials tend to be mispriced because they’re “widely misunderstood,” adding the sector was (and still is, in my opinion) “primed for long-term revaluation.”
Revaluation could be in the offing, as indicated by shifts in the sector’s technical indicators, especially those for diversified financial companies and insurance companies, following growth in the latter this year. As of late February, Invesco KBW Property & Casualty Insurance ETF was up more than 14% over the preceding six months. After taking big hits from Hurricane Ian last year, insurance companies are getting more respect from analysts now that they are on firmer footing in fairer weather.
A close haircut for regional banks
Regional banks, which took a close haircut early last year after hitting a five-year peak in January, are also recovering. The bellwether ETF for this group, SPDR Regional Banking, was up nearly 9% year to date as of mid-February. Many regional banks have recently been buying back shares to support a floor on prices and give shareholders more total return without getting locked into dividend increases.
Meanwhile, credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months. Also positive are prospects for exchanges and data providers, a sector category whose earnings in recent years have grown twice as fast as those of the S&P 500.
Here are some attractive financial stocks with strong growth prospects and fundamental metrics signaling low downside risk:
- Truist Financial: Formed in 2019 by a merger of equals — regional banks BB&T Corp. and SunTrust — Truist is now the nation’s seventh-largest bank, with a capitalized ratio nearly twice what’s required by regulators. Truist’s dividend has more than doubled in the last 10 years. Post-merger kinks typically dampen companies’ share price growth, so Truist’s recent underperformance relative to KRE was expected. And Truist’s growth could exceed peers’ because it operates in rapidly growing regions — primarily, the mid-Atlantic and Southeast.
- East West Bancorp: This is a fast-growing, full-service commercial bank with locations in the U.S., serving the Asian-American community, and in China. Shares were up nearly 19% year to date as of mid-February. This growth is expected to accelerate from China’s reopening from Covid lockdowns. CFRA has this bank as a strong buy, forecasting 2023 growth of 17% to 19%, in part because net interest income currently makes up 89% of its revenue, versus 73% for peers. Also, the bank has “no exposure to mortgage banking or capital markets, which have been severely impacted by rising rates and economic uncertainty,” CFRA states, citing balance sheet momentum, a discounted valuation and the advantage of a Chinese population in the U.S. that’s growing faster than the whole.
- FactSet Research Systems: FactSet is the star of the sector’s data-provider segment. It’s an interesting, attractive play with recurring revenues of 98%, largely because financial firm customers rely so heavily on FDS’s data. You can see it cited on brokerage platforms and analyst reports. FDS’s software, data and analytics supports the workflow of both buy-side and sell-side clients. Customers include asset managers, bankers, wealth managers, asset owners, hedge funds, corporate users, and private equity and venture capital professionals. The company has an excellent track record of maneuvering through tough economic times, evidenced by its top-line sales growth for 42 consecutive years and annual dividend raises for the last 23 years. The difficulties of changing data providers amount to an economic moat that’s daunting to competitors.
- American Express: This is the right business at the right time, with business travel improving, China reopening and consumer spending among the affluent strong. Revenue growth went from a 10-year stretch of 2% annually to 25% in 2022, with 17% growth forecast for this year. Connecting better with millennials and Generation Z customers than its peers, American Express is acquiring new cardholders at an increasing rate. Analysts expect earnings to rocket up 30% over the next two years, while those of competitors appear likely to shrink. And because of well-heeled customers, this company has less credit risk than its peers.
- Chubb: Chubb is the world’s largest publicly traded property and casualty insurer, operating in 54 countries but with 60% of its revenue from North America. CB has a market-leading position in industrial, commercial and mid-market traditional and specialty property-casualty coverage. It is also a leader in high net worth personal-insurance coverage, a category unlikely to feel pain from an economic downturn. Chubb has high-quality underwriting, but shares are trading at a discount to peers with lower-quality underwriting. Higher premiums, a 98.4% customer-retention rate and higher interest rates should all contribute to strong earnings growth, and shares are widely viewed as significantly undervalued.
The current, higher rates aren’t going down anytime soon. This sector is currently positioned for sustained earnings strength and likely price growth throughout this year and into 2024.
— By Dave Sheaff Gilreath, CFP, partner and chief investment officer of Sheaff Brock Investment Advisors LLC and Innovative Portfolios LLC.
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We expect Singapore’s banking trio to report growth in net interest income, says strategist
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Geoff Howie, markets strategist at the Singapore Exchange, discusses the earnings releases from Singapore’s biggest banks.
03:13
13 minutes ago
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Wells Fargo lays off mortgage bankers days after rewarding some with California retreat
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Palm Spring Deserts, California
Lonely Planet
Wells Fargo laid off hundreds of mortgage bankers this week as part of a sweeping round of cuts triggered by the bank’s recent strategic shift, CNBC has learned.
The layoffs were announced Tuesday and ensnared some top producers, including a few bankers who surpassed $100 million in loan volumes last year and who recently attended an internal sales conference for high achievers, according to people with knowledge of the situation.
Under CEO Charlie Scharf, Wells Fargo is pulling back from parts of the U.S. mortgage market, an arena it once dominated. Instead of seeking to maximize its share of American home loans, the bank is focusing mostly on serving existing customers and minority communities. The shift comes after sharply higher interest rates led to a collapse in loan volumes, forcing Wells Fargo, JPMorgan Chase and other firms to cut thousands of mortgage positions in the past year.
Those cut this week at Wells Fargo included mortgage bankers and home loan consultants, a workforce spread around the country, who are compensated mostly on sales volume, according to the people, who declined to be identified speaking about personnel matters.
The company cut bankers who operated in areas outside of its branch footprint and who therefore didn’t fit in the new strategy of catering to existing customers, the people said. Those cuts include bankers across the Midwest and the East Coast, one of the people said.
Palm Desert resort
Some of those people were successful enough last year to be flown to a resort in Palm Desert, California, for a company-sponsored conference earlier this month. Palm Desert is a luxury enclave known for its warm weather, golf courses and proximity to Palm Springs.
It’s common practice in finance to reward top salespeople with multiday events held in swanky resorts that combine recognition, recreation and educational sessions. For instance, JPMorgan’s mortgage division is holding a sales conference in April.
A Wells Fargo spokeswoman said the bank has communicated with affected employees, provided severance and career guidance, and tried to retain as many workers as possible.
“We announced in January strategic plans to create a more focused home-lending business,” she said. “As part of these efforts, we have made displacements across our home-lending business in alignment with this strategy and in response to significant decreases in mortgage volume.”
The bank will also continue to serve customers “in any market in the United States” through its centralized sales channel, she added.
Hitting your numbers
While this latest round of cuts wasn’t based on employees’ performance, Wells Fargo has also been cutting mortgage workers who don’t meet minimum standards of production.
In areas with expensive housing, that could be a minimum of at least $10 million worth of loans over the past 12 months, said one of the sources.
Last month, the bank said that mortgage volumes continued to shrink in the fourth quarter, falling 70% to $14.6 billion. Wells Fargo said it almost 11,000 fewer employees at the end of 2022 than in 2021.
The January mortgage announcement, reported first by CNBC, led recruiters to swarm top performers in the hopes of poaching them, according to one of the people.
Scharf addressed employees in a Jan. 25 town hall meeting in which he reiterated his rationale for the mortgage retrenchment.
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Amazon, Wells Fargo, Microsoft, Nvidia are in the headlines. Here’s our take on the news
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The regulator was concerned with Amazon’s dual role as both a marketplace and a competitor to merchants selling on its platform.
Nathan Stirk | Getty Images
Club holdings Amazon (AMZN), Wells Fargo (WFC) as well as Nvidia (NVDA) and Microsoft (MSFT) are in the news Wednesday. Here are the headlines and the implications for the Club’s investment thesis.
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Wells Fargo seeks to catch faster-growing rivals by boosting engagement with rich clients
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Pedestrians pass a Wells Fargo bank branch in New York, U.S., on Thursday, Jan. 13, 2022.
Victor J. Blue | Bloomberg | Getty Images
Wells Fargo is unveiling a new platform to boost digital engagement with its 2.6 million wealth management clients, CNBC has learned.
The service, called LifeSync, lets users create and track progress on financial goals, ingest content tied to their plans and contact their advisors, according to Michael Liersch, head of advice and planning at the bank’s wealth division. It will be delivered through a mobile app update in late March, he said.
“These are the things that will really enhance the client-advisor experience, and they’re not available on the mobile app today,” Liersch said. “This is a really big platform enhancement for clients and advisors to collaborate around their goals and connect what clients want to accomplish with what our advisors are doing.”
Banks are jockeying to provide their customers with personalized experiences via digital channels, and this tool should enable Wells Fargo to boost satisfaction and loyalty. CEO Charlie Scharf has highlighted wealth management as one source of growth for the company, along with credit cards and investment banking, amid his efforts to overhaul the bank and appease regulators.
Wells Fargo is a major player in American wealth management, with $1.9 trillion in client assets and 12,027 financial advisors as of December.
But its client assets haven’t grown since the end of 2019, when they also stood at $1.9 trillion. Under Scharf’s streamlining efforts, Wells Fargo sold its asset management business and dropped international wealth clients in 2021.
The trajectory of the asset figure “primarily is a reflection of the volatility seen over the last few years,” according to a bank spokesperson.
During that stretch, its competitors — sometimes referred to as wirehouses — grew by leaps and bounds, thanks to acquisitions, organic growth and new technology. Morgan Stanley saw client assets surge from $2.7 trillion to $4.2 trillion. Bank of America saw balances in its wealth division climb from about $3 trillion to $3.4 trillion.
With its new offering, Wells Fargo hopes to turn the tide. The bank may eventually opt to offer a financial planning tool to its broader banking population, said Liersch. That would follow the move that Bank of America made in 2019, when it unveiled a digital planning tool called Life Plan.
“We wanted to solve for that more complex experience first, and then develop the client-directed capability which is absolutely in our consideration set,” Liersch said.
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CNBC Daily Open: The Fed wants inflation at 2%. But the economy might be fine with higher inflation
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United States Federal Reserve building, Washington D.C.
Lance Nelson | The Image Bank | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
The Fed wants to bring inflation down to 2%. But the economy may be fine with higher inflation.
What you need to know today
- HSBC, Europe’s largest bank by assets, reported a fourth-quarter profit of $5.2 billion before tax. That’s a 108% jump year over year, beating analysts’ estimates of an 87% increase. More good news: The bank is one of the few companies optimistic about its performance this year.
- Markets in the U.S. were closed on Monday for Presidents Day, but stock futures dropped overnight. In Asia-Pacific, markets traded mixed Tuesday. Japan’s Nikkei 225 dipped 0.23% as the country’s flash purchasing managers’ index fell to 47.4 in February, indicating a contraction.
- The U.S. Federal Reserve — and many other central banks in the world — have been proclaiming their determination to bring inflation down to 2%. But it’s an arbitrary target criticized by some economists.
- PRO The U.S. economy could avoid a recession this year — or crash. These stocks let investors “expect the best … but insure against the worst,” according to Goldman Sachs.
The bottom line
The 2% inflation target has been repeated so often by Fed officials and central bankers worldwide that it seems absolutely crucial to a healthy economy. But “the 2% inflation target, it’s relatively arbitrary,” said Josh Bivens, director of research at the Economic Policy Institute.
In fact, it was invented in New Zealand in the 1980s. Arthur Grimes, professor of wellbeing and public policy at Victoria University, said that New Zealand was experiencing skyrocketing inflation then, and the central bank picked an inflation target — seemingly out of nowhere — so that it could work toward a goal.
Other central banks followed suit. In 1991, Canada announced its inflation target; the United Kingdom followed a year later. It was not until 2012 that the U.S. declared its 2% inflation target, but that number has remained stubbornly alive in the minds of the Fed ever since.
But if the 2% target is arbitrary, it implies that the economy could function normally at a higher level of inflation. Indeed, in 2007, some economists wrote a letter to the Fed arguing for a higher ceiling. “There’s no evidence that 3% or 4% inflation does substantial damage relative to 2% inflation,” said Laurence Ball, professor of economics at Johns Hopkins University, who was among those who signed that letter.
The Fed, however, is unlikely to change its target amid the current hiking cycle — it might look like it’s caving to investor demands for lower rates. Reconsidering what healthy inflation means will be a task left to another generation of central bankers.
—CNBC’s Andrea Miller contributed to this report.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
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HSBC CEO: We have a much healthier capital base and profit generation than before Covid
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Noel Quinn, CEO of HSBC, discusses the outlook for 2023 and its fourth-quarter earnings for 2022.
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HSBC reports fourth-quarter pre-tax profit of $5.2 billion, beating estimates
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Hong Kong observation wheel, and the Hong Kong and Shanghai Bank, HSBC building, Victoria harbor, Hong Kong, China.
Ucg | Universal Images Group | Getty Images
HSBC on Tuesday reported fourth-quarter earnings for 2022 that beat analyst expectations.
The bank’s reported profit before tax for the three months ended in December was $5.2 billion, 108% higher than $2.5 billion a year ago. Analyst estimates compiled by the bank had expected a jump of 87% to $4.97 billion.
The bank said its fourth-quarter results reflect strong reported revenue growth and lower reported operating expenses.
For the full year, reported revenue was $51.73 billion, up from $49.55 billion in 2021.
HSBC, Europe’s largest bank by assets, said higher global interest rates support the firm’s confidence in achieving its target of at least 12% return on average tangible equity in 2023.
“We completed the first phase of our transformation and our international connectivity is now underpinned by good, broad-based profit generation around the world,” Noel Quinn, group chief executive said in the release.
“We are on track to deliver higher returns in 2023 and have built a platform for further value creation,” he said.
Banks globally have seen strong net interest income as central banks around the world raised rates to tame inflation. HSBC said it expects net interest income of at least $36 billion in 2023.
Hong Kong-listed shares of HSBC were about 1% lower before the release.
This is a breaking news story, please check later for updates.
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Singapore’s digital banks dangle incentives to win new customers — is it sustainable?
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Singapore’s new digital retail banks are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks. But how viable is this in the long run?
Bloomberg | Bloomberg | Getty Images
SINGAPORE — Digital retail banks in Singapore are pulling out all stops to win new customers.
Trust Bank and GXS Bank — two online retail banks launched last year — are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks.
But how viable is this in the long run?
“It is tremendous returns, but there’s no way that is sustainable. It has to be subsidized in some way,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.
Unlike traditional banks — like DBS, OCBC and UOB — which operate physical branches and automated teller machines, digital banks operate entirely online.
Singapore’s new digital banks
The city-state gave out four digital bank licenses in December 2020.
Two digital full bank licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which serve retail customers. The other two digital wholesale bank licenses were bagged by Ant Group’s ANEXT Bank and Green Link Digital Bank, catering to small-and-medium enterprises and other non-retail segments.
GXS Bank currently offers its service to customers and employees by invite only, while MariBank is only available to employees of Sea Group.
Trust Bank, on the other hand, did not have to jump through the hoops to apply for a separate digital full bank license as it’s backed by banking giant Standard Chartered, which secured an additional full bank license to establish a subsidiary to operate a digital bank.
A partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank appears to be making some headway since its Sept. 1 launch.
It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back.
Zennon Kapron
director, Kapronasia
Trust Bank claims to have reached more than 450,000 customers and achieved 9% of banking market share in Singapore within five months, based on data shared with CNBC.
New credit card customers receive vouchers worth 25 Singapore dollars ($18.80) to spend at FairPrice supermarkets, and can continue to accumulate reward points when they purchase groceries there. During their first month of launch, Trust gave out almost 60 tons of rice and over 11,000 breakfast sets – each worth more than S$2, according to the bank.
The bank wouldn’t divulge its customer retention rate nor profit margin to CNBC.
“While it is common in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Trust offers simple, easy to understand rewards which are always tangible, which help bring down the cost of living and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC over email.
“It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back,” Kapron from Kapronasia said.
Trust Bank does not charge any annual fees or fees for foreign transaction, cash advance nor card replacement to credit card customers. It also does not require a minimum balance for its savings account, unlike traditional banks.
Its rival GXS Bank also does not require minimum balances for holders of savings accounts, currently the only product the bank is offering. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telco provider Singtel.
The company says it targets the “underserved segment” — which includes the gig economy workers, self-employed entrepreneurs and those new to the workforce.
The bank has removed certain fees, such as fall-below fees that are usually charged when the balance drops below the minimum daily average.
The bank has “a low cost of acquisition and low cost to serve,” its CEO Charles Wong told CNBC.
“As a digital bank, we are unencumbered by the cost of maintaining a physical network such as branches or physical ATMs, resulting in cost savings on our overheads,” Wong explained.
In addition, Grab and Singtel have a combined customer base of over 3 million and the bank is “leveraging on [the] two giants for retail customers.”
“We also don’t provide gifts for customers. When you sign up, you sign up because it’s relevant to you or you are a Grab or Singtel customer and it is going to make it easy for you to make payments,” said Wong.
“Yes, you get additional rewards as you spend which makes sense because you’re spending within the ecosystem.”
GXS Bank, however, expects its bottom line to be largely driven by interest income, said Wong.
I think it’s going to be difficult for these banks to really have an impact, especially in the retail [banking] space on the Singapore market.
Zennon Kapron
director, Kapronasia
A 2022 analysis by Simon-Kucher revealed that 25 of the largest neobanks, also commonly known as digital banks, found out that only two of them — less than 10% — have achieved profitability. It also showed a majority earning less than $30 in annual revenues per customer.
Kapron said that traditional banks offering credit card products give out welcome gifts, like travel luggage or Apple watches, because they expect to be profitable after a certain period.
Those banks have already worked out how much they have to spend to gain a customer, and expect to recoup the costs when the customer starts missing payments or incurring interest, he explained.
Tough competition
Observers have previously raised questions about the need for digital banks in a largely banked population, where only 2% do not have bank accounts.
There’s also strong competition among the more established traditional banks.
I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines.
“If you look at DBS Bank, it’s not like their digital offerings are [lousy],” said James Tan, managing partner of Quest Ventures, a VC company headquartered in Singapore.
Tan said he signed up for Trust Bank to see how different it will be to traditional banks. “I found no difference,” he told CNBC, adding that he eventually closed his Trust Bank account.
“I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines,” said Tan.
Kapron added that it is going to be difficult for these banks to have an impact, especially in the retail banking space in the Singapore market.
“The market is just over-banked and the differentiator of these new digital banks doesn’t really move the needle much in terms of what they are offering.”
“Until that happens, you are having bags of rice, high promotional discounts or rewards, which are useful for acquiring customers but then, how do you keep them coming back?” asked Kapron.
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CNBC’s best mortgage lenders of 2022
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Most homebuyers use mortgages to purchase their homes. However, with dozens of lenders to choose from, it can be challenging to pick the one that best suits your needs. For instance, are you a first-time homebuyer or purchasing an investment property?
Mortgage interest rates can fluctuate quite often, and the rate you are likely to receive will heavily depend on your location, credit score and credit report.
The mortgage approval and acceptance process also comes with many fees, collectively called “lender fees.” This can include an origination fee, processing fee, application fee and an underwriting fee. In addition to lender fees, you may also pay a document preparation fee, an appraisal fee, title search fee, title insurance and more.
Some lenders may waive certain fees or provide discounts on fees so it’s always a good idea to ask which fees have the potential to be waived. However, when you decide to move forward with a particular loan from a lender, prepare yourself to account for these additional charges.
Below, CNBC Select rounded up a list of five of the best mortgage lenders of 2022 based on the types of loans offered, customer support and minimum down payment amount, among others (see our methodology below.)
The best mortgage lenders of 2022
Best for lower credit scores
Rocket Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
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Terms
8 – 29 years, including 15-year and 30-year terms
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Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
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Minimum down payment
3.5% if moving forward with an FHA loan
Pros
- Can use the loan to buy or refinance a single-family home, second home or investment property, or condo
- Can get pre-qualified in minutes
- Rocket Mortgage app for easy access to your account
Cons
- Runs a hard inquiry in order to provide a personalized interest rate, which means your credit score may take a small hit
- Doesn’t offer USDA loans, HELOCs, construction loans, or mortgages for mobile homes
- Doesn’t manage accounts for jumbo loans after closing
Who’s this for? Rocket Mortgage is one of the biggest U.S. mortgage lenders and has become a household name. Most mortgage lenders look for a minimum credit score of 620 but Rocket Mortgage accepts applicants with lower credit scores at 580.
The lender even has a program called the Fresh Start program that’s aimed at helping potential applicants boost their credit scores before applying. Keep in mind, though, that if you apply for a mortgage with a lower credit score, you may be subject to interest rates on the higher end of the lender’s APR range.
This lender offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn’t offer construction loans (if you want to build a brand new custom home) or HELOCs, but if you’re a homebuyer who only plans to purchase a single-family home, a second home, or a condo that’s already on the market, this shouldn’t be a drawback for you.
This lender offers flexible loan repayment terms that range from 8 – 29 years in addition to standard 15-year and 30-year terms.
On average, it takes about 47 days to close on a home through Rocket Mortgage. However, keep in mind that, in general, much of the closing timeline will depend on how quickly you can provide all the information and documentation that’s needed and whether or not they can be processed without a major hitch.
Best for flexible down payment options
Chase Bank
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a DreaMaker℠ loan
Pros
- Chase DreaMaker℠ loan allows for a slightly smaller down payment at 3%
- Discounts for existing customers
- Online support available
- A number of resources available for first-time homebuyers including mortgage calculators, affordability calculator, education courses and Home Advisors
Cons
- Doesn’t offer USDA loans or HELOCs
- Existing customers discounts apply to those who have large balances in their Chase deposit and investment accounts
Who’s this for? Chase Bank provides several options for homebuyers who would prefer to make a lower down payment on their home. The traditional advice has been to make a down payment that’s about 20% of the price of the home, however, Chase offers a loan option called the DreaMaker loan that would allow homebuyers to make a down payment that’s as low as 3% (by comparison, the FHA loan requires borrowers to make a 3.5% down payment).
This option is made for those who can only afford a smaller down payment, but it also comes with stricter income requirements compared to their other loans (the annual income used to qualify the customer must not exceed 80% of the Area Median Income (AMI), according to the Chase team). If you meet the income requirements for the DreaMaker loan, this option could be very attractive for those who would prefer to make a down payment that’s as small as possible so they can have more money reserved for other homebuying expenses.
In addition to the DreaMaker loan, Chase also offers a conventional loan, FHA loan, VA loan and jumbo loan (USDA loans and HELOCs are not offered by this lender). Much like other lenders, Chase has a minimum credit score requirement of 620 for their mortgage options.
Chase offers mortgage terms that range from 10 years to 30 years, as well as fixed-rate and adjustable-rate mortgages (ARM). This lender also offers discounts for existing customers, but the requirements are rather high: For $500 off your mortgage processing fee, you need to have $150,000–$499,999 between Chase deposit accounts and Chase investment accounts; $500,000 or more in these accounts can get you up to $1,150 off the processing fee.
On top of this, Chase provides a number of resources to help their customers navigate the process and feel comfortable managing their mortgage, including online customer support, mortgage calculators and educational articles. Chase customers typically close on their house within three weeks.
Best for no lender fees
Ally Bank Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, HomeReady loan and Jumbo loans
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Terms
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Credit needed
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Minimum down payment
3% if moving forward with a HomeReady loan
Pros
- Ally HomeReady loan allows for a slightly smaller downpayment at 3%
- Pre-approval in just three minutes
- Application submission in as little as 15 minutes
- Online support available
- Existing Ally customers can receive a discount that gets applied to closing costs
- Doesn’t charge lender fees
Cons
- Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs
- Mortgage loans are not available in Hawaii, Nevada, New Hampshire, or New York
Who’s this for? It’s common for lenders to charge a number of fees on mortgage applications, including an application fee, origination fee, processing fee and underwriting fee — these fees can end up costing a significant amount during the home-buying process. Ally Bank doesn’t charge any of these fees (they may, however, charge an appraisal fee and recording fee, and may charge title search and insurance). You can get pre-approved for a loan in as little as three minutes online and submit your application in just 15 minutes as long as you have all the necessary documents handy.
Ally offers a HomeReady mortgage program that is geared toward low- to mid-income homebuyers (regardless of whether it’s their first time or if they’re a repeat buyer) that would allow them to put down as little as 3% for a down payment. Applicants must also have a debt-to-income ratio of no more than 50%, their income must be equal to or less than 80% of the area’s median income and at least one borrower must take a homeowner education course.
In addition to this loan option, homebuyers can also apply for a jumbo loan (FHA loans, VA and USDA loans are not available through this lender). Customers can also choose between fixed rate and adjustable rate mortgages, and 15-year, 20-year and 30-year loan terms.
Ally Bank customers also take an average of 36 days to close on their home. One important drawback, though, is that Ally mortgage loans are not available in every state — residents of Hawaii, Nevada, New Hampshire and New York would be unable to apply.
Best for flexible loan options
PNC Bank
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, FHA loans, VA loans, USDA loans, jumbo loans, HELOCs, Community Loan and Medical Professional Loan
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Terms
-
Credit needed
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Minimum down payment
0% if moving forward with a USDA loan
Pros
- Offers a wide variety of loans to suit an array of customer needs
- Available in all 50 states
- Online and in-person service available
- Pre-approval in as little as 30 minutes
Cons
- Doesn’t offer home renovation loans
Who’s this for? It’s sometimes tough to find lenders that offer USDA loans in addition to other standard mortgage options, but PNC Bank includes USDA loans in their lineup. This lender also offers conventional loans, FHA loans, VA loans, jumbo loans and a PNC Bank Community Loan, which is a special program that allows homebuyers to put down as little as 3% (without paying private mortgage insurance) while still choosing between fixed-rate and adjustable-rate mortgage terms.
This lender also offers a special loan option catered to medical professionals who are looking to buy a primary residence only. With this loan, medical professionals can apply for as much as $1 million and won’t have to pay private mortgage insurance (PMI), regardless of their down payment amount. They can also choose between fixed-rate and adjustable-rate terms.
PNC Bank offers online and in-person mortgage application processes, which can be a plus for homebuyers who don’t live near a PNC Bank location but still want to apply for a loan. You can get online pre-approval in as little as 30 minutes as long as you have all the documentation on hand and similar to most other lenders, PNC Bank has a minimum credit score requirement of 620.
Best for saving money
SoFi
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
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Types of loans
Conventional loans, jumbo loans, HELOCs
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Terms
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Credit needed
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Minimum down payment
Pros
- Fast pre-qualification
- Provides access to Mortgage Loan Officers for guidance
- $500 discount for existing SoFi members
- 0.25% price reduction when you lock in a 30-year rate for a conventional loan
- Offers up to $9,500 cash back if you purchase a home through the SoFi Real Estate Center
Cons
- Doesn’t offer FHA, VA or USDA loans
- Mortgage loans are not available in Hawaii
Who’s this for? SoFi offers homebuyers a number of discounts that can help them save as much money as possible throughout their home buying process. When you lock in 30-year rate for a conventional loan, you can receive a 0.25% discount. And when you purchase a home through the SoFi Real Estate Center, which is powered by HomeStory, you can receive up to $9,500 in cash back. Another appealing perk is that SoFi members can get a $500 discount on their mortgage loan.
This lender offers an online-only experience for those looking to qualify for a conventional loan, jumbo loan, or HELOC (SoFi doesn’t offer FHA, VA, or USDA mortgage loans). Terms range from 10 to 30 years and are both fixed and adjustable-rate. Similar to most other lenders, SoFi considers applicants with a minimum credit score of 620.
Homebuyers can also take advantage of a host of resources from SoFi, like a home affordability calculator, a mortgage calculator and a home improvement cost calculator, which can really come in handy if you’re purchasing a home that needs some work done and you need to figure out ahead of time how much to budget for renovations.
Just keep in mind, though, that SoFi’s mortgage loans are only available in 47 states and Washington, D.C. — residents of Hawaii, New York and New Mexico would be unable to apply.
FAQs
What is pre-approval and how does it work?
Pre-approval is a statement or letter from a lender that details how much money you can borrow to purchase a home and what your interest rate might be. To get pre-approved, you may have to provide bank statements, pay stubs, tax forms and employment verification, to name a few. Once you’re pre-approved, you’ll receive a mortgage pre-approval letter, which you can use to begin viewing homes and start making offers. It’s best to get pre-approved at the start of your home-buying journey before you start looking at homes.
How do mortgages work?
A mortgage is a type of loan that you can use to purchase a home. It’s also an agreement between you and the lender that essentially says that you can purchase a home without paying for it in-full upfront — you’ll just put some of the money down upfront (usually between 3% and 20% of the home price) and pay smaller, fixed equal monthly payments for a certain number of years plus interest.
For example, you probably can’t pay $400,000 for a home upfront, however, maybe you can afford to pay $30,000 upfront; a mortgage would allow you to make that $30,000 payment while a lender gives you a loan for $370,000 (the remaining amount) and you agree to repay that amount plus interest to the lender over the course of 15 or 30 years.
Keep in mind that if you choose to put down less than 20%, you’ll be subject to private mortgage insurance (PMI) payments in addition to your monthly mortgage payments. However, you can usually have the PMI waived after you’ve made enough payments to build 20% equity in your home.
What is a conventional loan?
A conventional loan is a loan that’s funded by private lenders and sold to government enterprises like Fannie Mae and Freddie Mac. It’s the most common type of loan and some lenders may require a down payment as low as 3% or 5% for this loan.
What is an FHA loan?
A Federal Housing Administration loan (FHA loan) is a loan that typically allows you to purchase a home with looser requirements. For example, this type of loan may allow you to get approved with a lower credit score and applicants may be able to get away with a higher debt-to-income ratio. You typically only need a 3.5% down payment with an FHA loan.
What is a USDA loan?
A USDA loan is a loan offered through the United States Department of Agriculture and is aimed at individuals who want to purchase a home in a rural area. A USDA loan requires a minimum down payment of 0% — in other words, you can use this loan to buy a rural home without making a down payment.
What is a VA loan?
A VA mortgage loan is provided through the U.S. Department of Veterans Affairs and is meant for service members, veterans and their spouses. They require a 0% down payment and no mortgage insurance.
What is a jumbo loan?
A jumbo loan is meant for home buyers who need to borrow more than $647,200 to purchase a home. Jumbo loans are not sponsored by Fannie Mae or Freddie Mac and they typically have stricter credit score and debt-to-income ratio requirements.
How is my mortgage rate decided?
Mortgage rates change almost daily and can depend on market forces such as inflation and the overall economy. While the Federal Reserve doesn’t set mortgage rates, mortgage rates tend to move in reaction to actions taken by the Federal Reserve on its interest rates.
Market forces may influence the general range of mortgage rates but your specific mortgage rate will depend on your location, credit report and credit score. The higher your credit score, the more likely you are to be qualified for a lower mortgage interest rate.
What is the difference between a 15-year and a 30-year term?
A 15-year mortgage gives homeowners 15 years to pay off their mortgage in fixed, equal amounts plus interest. By contrast, a 30-year mortgage gives homeowners 30 years to pay off their mortgage. With a 30-year mortgage, your monthly payments will be lower since you’ll have a longer period of time to pay off the loan. However, you’ll wind up paying more in interest over the life of the loan since interest is charged monthly. A 15-year mortgage lets you save on interest but you will likely have a higher monthly payment.
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Our methodology
To determine which mortgage lenders are the best, CNBC Select analyzed dozens of U.S. mortgages offered by both online and brick-and-mortar banks, including large credit unions, that come with fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best mortgages, we focused on the following features:
- Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
- Types of loans offered: The most common kinds of mortgage loans include conventional loans, FHA loans and VA loans. In addition to these loans, lenders may also offer USDA loans and jumbo loans. Having more options available means the lender is able to cater to a wider range of applicant needs. We have also considered loans that would suit the needs of borrowers who plan to purchase their second home or a rental property.
- Closing timeline: The lenders on our list are able to offer closing timelines that vary from as promptly as two weeks after the home purchase agreement has been signed to as many as 45 days after the agreement has been signed. Specific closing timelines have been noted for each lender.
- Fees: Common fees associated with mortgage applications include origination fees, application fees, underwriting fees, processing fees and administrative fees. We evaluate these fees in addition to other features when determining the overall offer from each lender. Though some lenders on this list do not charge these fees, we have noted any instances where a lender does charge such fees.
- Flexible minimum and maximum loan amounts/terms: Each mortgage lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
- No early payoff penalties: The mortgage lenders on our list do not charge borrowers for paying off the loan early.
- Streamlined application process: We considered whether lenders offered a convenient, fast online application process and/or an in-person procedure at local branches.
- Customer support: Every mortgage lender on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
- Minimum down payment: Although minimum down payment amounts depend on the type of loan a borrower applies for, we noted lenders that offer additional specialty loans that come with a lower minimum down payment amount.
After reviewing the above features, we sorted our recommendations by best for overall financing needs, quick closing timeline, lower interest rates and flexible terms.
Note that the rates and fee structures advertised for mortgages are subject to fluctuate in accordance with the Fed rate. However, once you accept your mortgage agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan, unless you choose to refinance your mortgage at a later date for a potentially lower APR. Your APR, monthly payment and loan amount depend on your credit history, creditworthiness, debt-to-income ratio and the desired loan term. To take out a mortgage, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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