In response, Jane Fraser, the CEO of Citigroup, announced a bold shift in company strategy, and it has exited 14 consumer markets outside of the United States since April 2021.
“What’s been obvious to analysts for a long time is that Citi had become too unwieldy and too big to manage,” said Hugh Son, a banking reporter at CNBC. “Ultimately, a lot of the disparate parts overseas didn’t really have very many synergies between them.”
Citigroup instead announced its plans to divert resources and double down on wealth management. It’s a tactical move that several other major banks like Bank of America and Wells Fargo have adopted in recent years.
“It offers high returns and it creates growth opportunities in areas that are in the early stages of wealth generation like Asia and the Middle East,” according to Mike Mayo, a senior banking analyst at Wells Fargo Securities. “And it comes with less risk of big mishaps so the regulatory treatment is better.”
Despite the shift in strategy, though, Citigroup’s investment in wealth management hasn’t started to pay off. In 2022, the firm expected global wealth management to generate a compound annual revenue growth in the high single digits to low teens.
But, instead, Citigroup’s wealth management revenue fell 5% year over year in the second quarter of 2023.
“It waits to be seen whether Citigroup will be successful,” said Mayo. “I’m skeptical, for as much as I am more positive about Citi’s strategy when it comes to their global payments or banking or markets business. I think it’s to be determined how this wealth management strategy plays out.”
Citigroup declined to provide someone for CNBC to interview for this piece.
Watch the video above to see how Citigroup is planning its comeback.
Since the company’s collapse during the 2008 recession, Citigroup’s stock has continuously struggled, with shares falling more than 30% over the past five years. In response, Jane Fraser, the CEO of Citigroup, announced a bold shift in company strategy, doubling down on wealth management while exiting 14 consumer markets outside of the United States since April 2021. So has Citi’s bet paid off and can the onetime financial colossus return to its former glory?
Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., at the US Capitol for a lunch meeting with the New Democrat Coalition in Washington, DC, US, on Tuesday, June 6, 2023.
Nathan Howard | Bloomberg | Getty Images
JPMorgan Chase reported second-quarter results before the opening bell Friday.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
Earnings: $4.37 adjusted vs. $4 per share
Revenue: $42.4 billion vs. $38.96 billion
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JPMorgan has been a standout recently on several fronts. Whether it’s about deposits, funding costs or net interest income — all hot-button topics since the regional banking crisis began in March — the bank has outperformed smaller peers.
That’s helped shares of the bank climb 11% so far this year, compared with the 16% decline of the KBW Bank Index. When JPMorgan last reported results in April, its shares had their biggest earnings-day increase in two decades.
This time around, JPMorgan will have the benefit of owning First Republic after its U.S.-brokered takeover in early May.
The acquisition, which added roughly $203 billion in loans and securities and $92 billion in deposits, may help cushion JPMorgan against some of the headwinds faced by the industry. Banks are losing low-cost deposits as customers find higher-yielding places to park their cash, causing the industry’s funding costs to rise.
That’s pressuring the industry’s profit margins. Last month, several regional banks disclosed lower-than-expected interest revenue, and analysts expect more banks to do the same in coming weeks. On top of that, banks are expected to disclose a slowdown in loan growth and rising costs related to commercial real estate debt, all of which squeeze banks’ bottom lines.
Lenders have begun setting aside more loan-loss provisions on expectations for a slowing economy this year. JPMorgan is expected to post a $2.72 billion provision for credit losses, according to the StreetAccount estimate.
The bank won’t be able to sidestep downturns faced in other areas, namely, the slowdown in trading and investment banking activity. In May, JPMorgan said revenue from those Wall Street activities was headed for a 15% decline from a year earlier.
Finally, analysts will want to hear what JPMorgan CEO Jamie Dimon has to say about the health of the economy and his expectations for banking regulation and consolidation.
Richard Ramsden, Goldman Sachs analyst, joins ‘Closing Bell Overtime’ to talk bank earnings, the impact of the credit crunch on commercial real estate and more.
Stocks rose for a fourth day in a row on Thursday, a day ahead of second-quarter earnings from America’s biggest lenders. The Dow Jones Industrial Average DJIA, +0.14%
rose about 46 points, or 0.1%, ending near 34,394, according to preliminary data from FactSet. But the S&P 500 index SPX, +0.85%
gained 0.9% to end at 4,509, clearing the 4,500 mark for the first time since April 5, 2022 when it ended at 4,545.86, according to Dow Jones Market Data. The Nasdaq Composite Index COMP, +1.58%
scored another blockbuster day, up 1.6%. Investors have been optimistic as inflation pressures ease and as perhaps the best-telegraphed U.S. economic recession in recent history has yet to materialize. The S&P 500 and Nasdaq have been charging higher on buzz about AI technology, with much of this year’s stock-market gains fueled by a small group of stocks. The risk-on tone ahead of earnings from JPMorgan Chase and Co., JPM, +0.49%
Wells Fargo WFC, +1.04%
and Citigroup C, +0.63%,
had the U.S. dollar DXY, -0.74%
earlier on pace to end at its lowest level since early April 2022. Treasury yields also continued to fall, with the 10-year TMUBMUSD10Y, 3.768%
rate back down to 3.759%, after topping 4% in recent weeks. The six biggest banks are expected to issue a deluge of fresh debt after earnings, despite the Federal Reserve having sharply increased rates and borrowing costs for businesses and households to tame inflation.
Citigroup upgraded shares of Nintendo (OTCMKTS:NTDOY – Free Report) from a neutral rating to a buy rating in a report published on Thursday, MarketBeat reports.
Nintendo Price Performance
Shares of OTCMKTS NTDOY opened at $11.13 on Thursday. The stock has a market capitalization of $57.82 billion, a PE ratio of 12.05 and a beta of 0.48. The business has a fifty day moving average price of $10.84 and a two-hundred day moving average price of $10.37. Nintendo has a fifty-two week low of $9.26 and a fifty-two week high of $11.99.
Nintendo (OTCMKTS:NTDOY – Free Report) last issued its earnings results on Tuesday, May 9th. The company reported $0.14 earnings per share (EPS) for the quarter, topping analysts’ consensus estimates of $0.06 by $0.08. The firm had revenue of $2.32 billion during the quarter, compared to analyst estimates of $2.40 billion. On average, equities analysts expect that Nintendo will post 0.59 EPS for the current year.
Institutional Trading of Nintendo
Institutional investors and hedge funds have recently modified their holdings of the business. 3Chopt Investment Partners LLC bought a new stake in Nintendo during the first quarter valued at $424,000. Pacer Advisors Inc. increased its holdings in shares of Nintendo by 42.2% in the first quarter. Pacer Advisors Inc. now owns 1,272,321 shares of the company’s stock worth $12,329,000 after buying an additional 377,365 shares during the period. Ativo Capital Management LLC increased its holdings in shares of Nintendo by 372.1% in the fourth quarter. Ativo Capital Management LLC now owns 99,698 shares of the company’s stock worth $1,039,000 after buying an additional 78,580 shares during the period. Alan B. Lancz & Associates Inc. bought a new stake in shares of Nintendo in the fourth quarter worth about $146,000. Finally, SYSTM Wealth Solutions LLC bought a new stake in shares of Nintendo in the fourth quarter worth about $524,000. 0.03% of the stock is owned by hedge funds and other institutional investors.
Nintendo Co, Ltd., together with its subsidiaries, develops, manufactures, and sells home entertainment products in Japan, the Americas, Europe, and internationally. It offers video game platforms, playing cards, Karuta, and other products; and handheld and home console hardware systems and related software.
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Major U.S. banks including Morgan Stanley and JPMorgan Chase & Co. announced dividend increases late Friday, in the wake of the results of the Federal Reserve’s latest bank stress tests earlier this week.
JPMorgan JPM, +1.40%
said it plans to raise the bank’s dividend to $1.05 a share, up from $1 a share, for the third quarter, subject to board approval.
The stress tests “show that banks are resilient — even while withstanding severe shocks — and continue to serve as a pillar of strength to the financial system and broader economy,” JPMorgan Chief Executive Jamie Dimon said in a statement.
“We continue to maintain a fortress balance sheet with strong capital levels and robust liquidity,” Dimon added.
Morgan Stanley MS, +0.19%
said it will increase its quarterly dividend to 85 cents a share from the current 77.5 cents a share, beginning with its third-quarter dividend. The bank also said that its board reauthorized a multiyear share buyback totaling as much as $20 billion, without an expiration date, beginning in the third quarter.
“The results of the Federal Reserve’s stress test demonstrate the durability of our transformed business model. We remain committed to returning capital to our shareholders and are raising our dividend by 7.5 cents,” Chief Executive James P. Gorman said in a statement.
Wells Fargo WFC, +0.54%,
for its part, said it will increase its dividend to 35 cents a share, up from 30 cents a share, subject to board approval. It said it has the capacity to undertake a share buyback, “which will be routinely assessed as part of the company’s internal capital adequacy framework that considers current market conditions, potential changes to regulatory capital requirements, and other risk factors,” without elaborating further.
Goldman Sachs Group Inc. GS, -0.17%
said it would raise its dividend, to $2.75 a share from $2.50 a share, starting July 1.
Citigroup Inc. C said its board had approved an increase in its quarterly dividend to 53 cents a share, from 51 cents, also for the third quarter.
Citi Chief Executive Jane Fraser said that, while the bank “would have clearly preferred not to see an increase in our stress capital buffer, these results still demonstrate Citi’s financial resilience through all economic environments, including the severely adverse scenario envisioned in the Federal Reserve’s stress test.”
Citi’s “robust capital and liquidity position, as well as the diversification of our funding and our business model, allow Citi to continue to be a source of strength for our clients and navigate challenging macro environments securely,” Fraser said.
The bank bought back $1 billon in shares in the second quarter and will continue to evaluate its capital actions, the chief executive said. “We are completely committed to simplifying Citi, improving returns and delivering value to our shareholders.”
Shares of Morgan Stanley and Wells Fargo rose 1.5% and 0.1%, respectively, in the after-hours session after ending the regular trading day up a respective 0.2% and 0.5%. JPMorgan shares edged up 0.2% in the extended session after closing 1.4% higher on Friday. Citigroup shares were up 0.2%, while Goldman’s were largely unchanged.
Steven Chubak, Wolfe Research, joins CNBC’s Leslie Picker and Mike Santoli on ‘Closing Bell Overtime’ to talk breaking news concerning bank capital allocation plans.
Steven Chubak, Wolfe Research, joins CNBC’s Leslie Picker and Mike Santoli on ‘Closing Bell Overtime’ to talk breaking news concerning bank capital allocation plans.
Christopher Marinac, Janney Montgomery Scott director of research, joins ‘Fast Money’ to discuss the results of the Federal Reserve’s banking stress test and what that means for bank stocks moving forward.
Charles Lieberman, Advisors Capital Management CIO and Bruce Harting, Wedbush managing director, join ‘Closing Bell Overtime’ to discuss the banking sector, the latest banking data from the Federal Reserve, and more.
Charles Lieberman, Advisors Capital Management CIO and Bruce Harting, Wedbush managing director, join ‘Closing Bell Overtime’ to discuss the banking sector, the latest banking data from the Federal Reserve, and more.
The U.S. Federal Reserve said Wednesday that all 23 banks in this year’s stress tests withstood a hypothetical “severe” global recession and losses of up to $541 billion as well as a 40% decline in commercial real estate prices.
The banks in the 2023 stress tests hold about 20% of the office and downtown commercial real estate loans held by banks and should be able to handle office space weakness that has loomed amid slack demand for space in the wake of the COVID-19 pandemic.
“The projected decline in commercial real estate prices, combined with the substantial increase in office vacancies, contributes to projected loss rates on office properties that are roughly triple the levels reached during the 2008 financial crisis,” the Fed said in a prepared statement.
Fed vice chair of supervision Michael S. Barr said the exams confirm that the U.S. banking system remains resilient, even in the wake of the failure of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year.
Barr also alluded to comments he made last week when he said the Fed should consider a wider range of risks that could derail banks in a process he described as reverse stress tests.
“We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses,” Barr said in a prepared statement.
The bank stress tests are closely watched because they help determine what capital banks have left over for stock buybacks and dividends. However, expectations are not particularly high at the current time for any huge payouts to investors given talk by regulators about high capital requirements tied to Basel III international banking laws, as well as a challenging economic environment with interest rates on the rise in an attempt to cool economic activity and tame inflation.
Senior Fed officials said banks will be clear to provide updates on their stock buybacks and dividends after the market close on Friday.
For the first time, the Fed conducted an “exploratory market shock” on the trading books of the U.S.’s eight largest banks including greater inflationary pressures and rising interest rates.
The results showed that the largest banks’ trading books were resilient to the rising rate environment tested. That group included Bank of America Corp., the Bank of New York Mellon, Citigroup Inc., the Goldman Sachs Group Inc., JPMorgan Chase & Co. , Morgan Stanley , State Street Corp, and Wells Fargo & Co.
Senior federal officials said they’re studying a wider application of the exploratory market shock to other banks.
In last year’s tests, the Fed did not place an emphasis on a rapid rise in interest rates partly because expectations were high for a recession with lower interest rates in 2023. Instead, interest rates rose. That market dynamic was a factor in the collapse of Silicon Valley Bank, which sold securities with lower interest rates at a loss to cover an increase in withdrawals, only to spark a run on the bank.
All told, the Fed said the 23 banks in the stress test managed to maintain their capital requirements even with a projected $541 billion in losses. (See breakdown below).
U.S. Federal Reserve chart
Under the most severe stress, the aggregate common equity risk-based capital ratio would decline by 2.3% to a minimum of 10.1%.
Other facets of the hypothetical recession included a “substantial” increase in office vacancies, a 38% reduction in house prices and a 6.4% increase in U.S. unemployment to a high of 10%. The drop in house prices in this year’s stress tests is worse than the decline in the Global Financial Crisis in 2008.
“The results looked pretty good,” said Maclyn Clouse, a professor of finance at the University of Denver’s Daniels College of Business. “The banks were in pretty good shape from a capital standpoint and they’d be able to withstand some shock. It’s good news.”
Barr’s remark on Fed officials being “humble” reflects the fact that regulators largely missed the Global Financial Crisis as well as the sudden demise of Silicon Valley Bank in March.
“They need to be humble,” Clouse said. “We need to be a little more humble about the results and a little more alert about new challenges that normally haven’t been looked at with stress tests.”
This year, the banks that took part in the stress tests including Bank of America Corp. BAC, -0.60%,
Bank of New York Mellon Corp. BK, -0.64%,
Capitol One Financial Corp. COF, +0.52%,
Charles Schwab Corp. SCHW, +1.01%,
Citigroup C, -0.37%,
Citizens Financial Group Inc. CFG, -1.61%
and Goldman Sachs Group Inc. GS, +0.07%.
KBW analyst David Konrad said in a June 22 research note he expected no “huge surprises” in addition to capital uncertainty around dividends and buybacks already expected by Wall Street.
Providing guidance on how the Fed will study bank strength, Fed chair of supervision Michael Barr said last week that the Fed needs to consider “reverse stress tests” to look at “different ways an institution can die” instead of simply submitting banks to a specific list of hypothetical hardships.
“We have to work harder at looking at patterns we haven’t seen before,” Barr said at an appearance on June 20.
Dick Kovacevich, former Wells Fargo CEO, joins ‘Closing Bell Overtime’ to explain why he thinks the Federal Reserve made a mistake by pausing rate hikes.
Jane Fraser, chief executive officer of Citigroup Inc., during an interview for an episode of “The David Rubenstein Show: Peer-to-Peer Conversations” at the Economic Club of Washington in Washington, DC, US, on Wednesday, March 22, 2023.
Valerie Plesch | Bloomberg | Getty Images
Citigroup said Wednesday it plans to pursue an initial public offering of its Mexico business Banamex, scuttling a 16 month effort to find a strategic buyer for the unit.
The bank expects to complete the separation in the second half of 2024, with a public offering likely to follow in 2025, Citigroup said in a release. It hasn’t yet decided on a listing destination, but a dual listing in Mexico and the U.S. is possible, a source familiar with the plans told CNBC.
Citigroup shares fell 3.4% in early trading.
“After careful consideration, we concluded the optimal path to maximizing the value of Banamex for our shareholders and advancing our goal to simplify our firm is to pivot from our dual path approach to focus solely on an IPO of the business,” CEO Jane Fraser said in the release.
Fraser has been overhauling the third biggest U.S. bank by assets since taking over in March 2021. One of her first moves as CEO was to announce a dramatic reduction in the bank’s global footprint; plans to sell or IPO Banamex were disclosed in January 2022. Recent media reports said a sale was nearing completion at around a $7 billion valuation.
The sales effort was complicated by demands from Mexico’s president that any deal would protect workers and the bank’s holdings of Mexican artwork, according to the Wall Street Journal.
Citigroup bought Banamex for $12.5 billion in 2001, making it the only major U.S. lender with a large presence in Mexico. But as with many of its overseas retail units, the business lost market share to locally-owned competitors.
It has 38,000 employees and 1,300 branches, with more than 12 million retail clients and about 10 million pension customers, according to Citigroup.
Banamex will still be reported under Citigroup’s results until ownership falls beneath 50%, the New York-based bank said. Citigroup will keep its institutional and private banking operations in Mexico, the bank said.
A silver lining of the bank’s pivot is that it will allow the firm to resume a “modest” level of share buybacks this quarter; it had held off on repurchases because a sale was expected to impact the bank’s capital levels.
James Gorman said Friday he plans to resign as Morgan Stanley‘s CEO within the year, setting off a succession race atop one of Wall Street’s dominant firms.
The bank’s board has narrowed its CEO search to three “very strong” internal candidates, Gorman told shareholders at the New York-based firm’s annual meeting.
related investing news
Gorman, 64, will take on the executive chairman role “for a period of time” after stepping down as CEO, he said.
“The specific timing of the CEO transition has not been determined, but it is the board’s and my expectation that it will occur at some point in the next 12 months,” Gorman said.
“That is the current expectation in the absence of a major change in the external environment,” he added.
Since taking over in 2010, Gorman has pulled off one of the more successful transformations on Wall Street. Through a series of savvy acquisitions, Morgan Stanley rebounded after nearly capsizing during the 2008 financial crisis to become a wealth management juggernaut.
The bank began that journey in 2009, when Morgan Stanley purchased Smith Barney from Citigroup in the throes of the financial crisis, gaining thousands of financial advisors. It then spent more than $20 billion to acquire discount brokerage E-Trade and investment manager Eaton Vance in 2020, adding scale and heft to the bank’s nontrading operations.
As a result, Morgan Stanley has become an asset-gathering machine: Gorman has said his bank can add roughly $1 trillion in assets every three years, eventually getting to $10 trillion.
“It is hard to argue that James Gorman has not been one of the elite CEOs in the financial services industry, taking over the company coming out of the” 2008 financial crisis and sharply improving its returns, KBW analyst David Konrad said in a research note.
The firm’s investors have rewarded it with one of the top valuations among big bank peers. That’s because shareholders favor the steadier revenue streams generated by wealth and asset management over the more volatile fees from trading and advisory businesses.
Shares of Morgan Stanley have tripled during Gorman’s tenure.
Morgan Stanley shares during CEO James Gorman’s tenure.
Morgan Stanley’s internal CEO candidates are the men leading the bank’s three main businesses, according to people with knowledge of the situation.
Ted Pick and Andy Saperstein, who run the bank’s capital markets and wealth management divisions respectively, have also been co-presidents since 2021. Dan Simkowitz runs the bank’s smallest division, investment management, and was named co-head of strategy in 2021.
The announcement makes official Gorman’s desire to hand over the reins to another executive. Gorman has said publicly for the past few years that he didn’t plan on staying much longer as CEO, and on Friday he joked that he wouldn’t die while holding the title.
Gorman has “no plans to go out like Logan Roy,” the fictional CEO from HBO’s “Succession” series, he told investors.
Karen Firestone, Joe Terranova, and Steve Weiss join ‘Halftime Report’ to discuss regional bank volatility, range-bound trading, and Western Alliance’s deposit growth.
Gerard Cassidy, RBC Capital Markets managing director, joins ‘Fast Money’ to discuss the fallout of the banking crisis, Bank of America’s recent performance, and more.
Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.
With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.
Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.
However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.
Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.
Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.
Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.
The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.
Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.
Scott Olson | Getty Images
“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.
LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.
And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.
“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.
SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.
The story isn’t just about rising interest rates.
Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.
Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.
After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.
For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.
As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.
There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.
Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”
Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”
While fintechs broadly are under far less regulatory pressure than crypto companies,the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.
Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.
They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.
Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.
Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”
Apple savings account
Apple
Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.
Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.
“We started with credit,” Laplanche said. “We think that’s a better strategy.”
SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”
Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.
“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”
Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.
“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”
— CNBC’s Darla Mercado contributed to this report.
