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Ally Financial expects deposits to flow out as interest rates go down, but it is looking to digital tools and experiences to maintain — and even grow — deposits. “Our focus remains on providing a great customer digital experience while simultaneously demonstrating efficiency by adapting to different operating environments” like a low-rate cycle, Russ Hutchinson, […]
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Vaidik Trivedi
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As the country emerged from the COVID-19 pandemic in May 2023,
When Casey Bacon, chief executive of Statewide Federal Credit Union in Flowood, Mississippi, was facing the same drop-off in new deposits, he leaned on fintech partnerships to boost new member acquisition and, in turn, deposits.
“We didn’t have the deposit growth like we had throughout [the pandemic]. … As the interest rate environment changed, we had to become more aggressive with both retaining our existing deposits and attracting new deposits,” Bacon said. “Even today, the competition just continues to basically accelerate.”
It was around this time that the $177 million-asset Statewide began rolling out the first phase of its targeted campaign to
Bacon began by working with Strum Platform, a Seattle-based financial customer data firm Statewide has partnered with for more than four years. The fintech’s analytics engine allowed credit union executives to use core and online banking information to profile the different lifestyles of members and create concise market segments.
Those cohorts gave the credit union a deeper insight into its relationships with members and helped determine how best to tailor the marketing of products and services to those who could benefit most from them.
“The strategy here was both to lean into existing members and [figure out] how do we both retain the deposits before they’re gone, and then how do we ensure that strategy also finds new opportunities to grow more deposits,” said Mark Weber, CEO and chairman of Strum.
Combining the August 2023 launch of the new savings account with aggressive marketing efforts proved fruitful for the credit union, pulling in more than $8 million in deposits in less than a year as of May.
The second key component of the campaign involved a partnership with Bankjoy, the Royal Oak, Michigan-based digital banking provider which has been working with Statewide for roughly two years. The company’s online account onboarding product helped reduce the time needed to open an account with Statewide and uses integrations with Plaid to give members the option to add accounts with other financial institutions to the digital banking platform for easy viewing.
Other institutions have seen similar success leaning on fintech partnerships and new product launches to help boost the inflow of consumer deposits.
The $20.1 billion-asset
Upgrading to digital account opening has been a common theme for banks and credit unions aiming to boost deposits.
Data from Cornerstone Advisors’ annual
Amanda Swanson, senior director in the delivery channels practice and practice leader of marketing and growth at Cornerstone, said that organizations like Chime, SoFi and JPMorgan Chase set the bar for account opening standards, and those with fragmented processes are falling behind.
The process “needs to be very seamless,” which from a digital point of view means removing redundant “hoops and boundaries” but should also include more human connectivity throughout the steps to address questions.
“That human piece is where I think it becomes critical,” Swanson said.
Statewide plans to focus next on tailoring existing products and educational resources to foster relationships with consumers in different age ranges.
“The big rates are what gets you in the door, and it’s really common in business. … But the question then becomes how do you keep those people around that maybe have a chance of sticking, even when that rate goes down,” said Dylan Lerner, senior analyst in Javelin Strategy & Research’s digital banking practice.
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Frank Gargano
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Bank of Baroda (BoB) is planning to add more heft to its balance sheet. India’s second largest public sector bank (PSB) is laying the groundwork to double its total business (deposits plus advances) to ₹48 lakh crore in five years.
BoB’s total business stood at ₹24,17,464 crore as at March-end 2024. SBI, which is also a PSB (with Government being the majority owner), is the largest bank in the country with total business of ₹86,83,612 crore.
Punjab National Bank and Canara Bank are the third and fourth largest PSBs, with total business of ₹23,53,038 crore and ₹22,72,968 crore, respectively.
“We have adopted a five-year business plan. It is a rolling plan, whereby we are thinking of doubling our business in five years. Depending on the economic outlook, it (the total business) could go higher or lower. But at least we have a target set to get the ball rolling in that direction,” Debadatta Chand, MD & CEO, told businessline, in an interaction.
Chand observed that on a normalised basis, BoB is looking at a CAGR (compounded annual growth rate) of about 13.5 per cent year-on-year (y-o-y). He emphasised that the bank will not sacrifice margins for the sake of growth.
“If we achieve this (CAGR), we may get to the kind of business level we are looking at. This will allow us to double our balance sheet,” he said.
BoB’s global deposits grew 10.2 per cent y-o-y to ₹13,26,958 crore as at March-end 2024. Global advances grew 12.5 per cent to ₹10,90,506 crore.
Chand noted that the bank is considering branch expansion, with plans to add almost 650 branches in a couple of years. BoB had 8,243 branches as at March-end 2024.
Along with this, the bank also plans to augment its manpower. It is re-assessing its manpower requirement as part of the five-year business plan.
“We are also looking at productivity improvements, which can be a benchmark for the industry,” he said.
At the recent fourth quarter results press meet, Chand said the bank plans to revive its wholly-owned IT subsidiary — Barodasun Technologies Ltd — and also work on talent management and capacity creation.
The IT subsidiary, which was floated in 2017, has been envisioned to implement enterprise-wide IT projects and development of financial products and solutions across different business verticals of the bank.
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Investing platform Robinhood added more than $3.4 billion through its automated customer account transfer service in the first quarter, up 100% quarter over quarter.
The company is seeing high deposit volume “supported by a young customer base gaining share of global wealth,” and expects to meet its multi year 20% deposit growth rate target, Chief Financial Officer Jason Warnick said during the company’s earnings call May 8.
The Menlo Park, Calif.-based company reported net deposits of $11 billion for Q1, more than double last year’s quarterly average, he said.
Robinhood has gained deposits from existing and new customers along with winning customers from incumbent financial institutions, Warnick said.
Deposits were “75% contributions from customers and 25% net wins from incumbents,” Warnick said, adding that the company had $5 billion in net deposits in April.
According to a May 2023 report by NASDAQ, more than half of Gen Z Americans hold investments of some kind due to ease of investing and simplified access to financial information.
Major financial institutions including U.S. Bank, TD Wealth and Envestnet have deployed automated investing solutions to entice customers to keep their accounts at traditional FIs rather than moving to fintech platforms.
U.S. Bank is giving customers $100 to open an Automated Investor account, according to the bank’s website.
TD Wealth launched its automated investing solution, Robo-Advisor, in October 2021.
Banks are seeing outflows from customer accounts to investment fintechs like Robinhood as more people jump into the equities market for better returns, Dani Fava, told BAN when see was working as the group president for product innovation at wealth tech company Envestnet. She left the position last month.
“Deposits are hard to come by this year [and automated investing offerings are] a method to drive engagement and a method to retain deposits” Fava said. “This is a method for the banks to keep money in their ecosystem and to drive engagement.”
Robinhood is expanding its product offerings and has gained traction with the launch of its Robinhood Gold credit card in March, which has more than 1 million applicants on the waitlist, according to the company’s earnings report.
Nearly half of banking customers are seeking a one-stop-shop experience for their financial needs, and Robinhood’s “introduction of credit cards aligns quite well with this demand, especially having launched checking, high-yield savings and retirement accounts recently,” Sean O’Brien, principal consultant of wealth management practice at consultancy firm Capco, told BAN.
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Hope Bancorp, a Los Angeles-based company focused on serving Korean Americans, will acquire Territorial Bancorp in Hawaii in an all-stock deal valued at $78.6 million, the acquiring bank announced Monday.
The $18 billion-asset Hope, which operates through its Bank of Hope subsidiary, said the acquisition will expand its footprint to Hawaii and double its residential mortgage portfolio. The deal is expected to be immediately accretive at a double-digit growth rate, and is slated to close by the end of 2024, pending regulatory approval.
Hope Chairman and CEO Kevin Kim said that the leaders of the two banks began serious conversations toward the end of 2023, and Territorial spoke to other potential buyers throughout the process.
“This transaction creates the largest U.S. regional bank catering to multi-ethnic customers across the continental United States and the Hawaiian Islands,” he said Monday on the company’s first-quarter earnings call. “Hope is excited to be partnering with a bank that shares our values, and we intend to preserve and continue to build on Territorial’s long and storied legacy to ensure continuity of service for the customer base and employees.”
Kim added that the bank will be able to grow its customer base in Hawaii, which has a large Asian American and Pacific Islander community. Territorial will continue to operate under the Territorial Savings Bank brand.
Hope operates 48 branches in nine U.S. states, and it has an outsized Southern California commercial real estate portfolio, which makes up more than one-third of its $13.7 billion loan book.
Territorial operates 28 branches across Hawaii, with total assets of $2.24 billion, $1.31 billion of loans and $1.64 billion of deposits, as of Dec. 31.
Tim Coffey, a managing director at Janney, said the deal’s announcement was surprising because Bank of Hope had announced a cost restructuring plan on its fourth-quarter earnings call. He added that he thought the deal made sense, though it was “the opposite” of the company’s implied plan from last quarter.
Accessing a new market and obtaining low-cost funding are beneficial to Hope, and gaining access to a larger balance sheet will be an advantage for Territorial, so that it can offer bigger loans and serve different types of clients, Coffey said. While he predicted that the deal will pay off, he thinks it will take time because of Territorial’s bulk of long-term, fixed-rate mortgages.
“Financially, it does work,” Coffey said. “It’s going to make money for them. I think the question is, ‘When is that going to happen?’”
Hope Chief Financial Officer Julianna Balicka said on the call that the company is still in the process of planning the Territorial integration, and it currently expects deal expenses to “be in the $25 million to $30 million range.”
“This is not necessarily a cost-saves transaction,” Balicka said. “This is a strategic market expansion transaction that provides us an excellent, high-quality core deposit base. And we are focused on making sure that the customer experience and transition period is seamless.”
The transaction is expected to be about 6% dilutive to Hope’s tangible book value, with a three-year earn-back period, which Coffey said “was significant for a company that was already trading below its tangible book value.” But the transaction will help Hope make more money than it otherwise would have in the long term, Coffey added.
Upon close, Hope shareholders will own about 94.4% of the combined entity, and Territorial shareholders will own about 5.6%.
OnMonday, Hope’s stock price dipped 9.44% to $9.92. Coffey said he thinks the market’s reaction to the acquisition was due to surprise at the announcement.
Kim has overseen the combination of three major Korean-focused regional banks in the last 15 years to create what’s now Hope Bancorp. In 2017, the bank was forced to
The Territorial deal takes Hope back to its roots, building an amalgamation of banks through mergers, Coffey said.
M&A activity in the banking industry has had a tepid couple of years. Experts had forecast that deals would pick up again in 2024 as interest rates were expected to fall. However, with rate cuts now seeming less likely,
In the deal announced Monday, Bank of Hope has to mark down loans by 15% and securities by 17%, although Balicka said that Territorial has strong credit quality. The large marks are due to high interest rates, Coffey said.
Recently there have been some signs that M&A activity isn’t dead, such as Capital One Financial’s deal to buy Discover Financial Services and Wintrust Financial’s agreement to purchase Macatawa Bank Corp.
In another sign of the M&A environment thawing, UMB Financial said Monday that
Kim said on the call Monday that the Territorial deal will help diversify Hope’s loan mix and grow its customer base.
“We believe that Territorial’s long legacy in the state of Hawaii has established a very good market presence,” Kim said. “And with our larger balance sheet and our broader array of banking products and services, I think we have really good market share expansion opportunities in Hawaii. And this will also become a very beneficial experience for the customers of Territorial.”
Greenberg Traurig is legal adviser to Hope Bancorp, and D.A. Davidson’s investment banking firm is its financial adviser. Territorial is being advised by the investment banking firm of Keefe, Bruyette & Woods and the law firm Luse Gorman.
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Catherine Leffert
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Two leading NBFCs -Bajaj Finance and Shriram Finance -have hiked rates on term deposits following a slew of deposit rate hikes by banks in Q4 FY24.
While traditionally NBFCs offer higher deposit rates than banks, intensified competition for deposit accretion has forced NBFCs to compete with smaller private banks and small finance banks which have turned more aggressive on rates.
Currently, medium and small private banks are offering FD rates up to 8.5 per cent for regular citizens and up to 9.0 per cent for senior citizens, whereas small finance banks are giving interest of up to 9.25 per cent.
Bajaj Finance has increased FD rates for most tenures by up to 60 bps, effective April 3. FD rates have been hiked by up to 45 bps for deposits with a tenure of 25-35-months, by 40 bps for 18 and 22-month deposits, and by 35 bps for FDs with a tenure of 30 and 33 months.
For senior citizens FD rates have been hiked by up to 60 bps in the 25-35-month tenure and by 40 bps in the 18-24-month tenure.
“Senior citizens can continue to avail FD rates of up to 8.85 perc ent and non-senior citizens can take benefit of rates of up to 8.60 per cent by booking digitally in the 42-month tenure,” the company said in a release.
Another NBFC Shriram Finance has raised FD rates by 5-20 bps across deposits maturing in 12 to 60 months. The rates effective April 9 go up to maturities that range between 12 and 60 months, effective April 9.
Deposits between 12 and 36 months will earn up to 7.85 per cent whereas those between 36 and 60 months will earn up to 8.8 per cent interest. Further, an additional 50 bps is being offered to senior citizens and 10 bps to women depositors. Effectively, senior citizen women investors can earn up to 9.4 per cent interest.
Like banks, NBFCs too are struggling to raise funds to support the sustained pace of credit growth. In addition to increased competition from banks for deposits, NBFCs have also seen normalisation in bank credit lines due to repeated warnings by the central bank on increasing inter-connectedness between the two sectors, making deposit accretion even more crucial.
While banks have been hiking rates through H2 FY24 on various maturity buckets, NBFCs have less flexibility in changing deposit rates. Further, a lot of these lenders were also waiting for the end of the quarter and the financial year to protect their margins for the reported period, analysts said.
Deposit growth for most private banks accelerated during Q4 to 14-26 per cent. Sequential deposit growth too was higher at 4-15 per cent compared with 2-8 per cent in the previous quarter, as per provisional numbers declared by banks. Small finance banks saw high growth of 24-50 per cent.
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Bloomberg
The war for consumers’ cash has reached a detente, with banks taking a less aggressive approach to gathering deposits and starting to cut the interest rates they pay.
The rate reductions, which are providing some relief from what has been a bruising battle for deposits over the past year, are coming even though the Federal Reserve hasn’t yet cut interest rates.
The latest action came at
Traditional branch-based banks are also shifting gears ahead of Fed rate cuts. Last year, they
“They don’t see the need to be that aggressive,” said Ken Tumin, the founder of DepositAccounts.com.
So far, the moves aren’t all that big. High-yield savings accounts at large online banks paid about 4.43% on average this month, a tiny decrease from 4.49% earlier this year, according to a DepositAccounts.com index. Investors will get a fuller picture of deposit costs starting Friday, when banks begin reporting their quarterly earnings.
Online banks appear to be testing the waters and seeing whether they can lower rates just enough to save some money without majorly disappointing customers. Traditional branch-based banks have long relied on the “inertia” of depositors, who may not be willing to go through the process of shifting their cash to a higher-paying institution, Tumin said.
The “more mature online banks are in the same boat now,” Tumin said, while newer online competitors are chasing after each other in the “rate-leader game.” Several newer online banks still pay upwards of 5%, significantly above Marcus, Discover, Ally and others that have long offered high-yield savings accounts.
For some consumers, opening a new account at a higher-paying bank is much like driving 10 minutes to save a little money on gas, said Adam Stockton, head of retail deposits and lending at the consulting firm Curinos. Doing so requires research, transferring funds and keeping track of a new username and password, he noted.
Also contributing to the inertia is the fact that those customers may be happy with their online banks’ services, he noted. Some deposit customers may have credit cards or auto loans with their online bank, or they may like certain apps or features that help them budget.
“Once people start using the tools and get everything set up and find a bank that they’re comfortable with, then they do value the stability,” Stockton said.
Online banks are also cutting the rates they pay on certificates of deposit, reflecting the less competitive environment for CDs across the industry. For one-year CDs, the average rate at prominent online banks fell this month to 4.94%, down from 5.35% in January, according to DepositAccounts.com.
Rates on traditional brick-and-mortar banks’ CDs are falling a bit as well. It’s yet another sign that the peak of rate pressures, when depositors were asking for higher payouts, has passed.
Last year, some banks acted defensively, paying up to keep their customers happy rather than see them head out the door — a prospect that became more sensitive after Silicon Valley Bank’s failure.
Funding worries have since died down, but many banks still see a need to fight for deposits, since industrywide deposit levels have somewhat flatlined. Few banks are targeting double-digit loan growth these days, but they need fresh cash for those new loans they’re making.
“There is still a need for deposits and concern about where deposit levels could go, which I think is part of the reason that we haven’t seen very many aggressive rate cuts,” Stockton said, noting that the moves so far have been “measured’ and aimed at balancing deposit retention with growth.
One action that banks took last year to lock up much-needed deposits was offering CDs that lasted about a year — and paying rates of 4.5% or higher. Banks are now less interested in locking up money for that long at that price.
Instead, they’re gearing their CDs toward terms of just a few months. That strategy gives them more flexibility to reprice CDs downwards if the Fed lowers interest rates this year, a prospect that remains likely, even though investors are increasingly calling it into question.
JPMorgan Chase, for example, is now paying a higher promotional rate on two-month CDs than on CDs of other lengths. Pittsburgh-based PNC Financial Services Group is focused more on four-month CDs, while Regions Financial is looking to draw in five-month CDs.
“They’re getting shorter, which means that’s going to cost them less,” Tumin said.
In February, 72% of the new CDs that branch-based banks booked lasted less than a year, up from 37% a year earlier, according to a deposit tracker from Curinos. Very few banks want to lock themselves into long-term CDs at today’s rates, with just 2% booking new CDs of two years or longer in February. The tracker analyzes data from 40 leading banks.
All the shifts in banks’ consumer deposit strategies are aimed at protecting their profit margins, which have been “getting squeezed” for the past year, Stockton said.
Banks’ net interest margins, which measure the difference between their interest income and interest expenses, have fallen as depositors seek higher rates for the cash they park at the bank.
Lenders have been able to blunt the impact on their margins by charging higher rates on their loans, but that revenue boost is diminishing at some banks. Many loans have already repriced to today’s higher rates, and the modest loan growth that some banks are settling for this year will give them a smaller pool of loans to earn interest on.
Keeping deposit costs down is critical at this stage of the economic cycle, according to Stockton, since rates have flatlined and margins are under pressure.
“The end of a rising rate cycle has historically been one of the more challenging environment banks, and this is no exception,” Stockton said.
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Polo Rocha
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Grasshopper Bank is investing in its digital offerings to meet its clients where they want to be met — whether through self-service channels or other avenues.
The digital bank, which has 18,000 business clients, gains roughly 1,000 clients a month, and to keep them, must update to meet customer demand, Chief Executive Mike Butler tells Bank Automation News on this episode of “The Buzz” podcast.
“It’s really important that we have a program in place that customer experience can be continued throughout their time with us,” he says.
Listen as Butler discusses how Grasshopper competes for deposits through customer retention efforts and investment in customer experience.
Grasshopper Bank’s Director of Product Luther Liang will speak at Bank Automation Summit U.S. 2024 on Monday, March 18, at 3:15 p.m. CT, in Nashville, Tenn.
Get ready for the Bank Automation Summit U.S. 2024 in Nashville on March 18-19! Discover the latest advancements in AI and automation in banking. Register now.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Whitney McDonald 0:03
This episode of The buzz is brought to you by bank automation summit us 2024. This annual event is tailored to resonate with financial services professionals focused on business optimization through technology and automation. Learn how to overcome implementation challenges by hearing firsthand from C level executives from institutions, including Bank of America, Wells Fargo city and more. There is no better place to get a read on the competition than at Bank automation summit us 2024 Register now at Bank automation summit.com. My name is Whitney McDonald and I’m the editor of bank automation News. Today is March 14 2024. Joining me is Chief Executive of Grasshopper bank, Mike Butler. He is here to discuss how grasshopper grows and gains deposits through customer retention strategies and overall customer experience efforts. Mike previously served as the president and CEO of radius bank and president of Consumer Finance at key cord before joining grasshopper in 2021. Thanks for being here, Mike.Mike Butler 1:00
Sure, happy to and thanks for having me. Love talking with you guys. So yeah, I am the CEO today of Grasshopper Bank, which is a was it’s an oval bank in like 2019, I joined about two and a half years ago. We are a digital bank that’s designed to serve the business and innovation economy. We are predominantly focused on providing financial services digitally to a group of people that we think are demanding that type of solution from their bank. Prior to Grasshopper, I ran a company called radius Bank, which was focused on the consumer of digital space that we sold to Lending Club in 2020. And before that, I was at kind of a big banker at KeyCorp for 25 or 30 years or so. So happy to be where I am.
Whitney McDonald 1:51
Great. Well, thank you again, for joining us on the bus, we have a great conversation ahead of us. Before we get into it, let’s set the scene here we’re going to be talking about where banks stand on competing for deposits, a topic that we’ve been hearing about a lot as of late, so maybe just tell us where we stand today. What are what are banks looking at when it comes to getting that deposit growth?
Mike Butler 2:16
Yeah, so a little bit of, you know, again, you’re you’re gonna periodically ask me for opinions on the industry. And so I always like to say I’m one person, and I’ve got a view, but others may see things differently. But I’ve been, we’ve been really focused on deposits over the last 10 or 15 years, as we’ve seen a shift in people’s preferences from how they want to do business. But, you know, at the end of the day, deposit gathering is the core competency of a really strong bank, we need to gather that funding, by leveraging our charter in our insurance, and be able to use that funding to be able to provide other products and services into the consumer or business. So it’s really important for us. And, again, to keep things really simple, I think over the over this period of time in which rates were flat. And consumers and businesses cared a little bit less about where their money was it kind of stagnant Lee was in the banking sector sector, and banks were able to grow, I think at a faster pace, because there was less competition for deposits. And funding sources outside of deposits were very low cost. So I had a deposit base, but I wanted to borrow money in the marketplace to grow my assets, I could do that fairly cheaply and make a nice margin. And things were fairly good in the industry. So the way it worked is low rates caused, I think the industry to become a little bit complacent with how we were gathering deposits, and lost track of the importance of it. And when rates started to rise, it started to become very clear that if you didn’t have a good source of what we call core deposits, then your margin was going to erode fairly quickly. And so that combined with the evolution of the client base, wanting to do business differently, I think has left the industry a little bit behind on what they’re going to do to solve the problem of gathering deposits. I think we saw during the pandemic, a fairly big shift in clients wanting to work digitally with banks. And, you know, again, I don’t want to spend too much time on industry views but but I do believe that the banking sector is just the last of the last man standing when it comes to the E commerce world. And I think using simple examples of you know, Amazon started selling books and now they sell the world. They’ll sell you anything. And we use them because that’s what we want from a car customer experience, we want the product, we want to be able to get it very quickly. And we want it at our front door, as we say, you know, fairly quickly, we really care how it gets there. But we but we liked that experience. And I think people are starting to say, Well, wait a second, why is my experience with my financial services company, not anywhere near what this is? And again, you know, I like to joke that after the pandemic, I know, the first thing I did was go to a nice restaurant, and you know, have a meal. I don’t think a lot of people ran into a branch and said, Boy, I missed you guys. So So I think, today, the combination of customer behaviors and demands, and the interest rate environment have made deposits, a really big issue for a lot of banks.
Whitney McDonald 5:41
Now, you mentioned a couple of things that we can break down there one being the competition, where we stand, of course today with rates, everything that’s changed since the pandemic on the client demand side, you want those digital capabilities, more grasshopper specific, what is your strategy for gaining those deposits, meeting clients where they want to be met? What are you hearing from those clients? And how do you then approach that that digital strategy?
Mike Butler 6:08
Yeah, so So again, so we’ll, we’ll take it from the top, I guess, right. And so if you said customer behaviors and demands are changing, so if you listen to a survey about how clients wanted their products and service delivered 10 years ago, you’d say, oh, there was 15% of these clients that said, Gee, I like the idea of doing things virtually, or digitally. And so that’s gone to like 60%, in the most recent surveys that people want that done so. So that’s a big part of it. So what we’ve said at grasshopper is we want to be part of that group of people that want their products and services delivered that way. And again, to use comparisons that I think are fun, because it’s our day to day life is, you know, my wife likes to go to a store and shop. And she still likes a store to go to. I haven’t been inside a store to shop in 20 years, right. And so we’re the same age. So it’s not about an age differential. Surely younger people like technology more than some older, but it’s people’s behaviors. And so, so I, I’m trying to find me, and maybe somebody else is trying to find my wife, but I think there’s more of me around than there are of my wife, and are more people who want their products and services delivered. And that’s what we’re after. So a couple things happen. There is so so how do you build social, what’s important to them? And how do you serve their needs? Well, we think the most important thing is the customer experience. So we start with the experience, some would say it’s a product, I need to have a great product. But But our view is if you can’t get to the product efficiently and effectively with a great customer experience, it doesn’t matter how good the product is. So we spend all of our time on the experience. And that experience is is can you open an account with me in three minutes, or four or six minutes, if you’re a dual signer on a business account? And was that experience good. So that’s number one, what we’re trying to do is build a customer experience a track and focus on the client that wants it and is is interested and then building them the customer experience. And again, to go a step farther, we believe in the opportunities to work with in the FinTech environment. So we use partners to build that experience for us versus kind of traditional banks that, you know, you know, sometimes they’re trying to use the core processors to do it. So. So that’s where we kind of differentiate ourselves. And then we get to the product, a product has to be good, and it has to work. But then experience has to be great. So so I’ll pause there. And I hope that was answer your question.
Whitney McDonald 8:53
Yeah, absolutely. And I’m very familiar with grasshoppers partnership strategy, you often are partnering with different fintechs in order to launch those products and be on the digital forefront in meeting what those clients are asking for. One thing that I wanted to touch on here, it’s it’s one thing to get those get those clients getting those deposits, but I wanted to talk a little bit about retention and customer loyalty. And I think that goes to the different products that you do launch and kind of continuing to evolve your your product offerings. Where does technology come into that? How do you make sure that you’re keeping those deposits, especially in a time I know that we’re almost a year post SBB and consumers were really looking to diversify their deposits? How do you make sure that you’re retaining and keeping those consumers that that are putting their deposits with you?
Mike Butler 9:47
Yeah, great question. And really, really important for us so we’re trying to you know, develop real relationships. And so for grasshopper we open somewhere between 800 and 1000 new DDA accounts a month. So over the last two years that I’ve been here, it’s been growing, and we’re hitting this $1,000 1000 new clients a month. So we brought on now 15, or 18,000 clients since we started. And it’s really important that we have a program and in place that that customer experience can be continued throughout their time with us. So two things that we do. One is we invest a lot of time in customer service, and a lot of technology and customer service. So that when people, people can self serve as much as they can, is, you know, a lot. So what you want to do is have a customer service in which you can use your bots and some other, you know, kind of technology to be able to get the client and answer 24/7 on their own, by by finding answers quickly. Other times, you got to answer the phone very quickly, and make sure when there is a call. So we spend a lot of time on that we’ve, you know, we’ve put some technology in there. So and we got to have an NPS score, that’s like 70, right. So not being critical of anybody. But traditional brick and mortar banks tend to have NPS scores in the single digits, right. And we have to be up there in the 70s. To do that. And that’s where we’ll be we were there before we’ll do it again with grasshopper. The second thing we do is we create this kind of like what I would call a market place, infrastructure inside the organization, which today we have eight, heading towards 15 different products and services that we make available to our clients that make their lives easier. So, for example, if we’re dealing with the startup community, and those companies are looking for people to help them fund, raise money, or to get debt, we’ve got special solutions on our website, we have companies that do that for a living, that will pay more attention to clients from grasshopper, and they will right off the street. We offer them discounts, we offer them different products and services. So when they come into our kind of ecosystem, it’s not just the product that we offer, but we offer them other products that people do better than I could with with ease and at a better price.
Whitney McDonald 12:30
Yeah, I like that that word of an ecosystem. It’s not just what you’re getting with grasshopper. It’s not that one solution that reels you in but the other access that you get to, which of course would be a reason to be loyal to the bank.
Mike Butler 12:45
Yeah, I think what we’re trying to do is now we deal with businesses, right, so so we go back. And again, I oversimplify things, but I think it’s the easiest way to do it. If you’re a small business, the biggest pain point for you is time, right? So do you have enough time. And if I can ease that pain point, by making their lives better, by not spending five hours in a branch to open up a checking account, or spending five minutes doing it? Can I do that by saying not spending two hours on a phone call, but being able to self select and self service your questions? And it can it can I make your life better by having a dashboard of your treasury management services right in front of you. And you can wire money easily in and out of your account and product capabilities versus going into a branch to wire money. Then I’m then I’m value add to the client. And when you’re truly value add, you have a relationship. And then there’s stickiness to that relationship, which is really important.
Whitney McDonald 13:47
Now, when it comes to having this value add keeping up with the digital capabilities that clients are asking for having this partnership approach. I wanted to spend a little bit of time on on tech spend. And obviously technology is expensive. But I wanted to talk through a little bit on how do you consider those costs. Where are you spending? How do you consider even on the partnership side? Who’s the right fit for grasshopper, but how do you what’s your strategy behind where to invest? What products to invest in? Does that come from client feedback? What does that what does that approach?
Mike Butler 14:21
Yeah, so So I would say when we build our technology roadmap, it is all about client first demand, what is going so so every quarter we go through a roadmap evaluation of what we’re doing. So and I’ll give you a live examples right now. There’s a next on our roadmap is being able to change your debit card credentials via technology versus via phone call or via another complicated way. It’s one of the biggest it connects to the phone calls that we get into Call Center as to what people are unhappy with, or have to go at set, you know, an extra step to solve. And then we take that back into our technology roadmap and say, well, here’s what the clients are saying, is a problem with our product, how do we fix it and put that as a priority. And then once we decided to priority, and it’s meaningful, worst thing that we can do is work on technology products. That sound good to me that are cool, but don’t really mean anything to the client. That’s why we don’t like shiny new objects, right? A lot of technology. People say, Oh, that’s cool, I gotta have it, right. It’s like, you know, like, my friends who have every tool in America in their garage that they got from the hardware store, because it was new, and but they only use it once a year, well, I can’t afford that, right, I gotta use, I gotta have things that work, and are really important. So our roadmap is connected to our call center, and don’t have as many shiny new objects as you would think. So that’s really important. And then then how do we choose the client or the vendor to do that for us? Well, that’s something that we feel like we’ve spent a lot of time evaluating technology companies, and trying to determine which ones are the best to be able to deliver. And I’d say to you, consistently, I say in the marketplace, that there are a lot of companies that have the same technology, it is about the people that deliver that technology that we select. So we work with people, not technology, and we work with companies that have great leaders, and great people, and that we can count on. And so those are the things that are important to us. And we find that if you can be thoughtful about what you want to deliver, and it’s meaningful to the client, then there’s a connection to revenue that makes paying for that technology a lot more palatable than it would be if I put technology in, and hope clients will use it, or it sounds good. And if I tell people I have it, they’ll come to my bank, now they want to, I gotta get them to use it. So the more people who use my debit card, the more interchange income I earn, the happier my client is, if they can self service with it. So that’s technology, I want it. So so that’s how we that’s the process we go through. I hope that makes sense. So
Whitney McDonald 17:15
with that process, and with that strategy in mind, maybe you could give us a little insight as to what what clients are asking for now, or maybe a little insight into what you’re working on for 2024. What are those demands that you’re trying to meet?
Mike Butler 17:32
Yeah, I think if you went through, you know, again, if you went through our roadmap, working on the digital part of our debit card, we have a virtual card, and then using that virtual card, to allow people to get access to it and make changes is early on our list. I think if you I will tell you, customer service, surely a client call center. And how we use technology in advance, the box that we use in there is really important for us, because clients want to spend less time on the phone or very little time on the phone. And then I think the third part of it, which is always important, important for our small business clients is access to credit. That’s probably on our roadmap in the latter half of the year, how we can solve that problem for him as well. And I think those are, you know, and then I think the marketplace, I would go back to a weekend, accept the fact that we are very good at a couple of things and focus on that, and then bring great partners. So so we’ve got a so here’s a good one that we’re working on right now. And some people aren’t going to be happy I talked about it, but I’m excited about it. And that is giving people access to their money a little bit quicker. Through some better cheque clearing process. You know, there’s a, there’s a complicated process in the industry in which somebody’s deposit to check in, I’ve got to go through a system to actually get paid that money myself, and the client wants that money earlier. So we’re working on a program that will give a client immediate access to the money and reduce some of that process and risk behind the scenes for us. And that’s going to be I think, a great tool inside the small business market where people will be very
Whitney McDonald 19:28
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The digital, FDIC-insured bank looked to affiliate marketing platform Fintel Connect nearly two years ago to expand its reach, Fintel Connect Chief Executive Nicky Senyard tells Bank Automation News on this episode of “The Buzz” podcast.
“When Live Oak came to us, they had been doing a lot on product, on testing, on messaging,” Senyard said. “And what we were able to do is, when we started working with them, we were able to bring their acquisition cost down.”
Fintel Connect also works with Ramp, BMO, Scotiabank, Royal Bank of Canada and First Citizens Bank, according to its website.
Listen as Senyard discusses how financial institutions can grow account volume, bring acquisition costs down and gain overall deposits.
Get ready for the Bank Automation Summit U.S. 2024 in Nashville on March 18-19! Discover the latest advancements in AI and automation in banking. Register now.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Whitney McDonald 0:03
This episode of The buzz is brought to you by bank automation summit us 2024. This annual event is tailored to resonate with financial services professionals focused on business optimization through technology and automation. Learn how to overcome implementation challenges by hearing firsthand from C level executives from institutions, including Bank of America, Wells Fargo city and more. There is no better place to get a read on the competition than at Bank automation summit us 2024 Register now at Bank automation summit.com. My name is Whitney McDonald and I’m the editor of bank automation News. Today is March 12 2020. For joining me as Nicky Senyard CEO and founder of FinTech connect, she is here to discuss how financial institutions can grow volume, bring acquisition costs down and gain deposits. Welcome to The Buzz Nikki.Nikki Senyard 0:51
Thanks very much. It’s great to be here. My name is Nicky Senyard I’m CEO and founder of Intel connect fintel Connect is a relatively new business by brand in the industry, but it’s a business that we Phoenix don’t have another business. I have a passion about solving problems. So affiliate marketing is a really good segue for me to help different businesses, financial institutions in this way, be able to utilize the power and voice of third party publishers like the nerd wallets of the world, the credit Commerce of the world to actually drive new customers. And the new customers can either go through to a deposit product, which we all know is very high topical at the moment, all through to loan products or credit cards or mortgages or whatever else. But we’re in a little niche. We’re the only ones in North America that find focus only on financial services for this type of acquisition marketing. So it’s a really cool space. And I love it. I love the intricacy of how all of the vendors work together from the coop providers to the digital account opening to the KYC. Guys are all the guys that do the product development in terms of giving banks really good choices and variety on different products that they want to offer. I find the industry completely fascinating. So I’m really excited to be part of it. AbsolutelyWhitney McDonald 2:26
seeing all the puzzle pieces connect right?
Nikki Senyard 2:30
That’s exactly right. Now,
Whitney McDonald 2:33
I’d love if you could tell me a little bit, I know that I know that you mentioned about pintle connect, or maybe you could tell me a little bit about the need for a connector between financial institutions and the right partner to get those acquisitions to Grove institutions.
Nikki Senyard 2:49
So I’m going to take it a bit, I’m going to go a bit big picture for a bit and then come back to it. Because I think context is always a really cool thing when you’re hearing about something. So if I go really big picture in marketing, there’s two types of buckets in marketing. One is brand marketing. And the other one is I call the acquisition marketing. Now the tactics in marketing are the same, whether that’s everybody’s heard about organic search engine optimization, they probably have heard of the term Pay Per Click advertising, they know the power of social media. All of those are different channels in these two buckets of marketing. But there is one channel in acquisition marketing called affiliate marketing. And that’s what extensively what our company fintel Connect is. And the power of affiliate marketing is we’re almost like the plumbing behind this type of acquisition. Because with affiliate marketing, you only pay for the client you get. So in all of those other forms of brand marketing or acquisition marketing, you’re paying for the click, you’re paying for the placement, you’re paying for the eyeball, which means that sort of like you’re paying to be in front of the audience. Whereas with affiliate marketing, you’re paying for the actual customer, approved customer you get. So with that, if you’re only paying for what you get, we need to make sure that we’ve got great connectivity between the website that sending the traffic through. And then the final result of you getting that customer. So what we do is, I call it the plumbing. So we basically provide the tracking and reporting behind that relationship that the customer actually doesn’t see. And the really cool thing about what we do is we track on a headless basis, which means we have no personal information about that customer, which is of course exactly what everybody wants with privacy, increased privacy laws increasing and all of that sort of stuff. So yeah, so that’s how we do what we do. We allow the bank to get reach out to all of these third parties. We can actually track where the customers come from So it gives them transparency. And we all know, data gives insight and with data, you can make better decisions. So that’s a really key element of what we do is provide that transparency through the data, as well as providing all of this connection to these third parties. That which banks may not actually have relationships with, but we do so they can leverage those relationships. So we provide them a pool of these really cool high value partners in terms of reference sites, educational pieces, as well as traffic. And we also provide them with the plumbing, I shouldn’t say that the tracking so so much more sophisticated, and to be able to see what goes on. So yeah, that’s what we do.
Whitney McDonald 5:46
Couple of things to unpack there. Of course, you can’t talk about anything within the industry right now without talking about the importance of data. And I think that’s important that you note that. But one thing I wanted to dig in a little bit deeper, and I know that you said the word plumbing, but I think we can get into that a little bit. And I know I’m skipping around a little bit. But I I’d like if you could maybe talk about the I know, you talked about how but maybe the technology, how does this really connect to an institution? What does that all entail to make all of this operate? Okay,
Nikki Senyard 6:18
so the most important for fact, versus headless data. So, and I’m very aware that privacy is crucially important to banks. So I’ll say headless David to start with. So the way that it actually happens is that we connect, I’ll talk about the flow, maybe that’s the best way of describing it. So people can imagine something in their mind. So these third parties log, the important thing about our technology is it’s third party login. So the bank logs in and sees their data and the publisher logs in it sees their data. And of course, we get to see everything that goes on. But what happens is a publisher who’s been approved by the bank, into their program, or into their, you know, into their patch, can log in, and actually grab a tracking code. And then that tracking code goes behind the text link in an article, it goes behind the creative like banner or button. So then what happens is that when a customer comes and says, best deposits, or best CD product, or wherever it is, the customer can click on that link, and that will go through to the bank’s landing page. And then the customer can fill out all that data. And as soon as they press submit, that tracking code is sucked through with that customer registration. So basically, what we’re doing is we’re sucking this headless, we’re sucking our tracking profile through with this customer registration. And what actually happens is most banks, almost most digital Institute, digital businesses have a tracking profile or a customer ID. Now what will happen is, then we get a file sent back from the bank, API, CSV, pixel, or whatever. And that says that this customer has registered, this customer ID has registered now that customer ID might be a real customer ID or it may be a key. So it depends on the how the bank wants to do it. And then what happens is that once let’s talk about deposits, and maybe it’s a CD product that needs $1,000 deposit to trigger the payment to the publisher, once that action has been completed, the bank will send us a file and say customer ID approved, and then that will trigger on our system, the payment to the publisher that sent it through. So basically, that’s why I call it plumbing because this all happens behind the scenes. And it also happens, it doesn’t in any way dispute the flow of the customer registration, it just means that this variable needs to be sucked through with that customer registration. And the bank needs to send us a file back to say that it’s been successful. So we, the bank pushes to us, and the tracking profile is pulled through to their customer registration system. So that could be digital accounting product, it could be a core system, it could be a CRM system. So we integrate with all of those different systems to get this plumbing working. I’m hoping I didn’t bore everybody with that. But it’s it’s good to just go into the details of it.
Whitney McDonald 9:38
No, that was great. And thanks for breaking down all of the layers and I know that we’ll get into an example or two here to also explain this as well. But before we get into an example of this at work, I kind of wanted to break down a little bit further. The demand and and maybe take a step back and talk a little bigger picture here. You’re but we know that financial institutions continue to invest in technology and and fintech connect being a provider of technology. I know that one of the keys is how do you really weigh your return on investment as financial institutions look, and I know that everyone’s looking to grow deposits and gain consumers? How does how does this all fit into that puzzle of being able to look at okay, investing in technology, and considering ROI and what that will mean for the long term?
Nikki Senyard 10:28
Great question, because I think that’s the pragmatic, pragmatic way to approach all of this, we are actually what I would call a useful technology in the fact that the whole reason we exist, is to grow deposits. So the whole purpose of our business is to make sure our clients to successfully acquire new customers in the product that they’re looking for. So even though we’ve got great tracking, even though we’ve got phenomenal reporting, for the data perspective, we actually exist for the purpose of growth. That’s the reason that we exist. So we come into play, usually, when a bank want or a financial institution, Credit Union Bank, FinTech want to actually scale the acquisition that they’ve been doing. So this means that we leverage these third parties once the bank has their product set, and know what their product that they want to promote, and have tested that onboarding process. The other thing is that when they’ve got their messaging correct for that audience, so somebody else come and say, We want more deposits. But it’s really cool when they say we want more deposits of this customer persona. And their product is really good, they’ve got a really good promotion, that means that we can go out to the industry, like the Forbes or the business insiders, or the bank rates, or the nerd wallets and say, Hey, we’ve got this brilliant new product, they’re looking to get new clients, they’re prepared to pay $120, CPA or a $200, CPA or a $50, CPA, wherever the market rate is, and they’ve got this really cool product. Are you interested? And they’ll say, Yes, we get the bank to approve them. And that’s when the flow starts. So the tracking allows functionally for the relationship to happen. It’s purposeful. It’s sort of like not just for the data, but it allows this relationship to happen, the exchange of a new customer for this set amount to actually occur. So that’s the functionality of what we are.
Whitney McDonald 12:43
Let’s take that a step further and talk about some examples here. Could you tell us about an institution that that you work with and talk us through what that looks like?
Nikki Senyard 12:52
I’d love to thank you very much. We have a brilliant client called Live Oak. That Live Oak has been working with us, I think, for 18 months or two years. And they were a very good example of where a client has absolutely leaned into this channel successfully. So when Live Oak came to us, they had been doing a lot on product on testing on messaging on all of that sort of stuff. And what we were able to do is, when we started working with them, we were able to bring that acquisition cost down by 80%. And increase their volume by over 400%. And we were able to do this, and they’re now working with over 35 partners in this way to be able to grow their deposits. And what they were able to do is we did a lot of test inlining. But we were able to, they had a really good foundation of what they had done previously. And we were able to actually capitalize on the learnings that they had already had, and actually take the program to the next level. So as with their knowledge and our knowledge of the channel, we’re able to combine that and actually start to deliver the results. But they’ve been a really good partner, because they really did come to us. They tried to do this on their own. And we were able to really optimize through the technology through our strategic understanding and through our knowledge to be able to deliver the results that they were looking for. Now,
Whitney McDonald 14:19
we’ve talked about the how we’ve talked about the tech, we went through an example. I’d love to hear a little bit more about your plans for 2020 For what your blank bank clients are really asking for, and how you’re innovating around that.
Nikki Senyard 14:35
I think the I think that the theme is very common and how banking, how each bank does it is very unique. So the theme is definitely growth through the partners that are coming to us, sometimes with brand new products, sometimes with optimization of current products. But I think the common theme always with really invested partners is how do we do this better? How do we get better flow? How do we get to work with the publishers, in more an effective and efficient impactful way, which may be just volume, you know, new volume of customers. But a lot of times, it’s also about quality. So it’s actually a lot of times about the quality of the customers that come through. And we’re really lucky with our partners, that we get a lot of vintage data in terms of the quality and we can get quality for some clients down to the publisher type or the campaign type. And this goes back to what we were talking about before, insight through data gives you a better decision where you make your investments. So in some cases, we are right down to that that sort of like sometimes it’s like just one volume. Because we’re testing out a channel, we’re testing out a campaign, we’re testing out a product, or at other times that we really need to tweak that value of the customer that’s coming through for what we’re doing. So it’s really about optimization, some, what we always suggest is that we start, we see what sticks, we see what works. And then we optimize and optimize and optimize. And then of course, somebody says this is going so well let us try a new product. You know, like we may be doing a savings account and then somebody will say, hey, let’s do a CD product or let’s do a checking account or so that’s the that’s the way that it sort of usually grows for us.
Whitney McDonald 16:32
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Bloomberg
Joseph Otting, the newly appointed CEO of New York Community Bancorp, is confident that the ailing bank has a “fortress balance sheet” after
A
“There’s a lot of wood left to chop to turn the bank around for good,” David Smith, an analyst at Autonomous Research, said Thursday. “But I think there’s some hope among the investor base that has not really been there the last few weeks.”
The $114 billion-asset company was light on key details of its go-forward plan, with executives saying they will provide more information in next month’s earnings report, after the new management team gets a fuller grasp of the bank’s issues. Still, it was a far different picture from Wednesday, when the company’s survival appeared to be in question.
Mnuchin and Otting, two former Trump administration officials who earlier earned big returns from their turnaround of OneWest Bank, led the $1.05 billion investment into New York Community. The deal, which isn’t subject to regulatory approval, is slated to close Monday.
Some short-term actions are underway as Otting, the former Comptroller of the Currency, prepares to take the helm next month. The bank’s quarterly dividend,
A deep dive into the health of the firm’s loan portfolio, which has a large concentration in multifamily loans, including loans on rent-regulated apartment buildings in New York City, is ongoing.
A key question in the market now is whether $1 billion is enough to cover New York Community’s eventual losses. Alessandro “Sandro” DiNello, who has been leading the company since early February, said on a Thursday morning call with analysts that the capital raise will put the bank on track to “improve earnings and profitability.”
“That’s why we raised capital, right?” DiNello said. “All the people that I’ve spoken to in the last month, the first question is always about credit. We want to put to bed the concern that we can’t handle whatever that might be.”
The fresh capital restored at least some immediate confidence in the company following a month-long downward spiral in which its stock price fell some 80%.
Chris Marinac, an analyst at Janney Montgomery Scott, said Thursday that he thinks the capital was enough to set New York Community on the right track. He argued that the company could have gone without the capital raise from a financial standpoint, but it needed a show of confidence to settle investors. On Thursday, the share price climbed 5.8% to $3.66.
While the immediate issues seemed to have been quelled, some observers still see a possibility that the bank will eventually need more capital.
“That’s very much to be determined, because there are a lot of fundamental issues with that multifamily portfolio,” said Jeff Davis, managing director at Mercer Capital’s financial institutions group.
Chris Whalen, the chairman of Whalen Global Advisors and a New York Community stockholder, said the value of the bank’s apartment-related loans has dropped by a “mind-boggling” amount thanks to tougher rent regulations in New York state.
“One way or another, they’re going to sort this out,” Whalen said. But he argued that more aggressive action, such as an acquisition by a larger bank, may be needed.
The incoming management team indicated on Thursday that the future New York Community will look far different than today’s version.
The bank has long been concentrated in multifamily loans and other commercial real estate credit, even after recent acquisitions that added some diversification. Otting, who is a seasoned banker in addition to being a former top regulator, said he thinks the right mix of loans should be one-third each in three loan buckets: consumer, business and commercial real estate.
“My interpretation of today’s events is … they’re going to keep the company probably at a similar size,” Janney’s Marinac said. “Largely because the real task here is to diversify.”
New York Community’s $37.2 billion multifamily book, half of which was exposed to the rent-regulated real estate market as of the end of last year, has been a core source of investor concern as declining property values and rising interest rates have made the loans riskier.
However, Otting and DiNello said that they aren’t overly worried about New York Community’s loans in the rent-regulated sector. DiNello explained that though the riskiness of those assets has increased — about 14% of the loans were categorized as being at risk in the company’s latest earnings report — there aren’t any delinquencies in the portfolio.
Borrowing JPMorgan Chase CEO Jamie Dimon’s turn of phrase, Otting and DiNello said the capital infusion helps establish a “fortress” balance sheet that provides a cushion against credit blips. But it will come at a cost to existing shareholders, since the equity outstanding in the company will double, diluting the current owners’ positions.
New York Community shareholders have long been expecting that a capital raise will lead to major dilution, said Davis of Mercer Capital. Many bank investors faced similar situations back in 2008 and 2009.
“The more [capital] you raise and the lower the price, the more dilution there is, and the more the current price has to go down to factor that in,” Davis said. “This is how it should be. The common shareholders, the existing ones, are absolutely creamed.”
Beyond the financial benefits, this investment group’s decision to inject new capital and appoint a new management team is a boon to the stock, said Autonomous Research’s Smith.
Still, after the company’s $552 million loss provision in the fourth quarter shocked the market, it’s unclear how much New York Community will need to set aside for risky loans moving forward.
The bank also needs to
Otting, the former head of the agency that is now the bank’s primary regulator, said that shrinking the bank’s assets under $100 billion is an option, but that the bank isn’t ready to make a decision.
“We will come back with the vision of the way we see the future of the bank,” Otting said. “We just need a little bit more time to be able to do that.”
The company disclosed Thursday that its deposits fell by 7% in the last month. Its leaders argued that the losses were relatively small in light of the headline-grabbing stock price declines.
DiNello said that after “everything this company has been through over the last two months,” the fact that there wasn’t more deposit outflow is an indication of resilience.
Although Fitch Ratings and Moody’s Investors Service both recently downgraded New York Community to below investment grade, DiNello said the bank was able to get waivers from the agencies to keep holding custodial deposits, which otherwise could have gone elsewhere because of restrictions on the ratings of the banks that can hold them.
Otting added that the company intends to accelerate conversations with the ratings agencies this month to see whether the influx of capital justifies upgrades to the company’s credit ratings.
DiNello, who’s taking back his former role of non-executive chairman, said that the bank will aim to be transparent during its first-quarter earnings call in April, after management has had a couple of months to evaluate the situation.
“These capital deals come together very quickly,” DiNello said Thursday. “To think that we could possibly come to you today and say, ‘Hey, here’s how everything is going to be going forward,’ that would be unrealistic. The key thing is that we’ve got the capital in place, and now we can, in fact, put together a strategy that makes sense.”
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Nearly a week after New York Community Bancorp’s fourth-quarter earnings report
They’re also wondering who’s overseeing the enterprise risk management function at the Hicksville, New York, company, which nearly doubled in size over the past 16 months.
A spokesperson for New York Community — which crossed the $100 billion-asset threshold in late March 2023 when it acquired large chunks of the failed Signature Bank — confirmed Monday night in an email that Nicholas Munson, the company’s chief risk officer since 2019, left “in early 2024.”
Munson’s departure, which was
How long the chief risk officer job is open depends on how quickly New York Community can identify, interview and vet qualified candidates, and then ultimately hire someone, he said.
Finding the best candidate as quickly as possible is paramount, said Rossi, who is now a professor at the University of Maryland School of Business.
“This is not some officer buried in the hierarchy,” Rossi said Tuesday. “This is the most senior risk officer in the organization, so it’s important for the bank to put a person in that place, and it’s important for regulators to see that they are putting someone in place.”
Munson joined New York Community in 2018 as its chief audit executive, according to a biography that has since been removed from the company’s website. As the chief risk officer, he was responsible for “designing, implementing and maintaining an effective risk management program that aligns to applicable regulatory guidance and is commensurate with the company’s size, scope and complexity,” the biography read.
It’s unclear whether Munson left of his own accord, whether company executives were somehow dissatisfied and felt the need to seek someone more familiar with overseeing risks at a larger company or whether regulators pushed the bank to make a change.
It’s also unclear who is currently overseeing risk management operations at New York Community. The company’s spokesperson declined to say if someone has temporarily taken over the duties of the C-suite level role or how the organization plans to fill it on a more permanent basis.
Some analysts believe that the bank will move quickly to find someone new.
“They’re going to hire a chief risk officer in no time, there’s no doubt,” said Casey Haire, an analyst at Jefferies. “I don’t know why [Munson] left, but rest assured they’ll be looking.”
Haire pointed out that New York Community’s 2024 expense guidance calls for an estimated $80 million increase in spending earmarked for annual compensation and benefits. Altogether, the bank expects to hike spending by $265 million, including costs related to becoming a so-called Category IV bank, which has $100 billion to $250 billion of total consolidated assets.
The
Silicon Valley Bank left the chief risk officer position unfilled for eight months, during which time the bank and its parent company, SVB Financial Group, grappled with a host of risks, such as rising interest rates, insufficient liquidity and the impacts of a slowdown in the venture capital marketplace.
New York Community’s situation is different, since the risk chief position was only recently vacated.
“It’s not like they were flying blind,” said David Chiaverini, an analyst at Wedbush Securities.
New York Community, which had $116.3 billion of assets at the end of December, months after joining the more heavily regulated tier of banks with at least $100 billion of assets,
Last Wednesday, it reported a quarterly net loss of $260 million, driven by a large reserve build to protect against souring loans. The company also surprised Wall Street by slashing its dividend by 70% — from 17 cents to five cents — a move that executives said was necessary in order to build capital.
Those unexpected moves came at a time when analysts were already on alert about New York Community’s exposure to both office loans and rent-controlled multifamily loans, and they contributed to a sharp decline in the bank’s stock price. Shares fell 37% last Wednesday, and they have fallen by double digits on four of the last five trading days.
The stock closed Tuesday down more than 22% from the prior day’s close, and down more than 59% from a week ago.
After the market closed, Moody’s Investors Service downgraded New York Community’s long-term issuer rating by two notches, citing myriad headwinds.
In the past week, Jefferies and Compass Point Research & Trading have both downgraded the bank’s shares. On Friday, Fitch Ratings also downgraded the stock, saying in a note that the “timing of the announced actions” to meet the prudential standards for Category IV banks, as well as the size of the credit provisions, were “outside of Fitch’s baseline expectations.”
The lower the stock price sinks, the greater the chances that depositors will get spooked, Chiaverini said. In November, he
“Now that the stock has taken a dive … there’s fear, and the key concern now is retaining their deposits,” Chiaverini said Tuesday. Some 36% of New York Community’s deposits are uninsured, he noted. If those uninsured funds go elsewhere, the bank will have to make up for them with borrowings, which are expensive and have a negative impact on the bank’s net interest margin.
In the past week, New York Community has not provided an update to investors about its deposit volume. But analyst Ebrahim Poonawala of Bank of America Securities said in a research note Monday that “feedback from management indicates that the bank is not seeing any unusual deposit inflows or outflows.”
Poonawala also noted that New York Community, through its Flagstar Bank subsidiary, has a “significant retail branch footprint, aiding its ability to raise retail deposits.”
Mark Fitzgibbon, an analyst at Piper Sandler, wrote in a note to clients that New York Community described its deposits situation on Tuesday as “business as usual.”
“We interpret this to mean that there is no meaningful deposit pressure,” Fitzgibbon wrote. “While it would be natural for the company to see a few customers react to last week’s headlines and diversify some funds, we do not think the company wants to be in a position of discussing deposit flows each day; hence their comments. We have also been scouring social media for any hints of short sellers trying to exert deposit pressure on the company and have not found anything too worrisome.”
For most of 2022, New York Community operated more than 230 branches in five states. Its
Deposits totaled $81.4 billion as of Dec. 31, 2023, a decline of 2% from the prior quarter.
Several banks that were experiencing deposit outflows last spring issued updates about their deposits, but Chiaverini said there’s reason to be cautious about that approach.
“There’s a debate as to whether putting out an interim update does more harm than good,” Chiaverini said. “Those banks that provided more frequent updates last year, it didn’t seem to help during the height of the chaos” that was sparked by Silicon Valley Bank’s failure.
Catherine Leffert contributed to this article.
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The Federal Reserve’s
The
To help both retain existing customers and attract new ones, the $225 billion-asset Citizens began working with the New York-based payroll verification and direct deposit account-switching firm
Consumers accessing the bank’s online banking platform are prompted to search for their payroll provider through the Pinwheel integration, which uses a permission-based API to match and confirm details such as Social Security and telephone numbers between the two databases. After completing a multi-factor authentication, which substitutes the need for a second set of login credentials, customers can choose a different account to fund.
While a partnership between Pinwheel and the payroll provider isn’t necessary for consumer access, banks that want to use Pinwheel’s deposit-switching tool have to be Pinwheel customers.
The ability to streamline this process has “long been talked about” across the industry, as part of reducing the friction points during the “early days of building a relationship with the clients,” said Chris Powell, executive vice president and head of consumer checking and deposits at Citizens.
“Historically, banks were hanging their hat on the fact that it was harder for a customer to move from ‘Bank A’ to ‘Bank B.’ … In today’s environment, you can transfer those funds and move your direct deposit over with a couple of clicks, giving customers a greater level of choice,” Powell said.
Powell explained that where consumers keep their deposits is a “direct sign of trust” in their financial institution of choice, and winning that initial business can promote the use of debit products and other services. Citizens Bank also debuted a similar ability for
“As we look at the competitive environment, it behooves us to make sure that we’re at the forefront of providing customers with that flexibility and choice so that as they look at different providers, they could consider that we become the one that they ultimately choose,” Powell said.
Firms specializing in offering DDS tools, which include
This dynamic could be further empowered by the
Brian Karimi-Pashaki, partnerships lead for Pinwheel, explained how the incumbency created from the difficulty in moving funds from one institution to another would be disrupted if the CFPB’s proposal is approved, creating competition that benefits consumers and the firms that help facilitate the moves.
“As it becomes easier to switch, banks are going to have to fight harder to win your business by offering higher rates for savings and lower rates for borrowing and better product experiences that you would see more often from fintechs,” Karimi-Pashaki said.
Pinwheel, which works with organizations like
But challenges still persist on the technology side when it comes to building the connections between financial institutions and providers like OSV and many others.
Don Weinstein, former chief product and technology officer of ADP, said the number of banks, credit unions and other challenger institutions in the market when compared to payroll companies means that the larger players are increasingly selective about which organizations are granted access to their data — especially when it concerns startups.
This “many to many” courting problem, which requires a significant amount of time and money to sustain, showcases the value of intermediaries like Pinwheel to serve as a single integration point rather than multiple.
“We’re all chasing the same thing, which is financial institutions wanting to make it as easy as possible to capture the direct deposit, and the providers who want to make it as easy as possible for the consumers to get the direct deposit in place,” Weinstein said.
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Financial institutions are looking to grow deposits and increase customer loyalty as business clients look to diversify deposits and manage liquidity.
Bottomline Technologies’ Chief Revenue Officer for North America Kevin Pettet told Bank Automation News on this episode of “The Buzz” podcast that three technologies will help banks grow their client bases and improve their business client experiences.
Bottomline Technologies is an e-payment and document automation solutions provider based in Portsmouth, New Hampshire. The tech provider was founded in 1989 and has more than 500,000 members on its digital business-to-business payments network. Bottomline is used by U.S. Bank and UMB.
These “must have” technologies are:
1. Payment monetization: Banks should look to payment monetization to help business customers identify new revenue streams.
2. Cash visibility: Multibank relationships continued to expand this year, especially as businesses looked to diversify assets following the collapse of Silicon Valley Bank and banks must offer cash visibility tools to simplify the lives of client chief financial officers.
Banks should ask, “How do you make the CFO’s job easier?” and “How do you help the CFO see a holistic cash position across all of their banking accounts?”
3. Real-time payments: Everything in today’s environment revolves around liquidity so innovation around payments, specifically real-time payments, is critical.
Listen as Bottomline Technologies’ Pettet discusses the “must-have” technologies banks need to support business clients.
Get ready for the Bank Automation Summit U.S. 2024 in Nashville on March 18-19! Discover the latest advancements in AI and automation in banking. Register now.
Subscribe to The Buzz Podcast on iTunes, Spotify, Google podcasts, or download the episode.
The following is a transcript generated by AI technology that has been lightly edited but still contains errors.
Whitney McDonald 0:02
Hello and welcome to the buzz of bank automation news podcast. My name is Whitney McDonald and I’m the editor of bank automation News Today is December 12 2023. Joining me is Kevin Pettet. He is the chief revenue officer of North American banking and financial services for bottomline technologies he is here to discuss must have technologies that banks must implement in order to remain competitive gain business clients and grow deposits.
Kevin Pettet 0:27
So Hi, I’m Kevin pettetI’m bottom lines Chief Revenue Officer for North American banking. I’ve been with bottom line for 15 years after several senior management roles in both FinTech and healthcare IT my experiences includes strategic account management, acquisition, integration, globalization, large scale delivery and program management, enterprise SAS business model transformation and Six Sigma process improvement. Bottom line itself is a business payments company focused on transforming the way businesses pay and get paid. At bottom line, we are focused on driving transformation in business payments, similar to what you’ve seen in consumer payments and what consumer payments have realized, trying to make payments, more efficient, intuitive and drive automated payment transactions. Today, we process over 6 trillion and payments volume annually across our digital banking and business payments, network offerings, and we serve over 50, the top 100 North American banks and well over 100,000 businesses.
Whitney McDonald 1:28
Great. Well, thank you so much for joining us on The Buzz it’s great to have you excited to get into today’s conversation. So with that, we can kind of look back and round out 2023 Here. As we look back on the year, we can’t help but reflect on the banks failure. The bank failures earlier this year in March, really caused a shift in certain banking strategies that we kind of saw throughout the year, even up until now, let’s kind of start off by talking through how those collapses in March did have banks in their clients switching up strategies throughout the rest of the year. businesses
Kevin Pettet 2:02
of all sizes are increasing the number of banking relationships that they have multi bank relationships had been the norm for quite some time for commercial and corporate customers. And it’s still expanding across those groups. But it’s actually becoming the norm for small to mid sized businesses. We are seeing this trend accelerate given the recent industry instability and the bank failures that occurred that you referenced just a few minutes ago, I wrote a recent article and in the article that I wrote, I quoted a Deloitte Report and the Deloitte report stated that 33% of companies with a billion or more in annual revenues have banking relationships with 10 or more financial institutions. What we’re beginning to see a small to mid sized businesses are following suit to reduce risk and minimize operational disruptions that could occur during periods of bank instability. When you’re looking at it from a bank’s perspective, ultimately, the bank who can provide better cash visibility to their customers across their business customers, multi bank relationships will be well positioned to win the largest share of wallet. This is because the bank who owns a primary operating account with the business is the bank that the business will consolidate the majority of their services with creating the greatest revenue opportunity for the bank. And that’s really where we’re seeing a change in strategies. We’re seeing the banks themselves trying to provide better cash visibility, recognizing that it’s going to be across multiple relationships. And we’re seeing businesses expanding the number of relationships they have.
Whitney McDonald 3:32
Yes, multi bank relationships, and the diversifying of accounts is definitely something that we’ve been following along throughout the year, following those bank collapses. So how has this desire for multibank relationships really pushed banks to drive customer value prioritize relationships with those business clients? We saw that shifts and we saw that change in loyalty as well. So how do banks really step up here?
Kevin Pettet 3:58
You know, as I just shared, the bank who owns the primary operating account is the bank, the business will consolidate the majority of their services with and hence will be the bank who gets the largest share of the respective business customers wallet. As businesses look to de risk and expand banking relationships, they are in parallel, creating more competition for the banks to seek and retain and grow wallet share. So the businesses are focused on de risking, but they’re creating more competition for the banks themselves. So as a result, the banks must find new and differentiated ways to drive customer value. Given the trends we’re seeing in the market, driven by this instability in the higher interest rate, we see two key strategies that come to mind. And here a bottom line. We’re actually focused very much on both of them. The first is payment monetization. And what I’m talking about here is identifying a means and similar to a card interchange model where you can create new revenue streams for payments and businesses are already making. The objective here is to create a new shareable revenue stream without expecting or changing the payment activities that your business customers are already performing. And doing so the bank can then retain some of the revenue from this monetization while also sharing a portion with their business customers who are making the payments. Effectively, if you think about this, businesses are now getting paid to make payments, which encourages the business to do more payments through their bank partner and strengthens the overall relationship. Secondly, and I referenced it just a few minutes ago, caching is ability. Although multi bank relationships reduce the risk for the business, they actually create if you think about it a headache for the finance team. So we have to reconcile cash positions across multiple banking relationships. The bank who can provide a holistic view of a business of a business customers cash position across all banking relationships coupled with meaningful forecasting tools makes the business CFOs and finance teams job much easier, and becomes well positioned to own the primary operating account relationship.
Whitney McDonald 6:07
Now with those two examples that you just gave, and the investment that we’re seeing across the board with banks investing in technology, where does the technology fit into this? How can AI obviously, we can’t ignore AI right now, we can’t ignore data right now. How can this play a role? does technology play a role in financial institutions winning those new business clients, retaining those clients, as you had mentioned, that that competition is more fierce than ever, businesses
Kevin Pettet 6:35
are becoming more technically savvy, and they’re expecting more from their banks, and specifically from their relationship managers who support them. To be successful relationship managers must bring more than just a blend of technical and social skills. The business customers expect banks to understand their business and to be able to provide meaningful insights and predictive analytics to help the business compete and win as a foundation for building and growing relationships. If you think about it, predictive offerings around stuff like fraud prevention, customer retention, next product and buy are all becoming increasingly more important in the businesses as they compete digitally. Ultimately, a bank’s relationship manager needs to come up with solutions that solve real business problems to be successful in today’s market. Business banks need to focus on building these offerings and training and equipping the relationship managers to be digitally successful.
Whitney McDonald 7:31
Now, when it comes to this technology, you know that you gave a few examples there. Where can FinTech partners come in and support this effort, especially on the customer experience side? How can you really improve your bank’s offerings with these FinTech partners? And what should banks really be on the lookout for when selecting partners?
Kevin Pettet 7:51
I believe that partner with fintechs represents a real means of differentiation for banks. And banks should be looking for FinTech partners who can accelerate the bank’s ability to create new offerings with compelling value propositions and unique customer experiences. API’s, FinTech ecosystems around bank offerings, and embedded banking are key to delivering and accelerating this trend. That concern, if you think about it a few years ago was at fintechs with disintermediate the banks and they take the high value services away from the bank, leaving the bank to provide the commodity payment rails. Most most banks have moved away from this concern over the last several years and instead of learning to partner with fintechs, the strategy will continue and the ability to partner will be a source of strength for the best banks.
Whitney McDonald 8:42
Now, when it comes to which technology are the must haves, as banks kind of prep for 2024, they reevaluate their strategies they’ve been like I had mentioned before quarter over quarter tech investment continues to rise pretty much across the board. What are those must haves that business clients are asking for banks? What are those? I know that you mentioned fraud? I know that you mentioned on the customer experience side? What technology do the banks have to have in order to remain competitive within this within this market when deposits and just maintain those deposits that that they’re that they already do have?
Kevin Pettet 9:23
So I think there’s a I think there’s quite a few things here. I think first and foremost, payment monetization, which I covered earlier, is really all about helping banks identify new revenue streams, that they can then share with their business customers and strengthen their relationship. And secondly, all about cash visibility, given the multi bank relationships and the expansion of multi bank relationships. How do you make the CFOs job at a business easier? How do you help the CFO be able to see a holistic cash position across all of their banking accounts? So Those are two key areas we’ve highlighted. I think a third is really all around innovating around the payment, and specifically around real time payments. And I believe real time payments as you move into 2024 is going to find its way into being a holistic payment strategy for banks. If you think about the current interest rate environment, everything today is about liquidity. And it’s important to understand when you’re thinking about real time payments, that speed on its own does not make the value proposition for real time payments. Instead, it’s that real time payments, allow a business to wait until the absolute last possible minute and then still make a payment on time. You don’t make it faster, because you want to make a payment 10 days earlier, you make a faster payment, because you want to pay it on the last possible day and use that as a liquidity tool in managing your business. So ultimately, real time payments are not a strategy in and of themselves, but instead part of a comprehensive liquidity management capability that businesses can leverage and hence critical capability for banks to provide. And with the Clearinghouse it’s already here, fed now coming on board, you’re going to see a much stronger adoption, real time payments. It’s a capability that as a bank you need to be able to provide. That’s I think, as we close it’s important for banks to recognize that payments are not a commodity, but instead an area of focus for innovation and proof monetization. payments have often been looked at in commercial banking as a commodity as banks have focused on creating unique user experiences by owning the user interface. Whereas innovation around the payment has been a key strategy in consumer banking for quite some time with the rise of digital wallets and Person to Person payments as two relevant examples. And you actually spoke about them earlier on in the call. What we said at the bottom line for quite some time as an innovation starts on the consumer side and overtime migrates to the commercial side, which still holds true but we expect this migration to accelerate given the current market conditions. Higher interest rates are decreasing commercial loan demands of banks need to find ultimate means of revenue. And we believe that innovation around the payment is really the key or that to drive that incremental revenue will help fill the gap from decrease lending and drive incremental revenues for the bank.
Whitney McDonald 12:16
You’ve been listening to the buzz, a bank automation news podcast, please follow us on LinkedIn. And as a reminder, you can rate this podcast on your platform of choice. Thank you for your time and be sure to visit us at Bank automation news.com For more automation news
Transcribed by https://otter.ai
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City National Bank recorded a $247 million loss during a tumultuous fourth quarter that led to the ouster of its CEO, but executives at the bank’s Canadian parent company said they expect a return to profitability in the current quarter.
As interest rates have risen this year, the Los Angeles-based bank has been an albatross for its Toronto-based parent, Royal Bank of Canada.
Last month RBC announced a series of intracompany transactions involving debt securities previously owned by City National, which had lost value as a result of rising long-term bond yields.
Those transactions resulted in realized losses at City National, which were eliminated at the holding company level. But the transactions also bolstered the U.S. bank’s capital and liquidity position, and they are said to put City National in a better position to return to profitability.
“We still face overall challenges from funding costs, as you can imagine,” RBC Chief Executive Dave McKay said Thursday on a call with analysts. “But that will start to alleviate as you see rates start to come down in the U.S., maybe sooner than most people thought they would.”
Even more than many other U.S. regional banks, City National has been hit hard by the rapid rise in interest rates that started in 2022.
The bank’s deposit costs rose more quickly than company executives anticipated. And on a percentage basis, City National had the fourth-highest average unrealized securities losses among U.S. banks with at least $50 billion of assets, according to a six-quarter data analysis from KBRA Financial Intelligence.
After City National reported a $38 million quarterly loss this summer, RBC announced that former Fifth Third CEO Greg Carmichael would join the $94.6 billion-asset bank as executive chair. Then earlier this month, another former Fifth Third executive, Howard Hammond, joined City National as chief executive, while former CEO Kelly Coffey moved into a newly created role as CEO of the bank’s entertainment unit.
The $247 million loss that City National reported from Aug. 1 through Oct. 31 was equal to 54% of the U.S. bank’s net income last year — and 74% of its profits in 2021.
Amid the profitability challenges, City National has laid off more than 5% of its workforce. McKay said that the bank’s new management team has a clear focus on improving productivity. “We still have a very high expense ratio for a business of this size, compared to peers,” he said.
At the same time, RBC continues to make investments in what it calls the operational infrastructure of City National.
RBC executives also said that they’re focused on improving the coordination among the company’s three U.S. platforms — wealth management, capital markets and City National Bank. Derek Neldner, the company’s group head of capital markets, recently got a larger mandate that includes responsibility for the integrated strategy and performance of RBC’s U.S. businesses.
During the most recent quarter, one bright spot for City National was its net interest margin, which rose by 29 basis points on a linked-quarter basis to 2.78%. The company attributed the improvement partly to benefits from the intracompany sale of City National debt securities, as well as to lower levels of funding from the Federal Home Loan banks.
McKay described the expected return to profitability at City National in its fiscal first quarter — which ends on Jan. 31 — as a “stepping stone” toward more normal levels of net income in 2025.
When an analyst asked him whether, in retrospect, he would have done anything differently at City National, McKay said that the bank should have focused more on deepening relationships with multiproduct clients. His comments suggested that City National’s deposit costs rose as quickly as they did this year because many clients did not have enough products tying them to the bank.
City National focuses more on wealth management, an area where deposits have faced particular pressure this year, than many other U.S. regionals.
“Deposits came in so quickly and so easily to this franchise over the last five, six years,” McKay explained. “We focused on a lot of single-service lending. And I think if we had really focused on leveraging into multiproduct relationships, we’d see a different profitability model now.”
Still, McKay largely attributed the bank’s recent difficulties to macroeconomic factors that were outside of RBC’s control.
“This franchise has operated in this client segment for 60 years, and we have not seen this type of volatility in the overall business,” he said. “It came at us really quickly in March. And I think we’ve done a good job pivoting, and have a number of levers to do that.”
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Financial institutions are deploying investment technology in a bid to stop customers from withdrawing funds from their accounts and depositing them elsewhere. According to an October Fitch Ratings report, deposits for all United States banks dipped 2.4% between December 2022 and September 2023. U.S. Bancorp Investments and TD Wealth, for example, have doubled down on […]
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Capital One Financial wants a federal judge to dismiss a lawsuit filed by customers who received relatively paltry interest on their savings accounts and alleged that they were misled into assuming that they were earning higher rates.
In a court filing Thursday, Capital One noted that the annual percentage yield on its “Savings 360” account was disclosed to its customers in monthly statements. The McLean, Virginia-based company also pointed to contractual language stating that it had the right to change interest rates at any time at its own discretion.
Capital One argued that the plaintiffs are seeking the creation of a legal obligation that would require any bank that offers a new product to provide that product to existing customers who are enrolled in a different product.
“Plaintiffs’ request is legally unsupported, could have far-reaching and untenable consequences if granted by this Court, and should be rejected outright,” Capital One argued in its motion.
The lawsuit, which Capital One disclosed in a securities filing earlier this month, was filed by customers who initially opened accounts at ING Direct USA. After Capital One bought ING Direct in 2012, customers’ savings accounts became 360 Savings accounts.
The conduct at issue in the suit began in 2019, when Capital One started offering an account called “360 Performance Savings.” As of last month, 360 Performance Savings customers were receiving 4.30%, while 360 Savings customers were getting 0.30%, according to the complaint.
The lawsuit acknowledged that Capital One has the right to change the interest rates it pays. But the plaintiffs argued that the bank exercised its discretion unfairly, and that 360 Savings customers who went to the Capital One website and saw prominent ads for high rates on 360 Performance Savings accounts could be deceived into thinking that they were getting those rates.
Gregory Mishkin, a longtime Capital One savings account holder who lives in the Atlanta area, learned about the lawsuit last week from an American Banker article. The article led him to discover that he, too, has been receiving low returns, rather than the much more competitive rate advertised by Capital One for the 360 Performance Savings account, he said.
“I nearly threw up,” Mishkin said in an interview. “If I had any idea that they were playing these games, I’d just set up another account.”
Since the Federal Reserve began hiking interest rates last year, certain other online banks have also required existing savings account holders to establish new accounts in order to receive the best possible rate.
In its court filing last week, Capital One made a series of legal arguments in support of its claim that the suit should be thrown out.
Among those arguments is the idea that the plaintiffs are seeking to use state law in a way that would significantly interfere with Capital One’s ability to receive deposits, which is a federally granted power.
The lawsuit, which is seeking class-action status, alleges that Capital One violated certain state laws in Illinois, Virginia, Massachusetts and Pennsylvania that deal with consumer protection and deceptive business practices.
Capital One also noted that the plaintiffs did not point to any contractual provision that required the bank to notify 360 Savings customers about the creation of, or the existence of, the 360 Performance Savings account.
“Nor do they allege any facts showing that Capital One did anything to prevent them from learning about, or switching to, the Performance Savings account,” the bank wrote in its motion to dismiss the lawsuit. “On the contrary, they allege that Capital One advertised the Performance Savings account on its website …”
In their lawsuit, the plaintiffs said that between 2013 and 2019, Capital One advertised the 360 Savings account as a “high-interest” account, and that it later used similar language to describe the 360 Performance Savings account.
Capital One, in its filings last week, noted that the plaintiffs did not allege that Capital One promised to pay any specific rate. The bank wrote that the description of its accounts as offering “high” interest “is too vague and subjective to be an actionable misrepresentation.”
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This weekly news quiz is presented by the Charlotte Observer. To find more quizzes from the Observer, visit our profile on Sporcle.
Charlotte is a hot spot in the financial services industries with multiple banks headquartering in the Queen City. But out of those, which ones have the biggest market shares?
If you enjoy the stories and coverage you see at the CharlotteObserver.com and haven’t subscribed yet, consider a subscription here.
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First Citizens Bank headquarters in Raleigh, N.C. on Monday, March 27, 2023.
kmckeown@newsobserver.com
On March 27, Raleigh’s First Citizens Bank transformed its present and future by purchasing the remains of the failed Silicon Valley Bank. Overnight, it went from the 30th largest U.S. bank to the 16th, adding $56 billion in deposits and nearly doubling its loans.
The move surprised many in the finance world. Silicon Valley Bank was the go-to bank for early-stage tech startups before a bank run sparked its collapse on March 10.
“When you started one of these companies, you didn’t give another bank a second thought,” said Igor Jablokov, founder of the Raleigh AI management firm Pryon. “You just started working with SVB.”
In reputation and portfolio, First Citizens was the opposite. It was a family-run bank founded more than 120 years ago in Johnston County. While First Citizens would eventually move north to the burgeoning technology hub of Raleigh, it never focused on the type of venture banking done by the Bay Area-based SVB.
However, it did have a track record of buying distressed financial institutions. In that way, the acquisition made sense.
“I was excited because they’re a local bank,” said Jud Bowman, a serial entrepreneur in Durham who had an SVB account and loan for his startup Sift Media.
So, seven months later, how is Silicon Valley doing under First Citizens?
Answers arrived last week when First Citizens released its latest earnings.
In the five days following the sale, deposits in the SVB segment of First Citizens Bank fell $7 billion as clients moved money to larger banks that were perceived to be safer. By the end of April, deposits had fallen a total of $15.5 billion since First Citizens took over.
Since May 1, however, the deposit exodus has largely ceased. The SVB division of First Citizens finished September with roughly the same deposit level it had six months prior — $40 billion.
“From the data, it seems at least they’re not hemorrhaging (deposits),” said Qi Chen, an accounting professor at the Duke Fuqua School of Business.
First Citizens has put resources into reassuring startup founders that SVB is still a reliable banking option. It launched a nationwide “Yes, SVB” campaign and, despite laying off around 500 former SVB employees in May, First Citizens has retained several former SVB staffers in local markets.
The SVB managing director in the Carolinas remains Chris Stoecker, who is based in Raleigh. Stoecker has been with SVB since 2010 and previously worked at Square 1 Bank in Durham.
“I talk to Chris every few weeks,” Bowman said. “For SVB to survive and thrive under (First Citizens), they’ve got to hold on to that talent base.”
Like founders nationwide, Bowman felt the chaos of SVB’s demise this spring. Silicon Valley was itself the 16th largest bank in the country, with a reputation for helping technology startups stretch their venture funding. But as interest rates rose, some grew anxious about the company’s significant holdings of long-term bonds. This ignited a bank run, which prompted the federal government to assume control.
Bowman was unable to extricate Sift Media’s money before the Federal Deposit Insurance Corp. froze SVB accounts.
“Is this the end of the company?” he recalled thinking.
Under its business loan agreement, Sift Media was obligated to keep an account with SVB, he said. But Bowman is confident in SVB’s future regardless of this requirement.
“They understand they have to convince us,” he said. “I think they’re back.”
Bowman was further reassured a few weeks ago when he attended a dinner with First Citizens Bank President Peter Bristow, who married into the Holding family, which has led First Citizens since 1935. Bowman said he left the dinner feeling First Citizens would make a strong commitment to startups.
While Sift Media only banks with SVB, others in the Triangle who had exclusively banked with SVB now diversify their deposits.
“As a firm, we follow the same policies we suggested with our companies,” said Jason Caplain, general partner and cofounder of Bull City Venture Partners in Durham. “So we have a cash balance at SVB that’s now smaller in size and the rest we pushed off to another bank.”
Jablokov said SVB under First Citizens has been more “liberal” in permitting his startup, which has an SVB loan, to store some of its deposits at other banks as well.
“‘There’s no way any sort of (chief financial officer) in these startups is going to allow you to not have a backup (account),” he said. “So, we do have relationships with other banking providers now.”
Like Bowman, Caplain and Jablokov described the transition of SVB to First Citizens as seamless.
“For us, there’s been no change,” Caplain said. “Still the same account. Still the same software. Still the same people.”
Today, First Citizens is the 15th largest bank in the country with more than $200 billion in assets. Yet some Triangle entrepreneurs say they still prefer to keep funds with the handful of national banks more universally deemed to be “too big to fail.”
For example, the largest U.S. commercial bank, JPMorgan, has $3.4 trillion in assets. Charlotte-based Bank of America is second with $2.45 trillion.
“Since First Citizens purchased SVB, uncertainty has been largely diminished,” said Ben Scruggs, CEO of Altis Biosystems in Research Triangle Park. Still, he has decided to keep Altis’ primary accounts with bigger banks that he finds “understand small companies.”
Compared to deposits, SVB loan levels have more consistently declined since the acquisition.
The bank added $68 billion in loans with the sale but had around $57 billion as of Sept. 30, a 17% drop. This decrease slowed over the summer, and in its Oct. 26 earnings presentation, First Citizens said that about half of its recent loan slide was due to winding down SVB’s global banking unit.
Speaking to investors, First Citizens Bank CEO Frank Holding acknowledged that the current “private market investment landscape” continues to suppress fundraising activity, exits and deals.
Higher interest rates have caused the entire sector to be more cautious, said Chen of Duke University.
“The (loan) industry itself is in a quiet period,” he said. “Nobody wants loans, nobody’s getting loans. So, it’s not clear going forward whether those innovative small business startups, when they need money, will still come to SVB.”
First Citizens bought SVB’s deposits and loans in exchange for company stock worth up to $500 million. It’s a decision that appears to be paying off.
Since the acquisition, the share price of First Citizens has soared. On the year, the bank’s stock is up 79%. In contrast, the Dow Jones U.S. Banks Index is down 16%.
First Citizens beat analysts’ expectations last week, as the company ended September with around $146 billion in deposits. For comparison, the company had less than $88 billion in deposits the same time last year.
Holding told investors the SVB purchase has given his bank access to new U.S. markets it was “already targeting.” Legacy SVB has a strong presence in Northern California, while First Citizens’ California branches were clustered in the southern part of the state.
First Citizens seems to be hiring, too, at least locally. According to data provided to The News & Observer by the North Carolina Technology Association, First Citizens was the Triangle’s top hirer for tech jobs in September.
“First Citizens has experienced significant growth over the past couple of years,” company spokesperson Frank Smith said in an email. “As a result, we continue to assess our tech talent requirements and positions to ensure we are meeting the needs of our growing enterprise.”
This story was originally published November 2, 2023, 7:00 AM.
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IDFC FIRST Bank is confident of clocking a much stronger profit growth over the next five years on the back of a good show in its core operating performance, its MD & CEO V Vaidyanathan has said.
“Next few years we will be on a very very strong wicket. We believe the profitability of the bank will be much, much higher than today by an order of magnitude.
Since you said five years, I can only say that profitability will look much, much stronger because two things will happen. There is a power of compounding that will come into play and the second thing that will happen is that the power of operating leverage will come into play”, Vaidyanathan told businessline in an interview post the announcement of the bank’s Q2 performance.
Vaidyanathan was replying to a question about the strategic plan for the bank for the next five years and how he sees the profitability growth of the bank shaping up in the coming years.
Without giving a specific profit growth guidance, Vaidyanathan said he wanted to stick to only long-term guidance as the bank does not guide for quarter after quarter.
“We feel very confident that FY24 as a whole will be much better than FY23 as a whole, and FY25 as a whole will be much stronger than FY24 as a whole. And FY26, we feel will be much stronger in profitability than FY25”, he said.
This trend line of strong growth of profitability year-on-year will be sustained, Vaidyanathan said.
His remarks are significant as IDFC FIRST Bank had in 2022-23 recorded its highest ever net profit of ₹2,437 crore, higher than net profit of ₹145 crore in the previous fiscal.
For the just concluded second quarter ended September 30, 2023, the bank’s net profit grew 35.2 per cent year-on-year to ₹751.3 crore.
Currently, deposits of the bank are growing at 44 per cent, while the loan book is growing at 25 per cent.
“If you see the performance of the bank over the last many, many quarters, you will find that it’s very consistent in terms of its approach.
The approach is very simple, that we continue to grow, you know, the loan book in a steady manner. Our deposits should grow faster than our assets, that is our fundamental requirement”, he said.
IDFC FIRST Bank would also continue to keep a laser-sharp focus on maintaining high asset quality all the time, he added.
“So these are our approach, and in this larger approach, and larger opportunities, it is just another quarter in the process”, Vaidyanathan said.
He highlighted that the operating profits of the bank have grown by 35 per cent as against loan book growth of 24 per cent. “So long as operating profit grows further than the growth of the loan book, then the bank is becoming increasingly profitable”, he added.
For IDFC FIRST Bank, deposits have been growing by over 40 per cent for the last many years. “We feel that it can sustain like this for a while. We need deposits for two reasons — Number one is growth and the other one is to fund the repayment of the ₹15,000 crore of legacy infrastructure bonds that the bank is holding (since pre-merger days of Capital First and IDFC merger of 2018). Now those bonds are coming for maturity,” he said. This is the reason why the bank is growing deposits by 44 per cent, otherwise there won’t be a need to grow at this level.
So going forward, the bank expects the need for deposits will come down in the next 2-3 years (post repayment of legacy infrastructure bonds) and will also permit the bank an opportunity to further reduce deposit interest rates.
Asked about the net interest margin, Vaidyanathan said that it would continue to hover around 6% plus and there will be no conscious effort to expand it. “We are not looking at expanding it. We are quite happy. This is a good number”, he said.
Vaidyanathan said that the bank is trying to build businesses other than retail credit, MSME credit, agri credit and corporate credit.
“We are building our gold loan business. We are building the tractor financing business to meet PSL requirements. These are the businesses from a credit point of view,“ he said.
From a fee income point of view, the bank is building cash management and wealth management businesses, he said.
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Bloomberg
Two of the country’s biggest banks continue to rake in profits as the costs of their deposits rise less than expected, but it’s unclear how long the good times will last, or whether smaller competitors can pull off the same trick.
During the third quarter at JPMorgan Chase, net interest income increased 30% year over year, while it rose by 8% at Wells Fargo, as the interest the two megabanks charged on loans outstripped what they had to pay their depositors.
But executives at both companies were uncertain about whether their outperformance will continue, underlining an industrywide challenge if interest rates stay high longer than previously anticipated.
“We’re all in a bit of uncharted territory at this point with rates being where they are and the pace at which they got there,” Michael Santomassimo, chief financial officer at the $1.9 trillion-asset Wells Fargo, said Friday on an earnings call.
Interest expenses in the banking industry have jumped sharply, thanks to the Federal Reserve hiking rates from near 0% to more than 5% since March 2022. JPMorgan and Wells haven’t been immune to rising deposit costs, but the two banking giants have been able to keep a tighter lid on them than some competitors.
Still, JPMorgan Chase CFO Jeremy Barnum said Friday that the $3.9 trillion-asset bank has been “cautious about recognizing” that current levels of deposit costs don’t seem sustainable.
The growing likelihood of the Fed keeping rates higher for longer has clouded the profitability outlook for banks of all sizes — an issue that analysts will watch closely when regional banks begin to report their earnings next week. Industrywide net interest income is expected to decline in 2024 before picking back up in 2025, according to Jefferies research published this week.
Stronger-than-expected net interest income figures at JPMorgan Chase and Wells Fargo helped boost their stock prices on Friday by 1.50% and 2.99%, respectively. Shares in Citigroup, which reported a 10% pickup in net interest income, were roughly flat on Friday. Bank of America, the other of the four largest U.S. banks, is scheduled to report results on Tuesday.
Pittsburgh-based PNC Financial Services Group on Friday reported slightly lower net interest income for the third quarter, and its stock price fell by 2.62%. Executives at the $557 billion-asset bank said deposit-cost pressures have slowed, but they noted that the outlook on Fed policy is unclear. PNC said Friday its layoffs reported this week would affect about 4%, or 2,400, of its more than 60,000 employees.
JPMorgan revised higher its estimate of full-year net interest income, a key revenue driver in 2023. America’s largest bank now expects $88.5 billion of net interest income, up more than $2 billion from guidance released earlier this year.
While big banks are enjoying net interest income strength, analysts expect the comparable figures at regional banks to come under pressure in the coming months, thanks in part to rising deposit costs. Net interest income measures the difference between a bank’s lending revenue and its deposit costs.
Megabanks have more diversified streams of revenue than their smaller competitors, plus a broader footprint to pull in deposits, said Brian Mulberry, a portfolio manager at Zacks Investment Management.
“If it’s David versus Goliath, Goliath is only getting bigger, and it seems like they’re winning more at this point in time,” Mulberry said.
Still, even the largest banks have been forced to pay customers higher interest rates on deposit accounts. During the third quarter, interest expenses at JPMorgan rose 170% from the same period a year earlier to $21.8 billion. At Wells Fargo, interest-related expenses totaled nearly $9 billion between July and September, 275% higher than in the third quarter of 2022.
Total profit at JPMorgan rose 35% year over year to $13.2 billion in the third quarter. Wells Fargo’s earnings increased 61% from the third quarter of 2022, when it reported unusually high expenses tied to its regulatory troubles, to $5.8 billion in the latest quarter. At JPMorgan, revenue increased 22% to $39.9 billion during the same period, while it rose 7% to $20.9 billion at Wells.
JPMorgan said that its purchase of part of First Republic Bank drove about $1.1 billion of profit and $2.2 billion in revenue during the third quarter. But it also said that those metrics would have risen even without the acquisition, which was arranged by the Federal Deposit Insurance Corp. after First Republic failed.
Growing credit card balances helped drive loan growth at JPMorgan, which saw an 18% increase in total loans. Wells Fargo, which has been revamping its credit card portfolio under CEO Charlie Scharf, also reported double-digit growth in its consumer card business. In the San Francisco bank’s auto and home lending portfolios — two areas where it has been scaling back — loan volumes declined.
Wells Fargo’s overall loan totals were down slightly from the third quarter of last year, with Scharf citing weaker loan demand and tighter underwriting criteria amid a more uncertain economic outlook.
The economic environment will drive the direction of loan growth moving forward, JPMorgan CEO Jamie Dimon said on a call with analysts.
“Depending on what you believe about a soft landing, mild recession, no landing, you have slightly lower or slightly higher loan growth,” Dimon said. “But in any case, I would expect it to be relatively muted.”
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Orla McCaffrey
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