What to expect in 2023: The health of borrowers is the most important concern for all finance in the coming year. An optimistic view would be that inflation is quickly brought under control without interest rates rising too much higher; and any recessions will be short and shallow. In that world, only the riskiest borrowers are likely to get into trouble. However, that still means loss, and that’s the optimistic view!
Big Banks will show Fintech who is the big boss
The biggest banks with the strongest balance sheets — such as JPMorgan Chase & Co., Bank of America Corp. or BNP Paribas SA – should be able to take this scenario in stride. But even in this scenario, many of the younger fintechs that have expanded rapidly into consumer lending are likely to be in for a rough ride because of their greater concentration in riskier, now overextended borrowers.
It is not only companies that specialize in Buy-Now-Pay-Later loans, such as Klarna AB, that seem to have increased their business and employees too ambitiously in recent years. Job cuts and collapsing valuations have spread across the fintech sector, including major payments companies such as Stripe Inc. A real shakeout in fintech is coming and big banks that are still making billions of dollars in investments in technology will be in a strong position to reassert their power over its upstart competitors – this could be through acquisitions, or simply by winning back customers who have strayed.
From the year behind us: No, Credit Suisse is not on the brink: The Swiss bank had a shocking 2022 to follow a terrible 2021. It lost its still-new chairman Antonio Horta-Osorio in January and fired its CEO Thomas Gottstein in summer and finally launched a radical restructuring that is worryingly high-risk and low-return. It has also lost many senior bankers, assets and clients along the way. But despite its billions in financial losses, its state of perma-scandal and its total share price collapse, there was a social media-fueled panic that Credit Suisse would fail within days.
Jamie Dimon’s UK Startup Is Really a Global Story: It was hard to understand why JPMorgan would bother to launch a small digital bank in the UK’s competitive market until you realized it was a testing ground for technology to be used worldwide. It’s also part of CEO Dimon’s aggressive technology-driven ambitions for the US bank. The huge investment budget is more than the income of most US banks.
Why Wall Street can’t escape the culture wars: Social conservatives love to attack anyone they consider “woke,” and US banks were thrown over guns, fossil fuels, Covid vaccines and abortion. Some like Citigroup sought the publicity that made them a target, and this column looked at a commercial explanation for the strategy. Big names like Goldman Sachs are still moving people and operations to red states, and that could dilute the culture wars in the future.
The $24 trillion Treasury market needs more than just clearing: It’s the most important market in the world that helps set the price of almost everything else in finance—but it’s too big to trade and liquidity is deteriorating. Since this column came out, US authorities have signaled support for the idea that allowing many more banks, investors and market makers to trade directly in government bonds could help make it more robust.
I can’t be the only one who doesn’t want WFH: I like the office, what can I say?! The limitations of the Covid pandemic showed us how technology allows information workers – like myself – to do our jobs from anywhere, technically speaking. It could mean that financial centers like London and New York are becoming obsolete. But people are social and there is still much to be said for doing work in the flesh.
This column does not necessarily reflect the opinion of the editors or Bloomberg LP and its owners.
Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.
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