Bank Wars; ABS East + Blockchain; Housing

By Vy Phan

September 29, 2019

Greetings,

This week, we touch on the latest bank wars, highlights from ABS East, and improving US Consumer Balance sheets.

Since the financial crisis, the top 5 banks seem to have won the first chapter in the deposit wars, commanding over 60% of deposits. However, the big banks are losing origination share to nimble, digital rivals and risk losing more share to neo-banks.

Over the past ten years, the largest American banks – Wells Fargo, JPMorgan, and Bank of America – have seem their share of home loan originations fall 30% as digital customer friendly non-banks such as Quicken Loans take share.

Competition is on the rise with new players and digital mortgage tech companies (Better, Blend, Roostify). New brands including GS (Marcus), Apple (Apple Card), T-Mobile (basic bank accounts), and Facebook (Libra) are also making new plays despite regulatory scrutiny. Check out the FT’s Digital Upstarts Muscle in One Core Banking Services for more.

Source: PeerIQ, Financial Times

This year’s ABS EAST highlights included a keynote from Mohammed El-Erian and Mike Cagney, CEO of Figure. El-Erian addressed the questions on everyone’s mind – and shared his expectation of no recession thru 2020. However, he did take the contrarian view that the trade issues with China will not be settled by the next presidential election, and that there are reasons for it to get worse rather than better.

Figure was a prominent sponsor at the ABS East conference. Cagney’s keynote was a recap of the benefits of blockchain: stripping out intermediation costs (citing audit, payee agent, trustee and other fees as cost saves) with longer-term improvement in credit ratings and liquidity. Many participants were expecting a transaction announcement. Although none was announced, the expectation is that one is coming soon. One of the panelists noted, “As with all good things, it takes time.”

An open question lingering at the conference is how secondary trading might evolve under the blockchain. Would dealers be willing to write deals on chain without restrictions, or would they seek to protect asymmetrical advantages that otherwise go away with a frictionless blockchain (e.g., tighter bid/ask spreads reducing margins, the ability for buyers/sellers to find each other without a dealer, greater ability of security holders to organize and assert investor rights, etc.). It’s not too hard to imagine algorithmic trading with the registry and exchange capabilities of the blockchain following in short order.

In U.S Housing, borrower home equity is hitting all time highs. Homeowners with a mortgage saw equity increase by 4.8% since 2Q2018. This equates to $4,900 gained per American homeowner and a strengthening of the US consumer balance sheet.

In financing news, Marlette introduce a unitranche, pass-thru, DTC-settled security. Marlette’s Head of Capital Markets, Karan Mehta, noted “MAPT provides an avenue for investors to gain exposure to our high-quality loans in a liquid and easy to understand format.” Check out our earlier blog post on why issuers such as Marlette and others are shifting towards CUSIPs to learn more.

Industry Update

Want to crush competitors? Forget SoftBank, Blackstone suggests; it can write $500 million checks, too (TechCrunch, 9/21/19) TechCrunch sits down for a discussion with Blackstone’s Jon Korngold, the head of their new growth, equity platform, BXG.
How Private Credit Soared to Fuel Private Equity Boom (Washington Post, 9/24/19) Non-bank lending is on the rise, ballooning from $42.44BB in 2000 to $776.9BB in 2018.
No Banking Charter? No Problem. Fintechs Team Up With Small-Town Banks (Washington Post, 9/23/19) Believe it or not, the money earned by colossal fintechs (without banking charters) like Square Inc. are more likely to be found in a smaller community bank rather than Silicon Valley.
Digital upstarts muscle in on US core banking services (Financial Times, 9/23/19) The largest banks have been witnessing their share of home loan originations fall from nearly 50% in 2010 to 20% in the first half this year as new businesses make their way into the game.
Borrower home equity rises to all-time high in first half of 2019 (Housing Wire, 9/25/19) Since 2Q2018, homeowners with a mortgage (most of homeowners) saw a roughly 5%, $428 billion increase in equity – about $5000 in gained equity per homeowner.
Marlette Funding Announces MAPT, A New Pass-Through Program to Finance Best Egg Personal Loans (PR Newswire, 9/23/2019) New securities program will provide another, much simpler method for investors to gain exposure to the company’s loan services.

Lighter Fare

NASA's new black hole simulation is mesmerizing (CNET, 9/25/19) Want to feel small, or maybe doomed? Check out Jeremy Schnittman’s black hole visualization