Happy Sunday,
Fed officials reiterate more rate hikes are likely. Consumer confidence rises. Home prices fall. Tougher capital rules on the way. Bowman says reforms should focus on supervision and liquidity. TreasurySpring raises $29Mn. Credit union auto lending slowdown possible. Wise’s profit spikes. Robinhood’s third round of layoffs. PacWest shores up liquidity. Ramp buys an AI company.
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Expect More Rate Hikes, Seriously.
Fed officials are making clear that last meeting’s “pause” was just that, a temporary break in rate hikes. In remarks last week, Fed Chair Powell emphasized the fight against inflation could take years. He doesn’t expect inflation to return to the central bank’s 2% target until 2025. That means more rate hikes could be on deck. Powell has signaled the Fed may hike rates at its next two meetings. Powell also emphasized that rates haven’t been restrictive long enough to have their desired impact. It all adds up to what has been a drumbeat from central banks around the world: expect rates to stay higher, longer.
Image: Bloomberg
Despite rising interest rates, consumers are feeling good about the economy. Consumer confidence rose to its highest level since early 2022, buoyed by a resilient job market and somewhat lower inflation. Fewer Americans expect the economy to enter recession. Still, consumers are exercising caution, with a rising share indicating they may pull back on major purchases.
Finally, in what could be thought of as good or bad news, depending on whether or not you own a home, U.S. home prices posted their first overall decline since 2012. The Case-Shiller national home price index posted a 0.2% drop vs. last year.
Basel III Endgame: Tougher Capital Rules on The Way
Tougher capital rules for mid-sized banks are coming, FDIC Chair Martin Gruenberg said last week. The updated rules, popularly known as “Basel III Endgame,” will be “very, very skewed” to the eight largest U.S. banks, with “some increase” for other banks. Banks under $100Bn in assets are not expected to be impacted by the updated capital requirements. The recent collapses of Silicon Valley Bank, Signature, and First Republic have likely influenced how regulators have thought about implementing the Basel III updates. The FDIC is collaborating with the OCC and the Fed to ensure consistency across regulatory regimes. Regulators expect a proposed rule should be released for public comment in the near future.
Fed Gov Bowman: Focus on Liquidity, Supervision
In other bank capital requirement news… Fed Governor Michelle Bowman argued that any reform stemming from recent bank collapses should focus on liquidity and supervision, not on capital requirements. In a speech last week, Bowman argued that some reforms currently under consideration are based on “faulty assumptions or incomplete information.” Policy changes could have sweeping and unintended consequences, Bowman said.
She argued, “Misperceptions and misunderstandings about the root causes and related issues could result in changes that are not only unnecessary but result in real harm to banks and their customers, to the financial system, and to the broader economy.” One possible consequence could be continued consolidation in the banking sector, leading to a “barbell” distribution of institutions. The result could be fewer choices for consumers and less competition.
TreasurySpring Raises $29Mn
U.K.-based TreasurySpring announced it has raised a USD $29Mn Series B. The round was led by Balderton Capital, with participation from Mubadala Capital, ETFS Capital, MMC Ventures, and Anthemis Group. TreasurySpring offers a platform to help businesses of any size maximize returns from idle cash. The platform offers over 600 cash investment products across seven currencies and three categories. With rising rates (and bank failures), treasury management has become a top-of-mind issue and attracted increased VC investment.
Credit Union Auto Lending Facing A Slowdown
Some credit unions have gone all-in on auto lending. At the end of Q1, auto loans at credit unions stood at some $493Bn – an 18% jump year over year. But with enduring fears of a recession, rising vehicle prices, and continued interest rate hikes, many analysts believe the prospects of that trend continuing have dimmed. Still, not all industry analysts agree. Despite softening in the used car market, some experts still see room for growth in new car financing, if loans are priced right.
Wise Profit Spikes on Rising Rates
A rising tide lifts all boats, or so the saying goes. That might not be true for rising interest rates, though they’ve helped Wise (formerly known as TransferWise) nearly triple its profits. The company reported overall income rose 73% to £964.2Mn (USD $1.22Bn), thanks to growing user balances and rising rates. Profit before tax nearly tripled to £146.5Mn (USD $186.5Mn). Wise’s share price jumped 16% on the news. Wise certainly isn’t the only U.K. or European fintech to benefit from rising rates. Monzo, Starling, and bunq, all of which are licensed banks, have seen interest income jump as rates have increased. Meanwhile, U.S. neobanks, most of which partner with licensed banks to hold customer deposits, haven’t seen the same benefits.
Robinhood Does Third Round of Layoffs
Robinhood, which last week announced the $95Mn acquisition of credit card startup X1, is laying off 7% of its workforce. That amounts to about 150 employees. It’s the no-fee brokers third round of layoffs in less than a year. About 1,000 workers were let go in the previous layoffs. The new cuts primarily impact customer service, platform shared services, and trust and safety teams. Robinhood, like other recently-public fintechs, has seen its share price drop dramatically since it began trading. The company’s stock is down about 86% from its record high, though it is up about 18% year to date.
PacWest Shores Up Liquidity
Struggling regional bank PacWest is continuing to shore up its liquidity position. Last week, the lender reached an agreement to sell a $3.54Bn portfolio to Ares Management. PacWest got just over $2Bn in the deal. The move comes after last month’s sale of a $2.6Bn portfolio of construction loans to a real-estate investment firm.
Ramp Buys an AI Company
Seems like every fintech company wants to be an AI company these days. Corporate expense management and charge card startup Ramp is no exception. Last week, the company announced it has acquired AI customer support platform Cohere.io. Cohere has raised about $3.5Mn in funding to date. Terms of the deal were not disclosed. Cohere claims to have leveraged AI and large language models (LLMs) to automatically resolve customer support tickets with high degrees of accuracy.
In the News:
Americans paid 14% more for financial services last year (American Banker, 6/25/2023) A new report shows rising interest rates, increased borrowing and services fees cost Americans more last year.
Nearly Half of Main Street SMBs Shopping for More Credit (PYMNTS, 6/27/2023) With 40% of SMBs worried about inflation, nearly half are planning to increase their use of credit to manage cashflow needs.
A return to “normal” debt – financially vulnerable left behind (Fintech Nexus, 6/27/2023) Spending on financial services rise as financially vulnerable increase use of high-cost credit.
These banks have lots of office loans. Here’s why they say it’s OK. (American Banker, 6/27/2023) Banks without size commercial real estate exposure say there are reasons not to worry.
HCG Fund Management, LP to Purchase Loans Facilitated by Shopify Capital (PRNewswire, 6/27/2023) HCG has agreed to purchase an unspecified amount of loans originated by Shopify Capital.
Sendwave launches bank account for migrants (Finextra, 6/27/2023) Sendwave, a remittance platform, announced it is launched a bank account for U.S.-based migrants.
Sardine forms industry consortium to help tackle payment fraud (Fintech Futures, 6/28/2023) Fraud platform Sardine announced SardineX, a fraud data consortium.
How Real-Time Payments Can Right-Size Small Business Cash Flow (PYMNTS, 6/28/2023) Real-time payments can offer increased flexibility to cashflow-constrained SMBs.
Square rounds out banking services with rewards that pay for processing (American Banker, 6/28/2023) Square announces American Express-powered credit card with $1 of card processing rewards for every $3 spent.
Lighter Fare:
These Orangutans May Not Be Beatboxing But They’re Definitely Doing Something (Defector, 6/27/2023) Was beatboxing a precursor to human language?