Happy Sunday,

Retail sales, PPI fall in signs of slowing economy. OCC warns big banks might be “too big to manage.” CFPB sets sights on cross-border fees. Tabby, BNPL for MENA, raises $58Mn. Signature taps FHLB funding. Tech and banking layoffs continue.

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Retail Sales, PPI Fall

U.S. retail sales fell 1.1% in December. That’s the fastest pace of decline in 2022. Figures were also revised lower for November and have fallen in three out of the past four months. The shrinking retail sales figures suggest interest rate hikes are beginning to slow the economy. However, all signs point to the Fed continuing to hike. St. Louis Fed President Bullard supports that view. He recently stated the Fed should hike an additional 50bps at its next meeting.

Image: Wall Street Journal

Meanwhile, the producer price index for final demand showed its largest decline since the onset of the pandemic. The index fell 0.5% in December from the month prior, though it is still up 6.2% year over year. The decline has been primarily driven by drops in volatile food and energy prices.

Too Big To Manage?

Forget “too big to fail,” the OCC now is worried about institutions that are “too big to manage.” The comments from Acting Comptroller of the Currency Michael Hsu suggest that mega-banks with repeated regulatory lapses may need to be broken up. Hsu said that for banks that have repeatedly had regulatory and compliance issues, the most efficient solution may be to reduce operational complexity by divesting business lines, rather than remediating compliance systems and processes.

While Hsu didn’t name a specific bank his remarks, the comments come on the heels of the recent revelations that scandal-plagued Wells Fargo had mismanaged servicing and collections related to auto loans and home mortgages, resulting in consumers improperly being foreclosed upon and having vehicles repossessed.

While headline-grabbing, Hsu comments are aligned with the Biden administration and other financial regulators’ concerns about perceived risks from continued growth and concentration of U.S. banks.

CFPB’s Sights Set On Cross-Border Fees

Last year, the CFPB was arguably quite successful at pushing banks to reform overdraft and NSF practices, even without undertaking specific rulemaking on the subject. Now, it looks like remittance fees may be the bureau’s next target.

Specifically, reports indicate the bureau is investigating if the ways in which remittance services disclose exchange rates and fees make it difficult for consumers to compare and select the least expensive option. In a recent letter CFPB Director Chopra sent to Sen. Elizabeth Warren (D-MA) related to the matter, he said that the agency “believes there is significant noncompliance” with existing remittance rules.

MENA BNPL Tabby Raises $58Mn

The BNPL party might not be over – at least, outside the U.S. While mainstays like publicly traded Affirm and private Klarna have seen their valuations crater, Tabby, a MENA region buy now, pay later startup recently raised a $58Mn round at a $660Mn valuation. The Series B extension was co-led by Sequoia Capital India and STV with participation from PayPal Ventures last June.

The Dubai-based company plans to use the funding to expand Tabby’s product lines and support the company’s growing operations.

Signature Banks Taps FHLB Amid Crypto Rout

For banks with heavy exposure to crypto companies, 2022 was a rough year. When things were on the upswing, these relationships were a source of growing and cheap deposits. But as those flows have reversed, banks in the sector have faced a liquidity crunch.

Now, Signature Bank is tapping Federal Home Loan Bank advances to help blunt the fallout from the crypto deposits drawdown. Signature has more than quadrupled its borrowings from the FHLB of New York to some $11.3Bn.

However, Signature has sought to distance itself from other crypto-linked banks. Unlike Silvergate, which was highly dependent on crypto-related companies for deposits and revenue, Signature is a “well-diversified” financial institution with most of its loans in multifamily real-estate, execs said on its recent earnings call.

Still, the appearance of FHLB advances being linked to trouble in the crypto markets is likely to raise some eyebrows, given the policy objective of the program is to increase access to homeownership by making credit more affordable and widely available.

Layoff Report: Goldman Sachs, LendingClub, Pagaya, Microsoft

There’s no sign that banking and tech layoffs are slowing down. As had been widely expected, Goldman laid off some 3,000+ employees last week, including many linked to its floundering retail banking ambitions. Underwriting software startup Pagaya announced it would cut 20% of its workforce, incurring a one-time charge of $4Mn but bringing the company $30Mn in savings annually. Microsoft, long thought of as a safe and steady employer, is making plans to layoff as many as 10,000 workers as the tech slowdown hits its software business. And LendingClub is trimming 14% of its workforce, the company announced last week.

Earnings Season Continues: Charge-offs Rising, Goldman Consumer Updates

This week in earnings coverage, financial services companies continued to report, with Citizens, PNC and Goldman falling after missing earnings estimates. Despite beating estimates, Discover ended the day in the red after releasing higher 2023 net charge-off guidance than expected.

Source: PeerIQ

As we have seen across the lending industry, charge-offs have risen from the third quarter (Discover +42bps, PNC +13bps, Citi – Retail +7bps, sequentially). Goldman’s CFO Denis Coleman stated that, “We are seeing early signs of credit deterioration that are in line with our expectations.” Citizens noted that its bottom two deciles of consumers are living paycheck-to-paycheck, with any government stimulus “already burned off and in the rearview mirror.”

With the effects of stimulus past us and inflation eating into consumer’s paychecks, deposits have trended slightly lower on a sequential basis (PNC (1.0)%, Citizens (0.3)%).

Goldman reported its first earnings since restructuring its business units and laying off 3,200 employees. Notably, Goldman’s consumer business was divided, with its card partnerships (Apple, GM) and specialty lender GreenSky moved into its Platform Solutions division and the rest of Marcus and the consumer business moved into its Asset and Wealth Management division.

Goldman also announced that it would cease offering new loans on its Marcus platform, as part of a broader step back from its consumer business. Additionally, management announced that it would be shelving plans to roll out a checking account for its wealth management customers.

Despite this, Goldman continued to grow its installment loan business, reporting $6Bn for the quarter, an increase from $5Bn a quarter prior and grew its credit card loans to $16Bn, from $14Bn a quarter prior.

In the News:

Affirm Fixes Glitch Causing Multiple Charges (American Banker, 1/13/2023) Customers had posted complaints about a glitch causing multiple charges on their bank accounts for payments on BNPL loans.

Several Big Banks Will Resume Buybacks After 2022 Breather (American Banker, 1/13/2023) JPMorgan and Wells Fargo had paused buybacks in the second half of the year, but executives said on earnings calls that they expect to resume buybacks this quarter.

A Crypto Magnate Saw the Risks and Still Was Hammered (Wall Street Journal, 1/17/2023) CEO Barry Silbert of Digital Currency Group is fighting to keep its brokerage firm out of bankruptcy.

PayPal’s Evolving Strategy in a Crowded BNPL Market (TearSheet, 1/17/2023) Interview with Steve Mikulcik, VP of Global BNPL at PayPal, about the ramifications of such a fast-growing industry.

Founders of Bankrupt Three Arrows Capital Plan Trading Platform for Distressed Crypto Debt (Wall Street Journal, 1/16/2023) The founders are seeking $25Mn in seed money for the platform.

CEO of SoftBank-Backed Clearco Resigns as Onetime Fintech Darling Cuts Staff (The Information, 1/15/2023) Clearco provides capital to e-commerce businesses in exchange for a cut of future revenue.

What to Watch in Fintechs’ Q4 Earnings (American Banker, 1/17/2023) Look for inflation’s impact, product development, and balance sheet resilience.

The Problem at Goldman Sachs Isn’t What You Think (Wall Street Journal, 1/17/2023) Goldman’s consumer business isn’t a huge factor in overall performance in metrics such as return on equity.

Goldman to Exit Personal Loans as Marcus Reshuffle Continues (American Banker, 1/17/2023) Goldman is also shelving plans to roll out a checking account for its wealth management customers.

How the Role of Partnerships is Changing in the Embedded Finance Ecosystem (TearSheet, 1/12/2023) New research finds that financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion, or nearly 5%, of total U.S. financial transactions in 2021 – and is expected to exceed $7 trillion by 2026.

In Hunt for FTX Assets, Lawyers Locate Billions in Cash and Crypto (New York Times, 1/17/2023) Lawyers said they had located $5.5Bn in assets.

Lighter Fare:

Are We Living in a Computer Simulation, and Can We Hack It? (New York Times, 1/17/2023) David Anderson, a computer scientist, and enthusiast of the Search for Extraterrestrial Intelligence (SETI) dives into how people would want to tweak the cosmic algorithm.