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US banks abandon crisis-era taboo of growth

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There was a telling moment during Goldman Sachs' earnings call this week.

Marty Chavez, the bank's chief financial officer, had trotted through some third-quarter numbers, which were mostly better than analysts had expected. Bond trading revenues were down a lot from a year earlier but many other business lines were up, including financial advisory, investment management and the private equity-like segment known as investing and lending.

Then came a question about deregulation, to which Mr Chavez said he hoped conditions would ease on various fronts, citing the Volcker ban on proprietary trading and rules emanating from Basel on liquidity. But even without a gentler ride from regulators, he said, Goldman's priorities had changed, after years of struggling to adjust to ever-tighter rules.

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Last month the bank set out a plan to earn an extra $5bn in annual revenue by 2020, including a roughly seven-fold increase in consumer loans supplied via Marcus, the new Lending Club-like platform.

"I'm happy to say our focus has shifted beyond the implementation of regulations . . . to growth," said Mr Chavez.

No other big US bank put it that bluntly, but the sentiment seemed to be shared. With the notable exception of Wells Fargo, still trying to shake off the damage of its fake-account scandal, executives were making encouraging noises about new businesses and top-line expansion as they presented third-quarter results.

At Citigroup, for example, which shed about $500bn of assets in the years after the crisis, CFO John Gerspach talked about growth in credit cards in Mexico and wealth management in Asia. At Bank of America, which added about $90bn of assets over the year, CFO Paul D'Onofrio said he welcomed any "refinement" to rules that "allows us more access and control over our capital [and] liquidity in support of responsible growth".

At Morgan Stanley, James Gorman said the bank "won't be shy" about doing deals such as last month's acquisition of Mesa West Capital, a commercial real estate platform — prompting one analyst to remark on the chief executive's "more aggressive" tone.

"We're not looking for any grand splash here, but we're open for business opportunistically," said Mr Gorman.

JPMorgan Chase is also back buying things. On Tuesday afternoon the biggest US bank by assets announced the acquisition of WePay, a Silicon-Valley based provider of tools for websites to facilitate online payments. The price — undisclosed, but reckoned to be above the $220m valuation WePay achieved in a fundraising two years ago — makes this the biggest whole-company deal the bank has done since the rescue of Bear Stearns in March 2008, according to Dealogic.

For most of the post-crisis years, growth was something of a taboo. Supplying much-needed credit to the world's largest economy was fine by the regulators, of course, but any activity that might make a bank more complex and harder to manage — such as merging with another big bank, or even bolting on a smaller company — was frowned upon. Examiners' focus was squarely on conserving capital and enhancing liquidity, while working through the myriad parts of Dodd-Frank, the Obama administration's big effort to toughen standards on Wall Street.

Now the mood has changed in Washington. Few laws have been ripped up, as yet, despite Donald Trump's early pledge to "do a number" on Dodd-Frank. But new figures in agencies such as Randy Quarles, appointed this month to the most powerful bank regulatory job in the country, should make a real difference. Trade groups say they are expecting him to take a looser grip on the banks than Daniel Tarullo, the previous supervisor-in-chief at the Federal Reserve.

"Dan was a product of the crisis; he was given a mandate to fix the system as he saw the problem," says Tim Adams, president and chief executive of the Institute of International

"I think there's a different mandate now, [which is] how do you ensure the system is safe and sound and resilient, while also ensuring you have balanced growth and that financial institutions can support economic activity." Finance, and a former colleague of Mr Quarles' in the Treasury Department of George W Bush.

Many investors still view the US banks with caution. Ken Fisher, founder, chief executive and co-chief investment officer of Fisher Investments, a Woodside, California-based firm with $89bn under management, says he has been cutting exposure to the big US banks across the board following the big run-up in prices since November.

But others have sensed a turn.

"Every time I look at the banks, I see a number of things that can go right and fewer things that could go wrong," says Mike Mattioli, a portfolio manager looking after about $20bn in assets at Manulife Asset Management in Boston. Reasons to be upbeat include growth in mortgages, a return of "animal spirits" in small-business borrowing, and a "little bit more leverage" in balance sheets, as regulators allow banks to return more capital in the form of dividends and share buybacks.

"I'm not saying all of them will happen, but if you get two, three, four of them, it could look pretty good," he says.

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