Weekly News Digest 1st November 2019

Mastercard's quarterly results reiterated the upbeat consumer sentiment that has been a feature of this earnings season, particularly in the United States, where unemployment is now at its lowest rate for almost half a century. The scheme recorded a 22 percent rise year-on-year in transactions processed, led by a whopping 31.4 percent leap in Europe; in the United States, the equivalent upswing came close to 12 percent. Value-wise, the global network processed $1.65 trillion during the three months to 30 September, a rise of 12.4 percent. "The impressive growth in transactions indicates that the global schemes are using technology to grow rather than facing disruption as some predicted", commented David Hickey of Verisk Financial Research. "For example, they have gained share from domestic schemes by rolling out contactless technology more quickly, and Mastercard in particular have had success by partnering with fintech and digital banks in Europe."

Banks too have been releasing their latest trading statements: overall revenues of HSBC's retail banking businesses were described as "broadly stable" by the company's chief financial officer and "powerful and profitable" by his boss, interim group CEO Noel Quinn, in an earnings call earlier this week. Their claims were supported by adjusted results that showed revenue from credit cards up by five percent to $2,187m for the nine months ended 30 September 2019. However, those positive messages were swamped by the group's larger performance, which missed a number of key targets and sees HSBC now in line for restructuring. Concluding the call, Mr Quinn pointed out that the retail banking and wealth management "combination has demonstrated, time and again, its ability to provide strong profits and good returns for shareholders and is integral to the HSBC history, identity and investment case".

HSBC is a perennial in any ranking of the world's biggest banks; the Chinese lenders that now top those lists had a good reporting round, with Bank of China (BoC) noting a three percent rise in net profit versus the same quarter last year while China Construction Bank (CCB), at just over six percent, more than doubled BoC's performance on this metric; ICBC, Bank of Communications and Agricultural Bank of China (AgBank) also beat profit estimates. Compared with the end of 2018, the rise of loans and advances to customers among the Big Five banks in the country ranged from 7.26 percent (Bank of Communications) to 11.57 percent (AgBank).

In Europe, the traditional banking giants find themselves weighed down by costs and poorly performing divisions, with British bank results also affected by the enormous cost of compensation to customers for payment protection insurance (PPI) mis-selling.But there were bright spots, even at Deutsche Bank, whose chief executive noted that the core quartet of divisions (one of which is private/commercial banking) reported pre-tax profits, with even the Financial Times, a trenchant critic in recent years, conceding that "cuts have been hard and progress had been made". Cost-cutting has also been the order of the day at BNP Paribas, which beat expectations with third-quarter net income of €1.9bn ($2.1bn). Santander's group results, thanks to its significant presence in Britain, may have been marred by PPI but also recorded striking progress in Brazil, where net profit rose by almost a quarter. No such luck at Lloyds Bank, with no Latin-American operations to offset its PPI burden: the firm failed to meet pre-tax profit expectations, although loans and advances to customers rose by £6.2bn ($8.0bn) to £447.2bn. Standard Chartered's numbers revealed that retail banking had risen four percent year-on-year (to $1.32bn), while retail lending by Netherlands' ING rose by €3bn, though overall costs climbed and underlying pretax profit fell.

Turning from the seasonal avalanche of financial results, Uber deepened its involvement in financial services this week with the establishment of a new division: Uber Money, whose new chief floated the idea that, at some point, the ridehailing firm might also offer bank accounts to its users. For now, offerings include a digital wallet together with support services for Uber's credit and debit cards. According to City AM, the latter is first being offered, in association with Green Dot, to the firm's drivers and couriers (now numbering a remarkable four million), with a fee-free arrangement for deposited earnings and a $100 overdraft facility, also free of fees. Another fintech story to keep an eye on comes from Raisin, which made its name in Europe by identifying the best interest rate for customers looking for a bank account. The Berlin-headquartered company has decided to step up its expansion plans for the American market. And why not? Its chief executive says that, while Raisin can raise the return on European deposits from zero percent (in Germany) to 0.7 percent (in Italy or Bulgaria), the interest rate spectrum runs from 0.01 percent to over two percent in the United States.

To end, links to some other stories of interest this week...

• Australia: PayPal and Citi partnering on consumer credit products
• Russia: Sberbank 3Q profit down by a third after Denizbank sale
• UK: RBS pushes button on new payments service
• US: Credit cards betray signs of consumer fatigue
• US: Airline credit cards are getting a makeover