Weekly News Digest 4 December 2020

US: Banks finding it harder to turn a profit as economy struggles

Net interest income for American banks saw a record-breaking fall of just over seven per cent in the third quarter, according to new figures from the Federal Deposit Insurance Corporation (FDIC) in Washington, which characterised the new level as "unprecedented". The net interest margin too was lower than ever recorded by the agency before, falling by 68 basis points year on year to a new low of 2.68 per cent. The Motley Fool spotlights the performance of one particular household name in its coverage, noting that "Bank of America [BofA] saw a more than eight per cent decline in its third-quarter net interest income, to just over $10.1 billion", as profits fell 16 per cent. With its consumer-banking heritage and heavy reliance on deposits, BofA is particularly hard hit by a low interest-rate period that has now been dramatically extended by the pandemic.

UK: Cardholders take the opportunity to reduce outstandings

In Britain, the Bank of England too is reporting data that signal historic shifts, in its case recording the greatest year-on-year drop in consumer credit borrowing for over a quarter of a century. Non-mortgage lending to consumers was understandably weak in October, with the net repayment level for credit cards being a key driver: almost £450 million [$605m] was paid back by credit card borrowers that month. British consumers have been determinedly paying off their credit cards this year: according to Experian figures in the summer, cardholders paid off almost £2,000 each in the March to June period. Prior to the pandemic, the level of outstandings in Europe's biggest credit cards market was already showing signs of plateauing thanks to increasingly stringent rules on persistent debt.

Ireland: Second lockdown data reveals spending and retail adjustments

Across the Irish Sea, the central bank in Dublin has published figures that reveal the effects of ongoing restrictions and lockdowns, the most severe of which ended on Monday after six weeks. Deposits and repayments are way up, with the latter outstripping loans by €533m [$647m], calculated on an annual basis. Between 22 October and 23 November, payments cards spend fell by just seven per cent, thanks in large part to click-and-collect arrangements and burgeoning e-commerce, supported by new online facilities from bricks-and-mortar retailers that are being heavily promoted in the media. The comparatively minor fall stands in sharp contrast with the whopping 27 per cent year-on-year drop experienced in April during the first lockdown. In other news from Ireland, Berlin-headquartered Vivid, which only launched in Germany this year, is planning to launch on the island in the near future. Both Vivid and British challenger Starling Bank, which is also preparing to enter the market, will have been struck by the success of Revolut, which now has over a million customers in the Republic of Ireland: more than one in every four adults.

Italy: UniCredit boss quits in face of MPS takeover pressure

Elsewhere in Europe, there were extraordinary developments in the ongoing saga of state-rescued bank Monte dei Paschi di Siena (MPS), which has proven to be a perennial headache not only for the government, which owns a 68 per cent stake following its bailout but also for rival firms. Now the chief executive of leading player UniCredit, Jean Pierre Mustier, has decided to resign rather than stand over the reportedly board-supported takeover by his bank of MPS, whose majority shareholder needs to offload its stake to comply with EU rules. However, landing UniCredit with a potentially growth-hampering subsidiary would seem ill-advised, even in the midst of a market consolidation wave: in the words of the Financial Times, "governments should not press well-run banks to mop up the mistakes of badly-run lenders".

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

Canada: American Express launches Plan It feature, enabling instalments
China: What will a cashless People's Republic mean for the world?
UK: Revolut launches early salary feature
US: BlockFi partners with Visa to launch bitcoin rewards credit card