The world’s largest financial services institutions remain deeply focussed on wide-ranging digital transformation, a flurry of earnings calls reveals. And The Stack’s analysis of earnings calls from Bank of America, BlackRock, Citigroup, Goldman Sachs, and Wells Fargo this week (w/c July 12, 2021) shows the extent to which banks’ digital transformation is reaping dividends for many, even as modernisation challenges remain.
Goldman CFO Stephen Scherr, for example, emphasised that “the development of digital platforms where asset managers, insurance companies can come and execute on those platforms using Marquee [pdf] has been a very, very significant and somewhat elevated prospect for us in terms of overall performance”.
He was speaking to analysts after Goldman Sachs reported its highest ever first half net revenues [pdf] of $33.09 billion. Equity investment revenues were up a eye-watering 658% in its asset management segment. Operating expenses fell 17%, even as tech spending rose slightly to $371 million for Q2 year-on-year.
Banks digital transformation: “A lot more opportunity”
Goldman Sachs CEO David Solomon added on the earnings call: “I think there is a lot more opportunity for us to continue through digitization and the way we connect with our clients and the tools we use to create more leverage broadly”, with CFO Stephen Scherr adding: “The way we look at it [digitalisation] and compute it is, we look at the introduction of technology into a variety of different work streams. Take risk for example where there is mandatory production of tens of thousands of reports either by regulators or consumption internally…”
Citigroup CEO Jane Fraser was similarly focussed, saying the bank’s three strategic priorities were “strategy, transformation, and talent”. She added: “We’ve set out to modernise our bank.
“We want to achieve nothing less than excellence and this means investing in our risk and control environment, but also in the infrastructure we need to serve our clients in an increasingly digital world. Investments in TTS [treasury and trade solutions] will improve the scalability of our platform, automation will drive efficiency and client experience, and investments in data will enhance revenues and the investments we’re making, will help position us to retain our leading position as the preeminent global corporate bank. (Citi’s TTS segment moves some $4 trillion of volume a day around the world).
She was speaking to investors as the bank reported net income of $6.2 billion in Q2, 2021, up from $1.1 billion the previous year, “driven by lower cost of credit.”
Citi’s CFO Mark Mason added that of “the broader work to modernise the bank — which will improve our risk and control environment as well as allow us to better meet the needs of our customers and clients through an improved operating environment” 30% of that spend would be on technology.
Wells Fargo meanwhile was heavily focussed on tackling compliance, after being hit by a $3 billion fine in 2020 over a fake accounts scandal at the bank. CEO Charles Scharf said in the earnings report: “Our top priority continues to be building an appropriate risk and control infrastructure for a company of our size and complexity and we continue to invest in additional resources and devote significant management attention to this work”, adding on an earnings call: “”The amount of customer remediation and control-related issues that existed when I arrived was many multiples of what exist at our company.
“I’ve spoken of what we put in place to address these issues and by most metrics, we are making significant progress. Regarding our work on consent orders and other regulatory requirements, the work remaining is significant and as such, this remains a multi-year journey for us…”
Fixing these issues, as well as growing revenues, will involve major digital transformation, he said, noting that the bank had made “significant hires in the data platform and analytics, strategy, digital and our technology groups”. It can certainly afford to: net income hit $6 billion, up from a $3.8 billion loss in the same quarter for 2020. “We are focused on the cloud, payments, FinTech competition, tech companies and our own data and digital capabilities” Scharf said, as Wells Fargo rebuilds its reputation — and management team.
Digital useage continues to grow at Bank of America (BoA) it emphasised in its earnings, with 75% of its commercial, corporate, and business banking clients now “digitally active”.
CFO Paul Donofrio said on an earnings call: “I would draw your attention to is the digital sales growth, which is up 26% year over year. 85% of booked mortgages in the quarter were done digitally while 77% of direct vehicle loans were digital.”
He added: “In both Merrill Lynch and the Private Bank, we are focussed on three pillars for digital engagement. One, digital adoption and deeper engagement. Two, modernising our platform for advisors and clients. Three, secure and easy collaboration with clients… Digitisation and in particular Artificial Intelligence is helping us streamline processes and respond to clients more quickly and efficiently. As an example, our bankers are using technology powered by Erica [the bank’s virtual financial assistant] to not only better manage credit exposure, but also identify and win new business.
Digital strategies are powering global expansion at JPMorgan, which has recently made a string of acquisitions, including of the UK’s Nutmeg, taking a 40% stake in Brazil’s all-digital bank C6, and automated tax technology startup 55ip.
JPMorgan CFO Jeremy Barnum said on the bank’s earnings call: “You’ve heard Jamie over the years talk about why it wouldn’t really make sense to do international expansion in consumer when you think about that through the lens of a branch-based strategy.
“So if you imagine, going outside of the US and opening branches in other countries and competing with the incumbents, just from a branding perspective, from an operating leverage perspective, we’ve never felt that, that was likely to be a successful strategy for us, and that hasn’t really changed. The difference right now is the ability to do that digitally. What’s really particularly exciting about the international expansion narrative, both in the UK and now with our recent investment in C6 in Brazil, is the ability to kind of experiment a little bit.”