Tag: invest

Citi’s risky gamble with demotions and salary hike caps

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With the year winding down, banks are gearing up to chart fresh goals and objectives for the future. But first, they must face the tricky task of reviewing the current year’s performance — complete with the heated debates over promotions and bonuses. It’s a messy, high-stakes conversation that’s far from anything straightforward.

Even more reason to celebrate this Christmas: After a two-year drought, where high interest rates stifled dealmaking and squeezed fees for investment banks and money managers, activity levels are now recovering. Last month, pay consultancy Johnson Associates shared insights that Wall Street bonuses are set to jump by as much as 35% this year, fueled by a rebound in corporate deals, stock sales, and debt transactions in 2024. Investment bankers working on debt transactions stand to benefit the most, with expected increases ranging from 25% to 35%. This is particularly promising for Goldman Sachs’ investment banking division.

The mood surrounding M&A, dealmaking, and investment banking has also turned largely positive with Trump’s return to the political scene. Under his previous administration, banks were more active in stock buybacks, which boosted stock prices by shrinking the number of outstanding shares. Moreover, Trump’s strong pro-deregulation stance and more relaxed approach to antitrust enforcement could pave the way for a surge in mergers and acquisitions, offering banks greater opportunities to profit from both direct deals and a higher volume of transactions.

Not so fast there: However, not all members of Wall Street institutions may find a pot of gold at the end of the rainbow. Citi, for example, is moving in the opposite direction, opting for a more conservative strategy in handling year-end bonuses, raises, and promotions.

Remember when I covered Citibank’s bold step last year, launching a cost-cutting campaign that included its largest-ever layoffs and an overhaul led by CEO Jane Fraser? Dubbed Project Bora Bora, the plan was supposed to conclude by March 2024. Although it’s likely not over yet and it’s unclear where things stand internally, the aftermath is still reverberating, now manifesting as reductions in salary hikes and employee demotions. 

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Retention, engagement, and access — keys to better reward programs

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Loyalty programs have evolved into a fundamental aspect of consumer culture, widely regarded as critical for fostering customer loyalty. However, questions remain: How effective are these programs in retaining customers, how do different generations interact with them, and how accessible are they to the average consumer?

I spoke with Shikha Narula, Bank of America’s Head of Rewards, to explore these topics and how Bank of America’s Preferred Rewards program, now a decade old, measures and evaluates its performance in these areas.

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Q: How does Bank of America ensure that all members feel valued and engaged in the Preferred Rewards program regardless of their tier? 

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The complexity of navigating financial markets under a Trump presidency

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The 2024 US Presidential Election has been the talk of the town throughout the year, with anticipation building over whether the Democrats or Republicans would claim victory. With results now in, Donald Trump has returned as the 47th President of the United States.

Reactions to his win are a mix of the expected and the unexpected, though the public response has shifted considerably from when Trump first took office in 2017 — this time, it’s less of a shock.

Trump’s agenda during his term includes bold promises such as tax cuts, energy policies, cost reductions, increased tariffs, greater openness toward cryptocurrency, deportation of illegal immigrants, and a more lenient regulatory stance toward banks. Whether these quick-fire decisions will stand the test of time, or if they will prove to be short-sighted in the face of evolving global challenges is a topic for another conversation.

With the leader now chosen, it’s time to face the bigger question: what impact will Trump’s victory have on the nation, the economy, and the banking sector?

While there’s plenty of talk around this topic, we narrow in on the core cause-and-effect dynamics that could unfold in the banking sector.

Are the big ol’ boys (banks) in for a treat?

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Shifting the focus from TikTok’s sketchy financial advice to savvy tips

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I’m still hoping for the day I play Solitaire Cash and actually make some real (small though) money from it! 

For ages, get-rich-quick tactics have successfully tempted people with promises of quick cash, playing on the universal desire for easy money. But now, the digital boom has supercharged these tactics, creating a surge in clickbait methods to tap into people’s financial hopes and vulnerabilities. 

These digital spaces are also home to the largest generation, Gen Z, who feel most comfortable in the online world for any and everything. This generation prefers bite-sized videos, influencer tips, and meme-based content on platforms like Facebook, Instagram, Twitter, Snapchat, and TikTok. These channels aren’t only their entertainment spaces but also their go-to sources for navigating banking and financial decisions, where traditional banking methods often feel out of touch.

Financial leaders and bank executives view the financial advice flooding these platforms as “reckless” and far removed from conventional wisdom, worrying that it’s undermining the financial literacy of younger audiences. Many Gen Zers, still grappling with the basics of budgeting, are being swayed by flashy, often misleading content that could shape their financial habits in ways that don’t align with long-established principles.

“Kids and teens are not going to sit down and read a personal finance book. And it can be really difficult to discern missing information across social media,” Matt Wolf, SVP of business development at Greenlight said in a Tearsheet Podcast episode.

Sift through the noise

While it’s easy to be skeptical of the financial advice and information shared by non-experts on social media, it’s important to remember that there are two sides to the story. Among the noise, some influencers drawing on years of personal experience, focus on educating their audience about the fundamentals: offering mindful guidance instead of rushing into risky financial moves or promoting instant impulsive solutions.

It’s the way they package the advice that distinguishes them from traditional institutional wisdom. This places them in a distinct category of financial information providers — straddling the line between conventional advice and clickbait-driven influencers.

Following a TikTok account for financial tips is all about honing the ability to cut through the misleading voices and identify the ones that can bring real value amid a sea of misinformation.

Today, we look at one of the more grounded voices in the TikTok financial space and discuss why her content may make practical sense for those looking to improve their financial journey — especially women (my inner feminist just made an appearance!).

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Mental wellness, physical health, and work-life balance — where do these sit on banks’ priority ladder for their employees?

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Reports of sudden, unexpected deaths among young individuals have been making headlines across the country, with One Direction’s Liam Payne being the latest to draw public attention. Amid speculation around the causes, a recent case within the financial industry — linked to insane work hours — has particularly unsettled the entire sector.

1. Mental Wellness: How banks might find it hard to turn a blind eye

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Leo Lukenas III, an investment banker at Bank of America, passed away in May this year. He began his career at the bank in 2023 after serving ten years in Army Special Operations.

While Lukenas’s heart blood clot was the cause of his death, equal focus is being placed on the fact that he died shortly after working on a $2 billion deal, allegedly after enduring 100-hour workweeks. This has sparked heated debates about the grueling hours and high-stress levels within the industry, particularly in investment banking, where last-minute project deadlines from senior managers often force junior bankers to give up their weekends.

Similar narratives have surfaced regarding other Wall Street banks, with Goldman Sachs being one example, indicating that such conditions are considered routine within these big firms.

The stance of legacy banks: Amid the seriousness of these increasing occurrences and the growing awareness of mental health, banks now face pressure to prioritize employee mental health on par with traditional physical health benefits.

Months after the incident, J.P. Morgan Chase established a new executive role in September to monitor early-career bankers and analysts, aiming to address the issues of long hours and high-performance expectations.

Ryland McClendon has been appointed as the global investment banking associate and analyst leader, focusing on the well-being of junior staff. With 14 years at JPM, McClendon has held various positions related to talent development, diversity, equity, inclusion, and campus recruiting. Based in New York City, she will oversee the implementation of a nationwide new policy capping junior employees’ workweeks at 80 hours, particularly within the investment banking division.

While junior bankers are becoming more outspoken in their calls for a work-life balance, this isn’t the first instance where the banking industry and its workforce are at a crossroads in finding a middle ground on matters like these.

2. Work-Life Balance: A product of the pandemic

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Who will win the AI showdown in banking?

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What started as a growing trend last year has now become a full-blown competition, as banks — from the biggest players to smaller institutions — dive headfirst into AI investments.

However, the stakes are high. As the industry pushes for clearer standards on AI risks and controls, it concurrently faces a new challenge: turning theoretical plans and investments into measurable successes. Investors are increasingly expecting banks to translate their AI-driven strategies into real-world results and tangible returns, whether through cost savings, risk mitigation, or new revenue streams.

AI is still in its nascent phase, especially within the banking sector, and whether it’s too soon to seek returns on these foundational investments is a different conversation altogether.

Today, we delve into:

• The progress banks have made on their journey toward AI maturity
• Are we jumping the gun by seeking ROI from banks’ foundational AI investments at this point?
• The frontrunner and the runner-up in the AI race and the factors propelling their advancements

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Brief rundown

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J.P. Morgan Chase (JPMC) has secured the top position in this year’s AI Index, marking its third consecutive appearance in the top 10 across all AI advancement metrics detailed in a new Evident Banking AI Index. The report focuses on four essential AI evaluation metrics: Innovation, Leadership, Transparency, and Talent.

Given Jamie Dimon’s consistent advocacy for AI and JPMC’s recent strong advancements in the space, it’s not surprising to see the firm leading the charge in the AI race. However, what stands out is that it is closely followed by Capital One, the Royal Bank of Canada, and Wells Fargo, indicating that North American banks are leading the way for the most part in exploring AI’s potential.

One of the strongest pillars contributing to North American banks’ progress is talent acquisition, particularly in AI Development and Data Engineering. US banks are increasingly solidifying their positions in this area. The three US incumbent banks — Wells Fargo, JPMC, and Capital One — account for 17.5% of the current AI talent pool, reflecting a significant 19.4% increase from last year, according to the report.

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The frontrunner

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I’ve been closely following JPMC’s work in AI and its initiatives from Q4 2022 onward. Building on that research, the factors that likely contributed to the bank achieving a leading position in AI advancement across multiple pillars include:

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As digital banking takes off, which institution will wear the crown?

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The much-anticipated Q3 earnings season has officially kicked off, with major banks taking the spotlight this week and setting the tone for what’s to come.

The headline-grabber was the resurgence of trading and investment banking among Wall Street’s banks — a clear bright spot in an otherwise challenging landscape

While the timing of the Fed’s rate cuts didn’t allow them to negatively affect banks’ third-quarter net interest incomes, optimism is also building around their future effects. The rate cuts from the Federal Reserve and other central banks along with expectations of further cuts in the coming months could pave the way for more deals as reduced borrowing costs make capital more accessible.

Snapshot: Q3 investment banking earnings of major banks

A quick overview of investment banking earnings from the six major banks shows growth trends:

• Wells Fargo‘s non-interest income grew by 12%, partially driven by higher investment banking fees and strong trading revenue.
• Bank of America experienced an 18% YoY increase in investment banking fees, totaling $1.4 billion, as renewed client confidence encouraged more debt and equity issuance.
• Goldman Sachs saw the fees of investment banking, its signature business line, rise by 20% YoY, reaching $1.87 billion, thanks to leveraged finance, investment-grade activity, and equity underwriting. The pipeline for investment banking fees also showed improvement compared to the end of the second quarter of 2024.
• J.P. Morgan recorded a 31% increase in investment banking fees.
• Citigroup also shined this quarter, with a 31% rise in investment banking revenue, largely fueled by investment-grade debt issuance.
• Morgan Stanley‘s investment banking revenue surged by 56% compared to the previous year, amounting to $1.46 billion. This reflects the firm’s investment banking balance with its wealth management division, a major contributor to its overall earnings. The firm’s investment management division also reported a 9% revenue increase, reaching $1.46 billion. 

The 2 recurring themes: Technology and digital banking

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Can innovation be equitable?

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The financial services industry has historically been male-dominated, and the entrepreneurial and startup landscapes tell a similar story — not because there are fewer women founders, but because they face fewer opportunities than men.

This doesn’t diminish the talent and capability of women entrepreneurs, whose presence in the business world continues to rise. From 2019 to 2023, the number of women-owned businesses grew at almost twice the rate of those owned by men. As of 2024, women own 39.1% of all businesses—more than 14 million—employing 12.2 million individuals and generating $2.7 trillion in revenue. Despite this progress, significant challenges persist: men still hold a larger share of business ownership, and only 7% of unicorn founders are women, according to a recent J.P. Morgan study. These figures are even starker when it comes to minority founders.

Creating a level playing field isn’t just a matter of fairness; it can be a stepping stone for sparking innovation and unlocking economic growth. Ethnically or racially diverse founders can tap into new markets and address the unmet needs that drive sustainable progress. Closing the revenue gap for diverse entrepreneurs could bring in an additional $667 billion, while bridging the gap between women and men-owned businesses could generate an additional $7.9 trillion for the economy, according to a recent research by Wells Fargo.

So, what’s holding back this change?

We know that investor confidence tends to increase when a founder fits a particular mold — whether that means the founder’s gender, ethnicity, or simply having a white male co-founder on the team. But beyond these age-old biases, how are established banks working to narrow this divide and create a more equitable environment for all entrepreneurs in today’s day and age?

“It starts with the investment in a broad national startup banking business,” Ashraf Hebela, J.P. Morgan’s Head of Startup Banking told me in our recent Tearsheet Podcast episode.

“Most of the underrepresented minorities as entrepreneurs are sitting at the early stage, and that means having to invest in an early-stage business.”

Ashraf highlighted the tangible measures financial institutions could implement to tackle this gap and something JPM has been mindful of:

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Taking a page from the challenger bank handbook, JPM is diving into the UK market with a modern twist

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In the US, large incumbents like JPMorgan, Morgan Stanley, and Citi have long maintained a stronghold, making it difficult for new entrants to break through and compete with these well-established, resource-rich institutions. The status quo has not changed much to date.

By comparison, the UK’s banking landscape is gradually opening up with more room for new players to challenge their incumbents. In fact, the last couple of years have seen UK challenger banks pulling out all the stops to make a powerful push in the banking industry.

The US has a more fragmented regulatory environment, involving both federal and state-level oversight. This complexity, combined with a larger number of dominant traditional banks, has made it more challenging for neobanks to establish the same presence they have in the UK. Moreover, British consumers have been more receptive to digital and mobile banking solutions with improved UI/UX, embracing these services early on. 

The pulse of UK challenger banks

UK challengers like Revolut, Monzo, and Starling are among the leading names making notable progress. Although their valuations may have dwindled, they continue to achieve strong revenue growth. Starling continues to hold its ground as one of the UK’s leading neobanks in terms of profitability. Revolut achieved a record profit of $545 million in 2023, while Monzo reported its first annual profit for the year ending February 2023.

While deposit volumes of these digital banks may not match those of traditional banks, they have benefited from three significant factors contributing to their revenue growth in recent times:

• Growing customer base
• Rise in interest rates
• Expansion to new markets

The case of Revolut: Take Revolut, for example; although individual deposits may average only a smaller amount from millions of customers, the size of its growing user base means these amounts collectively make an impact. Expanding into new markets and regions has enabled the neobank to reach 45 million global customers, over 9 million of whom are based in the UK. This growth directly leads to an increase in payment volumes and foreign exchange transactions, resulting in higher revenue from fees and commissions. This coupled with interest income on deposits and loans has been a crucial catalyst for accelerating Revolut’s revenue growth.

In 2023, Revolut reported a total revenue of $2.2 billion, a significant jump of 95% from 2022, when the neobank recorded its lowest revenue growth. 

This July, Revolut achieved a major triumph by securing a UK banking license, albeit with some restrictions, after a three-year wait for the approval. Although this development could be concerning for established UK banks such as Barclays, Lloyds, HSBC, and NatWest, it creates a clearer pathway for Revolut to directly compete with these major institutions. This advancement also brings the prospect of an IPO closer to reality for the neobank, which is already on its radar.

Nearly outdoing legacy banks in app downloads?

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We spotlight how J.P. Morgan Payments, Fifth Third, and Wells Fargo are targeting embedded finance

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Tearsheet recently hosted its The Big Bank Theory Awards, shining a spotlight on the game-changers in banking and embedded finance. This year’s awards brought together a dynamic mix of established industry incumbents, innovative startups, and key players shaping the future of financial services.

In no specific order, the winners feature:

• J.P. Morgan Payments takes home Best Overall Embedded Finance Platform
• Wells Fargo is recognized for Best New Embedded Finance Product (for platforms)
• SoFi is awarded Best New Product
• DailyPay is crowned Best Payments as a Service Platform
• April is honored for Best Customer Implementation of Embedded Finance
• nCino wins Best SaaS Banking Platform
• Alkami receives Best Banking App
• Signature Bank of Arkansas is celebrated for the Serving the Underserved Award
• Newline by Fifth Third is recognized as the Best New Embedded Finance Platform
• CorServ clinches Best Card Issuing Platform
• Zeta’s Sparrow secures the Best Banking Card Product
• Themis is named Best Banking Service Partner

We offer a front-row glimpse into the exciting developments unfolding in the industry. While some winners are household names attracting media attention, others are quietly making their mark and leaving a lasting impact behind the scenes.

We explore how this year’s Tearsheet TBBT award-winning incumbent banks are navigating the embedded finance landscape with APIs, partnerships, and proprietary solutions to strengthen their position and adapt to market changes.

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