In The Headlines
Goldman Sachs Goes Down Market to Strengthen its Balance Sheet
For 147 years, Goldman Sachs has been best known as a secretive Wall Street dealmaker with the ear of the White House. It helps big institutions and billionaires bet on the markets and large corporations raise money. Now, the elite New York bank is jumping into the world of retail banking, launching GS Bank to offer high-yield online savings accounts for those with as little as $1. The investment bank is also serving up retirement savings accounts. It will not be long, too, before consumers can ask Goldman Sachs, which requires clients to have at least $10 million for its wealth-management services, for a loan of a few thousand dollars to fix a roof or get rid of high-interest credit cards. The move is a stark example of the changes the financial world has undertaken since the 2008 financial crisis. New regulations have made consumer banking an attractive market for Goldman — and a potentially profitable one.
To be successful, Goldman will have to contend not only with a crowded field of big-name banks, community institutions and credit unions, but with new technology upstarts leveraging the power of mobile phones and the Internet. And it will likely have to shake the public perception that it helped cause the financial crisis, and shirked off responsibility for the plight of distressed homeowners in the process. Goldman Sachs has repeatedly defended its conduct, insisting that it did not mislead investors. But Goldman has been hit with billions in fines and penalties for alleged misdeeds in the era leading up to the financial crisis. “If there was ever a test of whether or not the stigma . . . of Wall Street’s too-big-to-fail banks has faded, it would be Goldman Sachs,” said Dennis Kelleher, president of Better Markets, a financial markets public interest group.
The firm’s move into retail banking is in part a response to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 (known as Dodd-Frank), which emerged out of financial reform legislation. This Act is helping to shape a significant — and largely unnoticed — transformation of the U.S. banking sector. Competition has squeezed hundreds out of small and mid-tier banks out of the market, and the survivors have fortified their balance sheets, holding onto more cash and borrowing less. But regulators are not satisfied, and there is a growing call for the big banks to be broken apart, forcing financial industry executives to continue to adapt. For Goldman, the pressure is hitting as sluggish markets and new regulations have stung some of its most historically profitable areas, including trading. The bank reported a 57% drop in first-quarter profits and is smaller today, in terms of total assets, than it was before the financial crisis. Now, it has launched a broad effort to diversify into new markets. “We look at that retail banking platform as a basis for building new businesses that will contribute to the growth of the firm,” said Stephen Scherr, Goldman chief strategy officer.
That effort has started with the Goldman Sachs savings account, which comes with few perks but offers competitive rates that industry experts say could attract customers. The account has a 1.05% yield, while a one-year certificate of deposit has a 1% return. Both are stingy by historical standards, but are much higher than what most banks are offering. Checking accounts may be coming soon, but Goldman has no plans for a physical bank branch and currently lacks the millennial calling card: a mobile app. Still, Goldman says it has seen intense interest in the savings accounts, a business it bought from GE Capital Bank earlier this year.
Goldman’s Main Street charm offensive will continue later this year when it plans to launch an online-lending project. The bank has not discussed how big the loans could be, but it expects to be able to offer competitive rates. The bank is also getting into the retirement business. In March, it purchased Honest Dollar, an Austin-based start-up that helps employees set up individual retirement accounts. With a mobile app, an employee can quickly set up an account, starting by taking a picture of their driver’s license, Goldman says. These new businesses will require a cultural change, industry experts say. Goldman has a well-honed playbook when it comes to pleasing the uber-wealthy, but the everyday headaches of dealing with Main Street will be new. “Investing the funds of someone with $10 million or $20 million is very different than someone with a small savings account,” said David Becher, an associate professor of financial at the University of Pennsylvania.
Goldman’s entry into the consumer banking world dates back to a fateful decision in 2008. Then the bank and its rival, Morgan Stanley, were investment banks, exempt from many of the regulatory hurdles faced by traditional retail banks. But in the early days of the crisis, Goldman and Morgan Stanley found themselves in a funding crunch and in need of government help. To get it, they became bank holding companies. “If you are a bank holding company and the government is going to be on the hook for you, they want to make sure you have enough cash to deal with any crisis that comes along,” Becher said.
Now, under stricter government oversight, Goldman and the rest of the banking sector, must convince regulators that if faced with another cash crunch, they will have enough money set aside to operate without taxpayer help. In judging whether banks are living up to those standards, regulators even rate where banks are getting their funds and view money from retail banking — savings and checking accounts — most favorably. Those funds, up to $250,000, are insured by the Federal Deposit Insurance Corp., and customers are less likely to withdraw their money in a panic if there is a crisis. That makes them more “sticky” during tough times and has made this sector more attractive to Goldman Sachs, which has traditionally depended on short-term loans now discouraged by regulators. Goldman Sachs could also deploy those retail banking assets—the money consumers have set aside in savings accounts—to help fund other parts of its business. Otherwise, Goldman could use consumers’ savings to make loans to companies or to use for the bank’s other traditional businesses, industry experts say. “The money doesn’t sit there. They are pooled savings, and they are going to be deploying that money,” said Kelleher from Better Markets. “That is the whole concept of banking.”
Citations
1. http://bit.ly/24v9s1Z – Investopedia
2. http://wapo.st/24wsC4i – Washington Post
Acquisitions Turn Disney into a Hollywood “Supermajor”
The release of Captain America: Civil War kicks off a potentially record-breaking summer for ticket sales and what analysts say could be Disney’s best year at the movies in its history. Disney, with a 25% market share this year, is dominating the film business to an unprecedented degree. For the first half of 2016, the firm will have had the top movie for 13 of those 26 weeks, predicts Barton Crockett, an analyst at FBR Capital Markets. “They will have the highest share in a generation, or maybe of all time,” he says. The studio also is scoring points with a mix of nostalgia flicks such as its Star Wars sequel and technology-driven hits like The Jungle Book, Crockett says. “They seem to have a finger on the pulse of what the public wants at a level that I haven’t seen before.”
Disney’s multibillion-dollar investment in production companies since 2006 has come to fruition in 2016. Its five film units could this year release a record number of movies that break $1 billion in ticket sales. “We have talked for 25 years about the big six global entertainment companies, but maybe we are starting to see the stratification among them,” says Jonathan Kuntz, a film historian and professor at the UCLA School of Theater, Film & Television.” He continued to say, “‘Supermajors might be a good term for what Disney, and maybe Comcast and Time Warner, aspire to be.” For much of the 20th century, Disney, Paramount, Sony Pictures, Warner Bros., Universal Pictures, and 20th Century Fox dominated film production and distribution globally. But Disney’s three acquisitions, along with its two other labels, Walt Disney Animation and Walt Disney Pictures, has left it with some of the best franchises in Hollywood, allowing the studio to map out a combined film slate into 2020.
“That is the future for the next decade,” with Disney and Warner Bros. having laid out superhero movies and other sequels, spinoffs, and reboots for years to come, says Jeff Bock, a box-office analyst at Exhibitor Relations. Bock figures that Disney alone will have six or seven of the top 10 grossing films this year and potentially four movies each, generating $1 billion worldwide: Captain America: Civil War; The Jungle Book; Rogue One: A Star Wars Story; and Finding Dory, a sequel to Finding Nemo.
“The Pixar acquisition saved Disney Animation,” says Bank of America Merrill Lynch analyst Jessica Reif Cohen. “That was the beginning.” Disney is “…the only company right now that has a branded film strategy,” she says, with each of its sub-brands churning out its own string of reliable, predictable fare. “Consumers know what they are going to get, which makes marketing easy and efficient.” John Lasseter, one of the original Pixar animators and director of the megahit Toy Story, is the creative leader of Pixar and Walt Disney Animation. That has allowed him to help reinvigorate the animation unit and produce more modern hits, such as Frozen and this year’s Zootopia.
Universal is copying that approach with Chris Meledandri, creator of the hugely successful Despicable Me films, who will oversee his Illumination Entertainment, Universal’s animation partner, and the DreamWorks Animation studio Comcast agreed to acquire in April. The buyout is seen as Comcast’s attempt to lock in intellectual property—including the characters from DreamWorks’ Shrek and Kung Fu Panda—that Universal can exploit in its theme parks, the way Disney does. “The industry looks at Disney with envy,” Reif Cohen says. “It is a highly successful and unique strategy, well-executed and hard to duplicate.”
Summer is the most lucrative time of year for studios, and analysts predict this season could beat 2013’s record. A slew of highly anticipated releases including Finding Dory and Warner Bros.’ Suicide Squad could, along with Captain America, push the summer season to about $5 billion in ticket sales in North America, estimates Geetha Ranganathan, an analyst at Bloomberg Intelligence.
With breakout hits such as Fox’s offbeat antihero Deadpool and the unexpectedly strong turnout for Disney’s The Jungle Book, 2016 could see recently set annual box-office records broken again—especially because Disney’s second Star Wars-related release will hit theaters in December. Crockett estimates 2016 will outstrip the $11.1 billion annual record generated at the domestic box office in 2015 and Disney’s studios will generate more than $3 billion in profit, its largest ever. For now, at least, Hollywood’s biggest star is Disney itself.
Citations
1. http://bloom.bg/1SPS3d2 – Bloomberg
2. http://nyti.ms/1VLBVM9 – New York Times
The Good News Is . . .
• Gallup reported that in April, self-reports on daily spending by participating Americans averaged $95, up significantly from $89 in March. Federal statistics reveal a sluggish start for consumer spending in the year’s first quarter. But April could be the turning of a corner for spending, with a relatively strong pickup from March’s average. April’s spending average is one of the strongest monthly figures in nearly a decade, and could bode well for spending by Americans in the second quarter.
• CBS Corp., a leading television network and entertainment company, reported earnings of $1.02 per share, an increase of 30.8% over year-earlier earnings of $0.78 per share. The firm’s earnings topped the consensus estimate of analysts by $0.08. The company reported revenues of 3.8 billion, an increase of 10.0%. Management attributed the company’s results to strong growth in its television advertising sales.
• IMS Health Holdings, the health care information and technology provider, and Quintiles Transnational Holdings, which assists pharmaceutical companies with clinical trial research, announced that they had agreed to an all-stock “merger of equals.” Under the terms of the deal, IMS Health investors would receive 0.384 shares of Quintiles stock for each share of IMS Health that they own. The merger would create a combined company worth $17.6 billion based on market capitalization and with $7.2 billion in pro forma revenue in 2015. It is the latest in a series of health care deals as companies in that industry sector seek greater scale.
Citations
1. http://bloom.bg/1Dl6vPO – Bloomberg
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/1Tmg5bo – CBS Corp.
4. http://nyti.ms/1WccOmh – NY Times Dealbook
Planning Tips
Tips for Lowering Your Mortgage Payment
Even though the housing market seems to be rebounding, we are still living in uncertain times and people are increasingly conscious of how much money they are spending on necessities. Your mortgage payment is one area where you may be overspending without knowing it. Below are some tips for saving money on what, if you are like most people, is probably your biggest monthly expense. It is a good idea to consult with your financial advisor before making any changes to your mortgage to determine if it is appropriate for your situation.
Make one extra payment per year – This is perhaps one of the most beneficial steps you can take to help lower your mortgage payments. Even if you don’t do anything else, make just one extra principal payment every twelve months. Not only will you shave years off your loan, you will also save thousands of dollars in interest.
Make bi-weekly payments to reduce principal and mortgage insurance – When you need to reduce your payments right now, paying more does not make any sense, but if you are looking down the road for a way to shed some cost, reducing your principal is key. Instead of making your regular 12 monthly payments, consider switching to 26 bi-weekly payments—your lender can set this up for you so that you get a regular statement. By reducing your principal as quickly as possible, you are also reducing your mortgage insurance, which is based on your outstanding balance. It might not seem like much at first, but each extra payment will take a bite out of your principal, reducing your mortgage insurance—and as the effect snowballs, the mortgage insurance will soon disappear.
Have your property reassessed – Property taxes fluctuate with the market, so if the current rate is lower than when you moved in, you could end up with a lower monthly payment as well. If you have taxes included in your mortgage (also known as escrow account), there is a good chance you can lower your monthly payment just by having it reassessed. To get an assessment, first contact a realtor to find comparable properties on the houses in your area and compare the numbers to your home, rather than going to a private company where they might charge a fee. If the current value of your home is significantly lower than when you got your mortgage, call your tax assessor and have them send you a form to fill out with your findings. The office will then determine whether or not your home is worth reevaluating.
Pay all your mortgage insurance upfront – Your lender might not have told you this, but if you are borrowing using a Conventional mortgage, you can pay all your mortgage insurance at closing instead of having to pay it monthly. The savings can be pretty substantial, especially if you plan to stay in your home a while. Instead of paying an extra $55 each month to insure the $150,000 you borrowed, a one-time fee of $2,550 covers you for life. That $2,550 is the equivalent of 3 years and 10 months of mortgage insurance payments—fewer if your mortgage insurance rate happens to be higher than average. Considering that your mortgage insurance will not naturally fall off until at least six years into repayment with a 10% down payment, it can be a pretty substantial savings in the long run. If you paid each and every mortgage insurance payment on that same $150,000 loan, it would cost at least $4,015 during its natural life.
File for property tax exemption – Some states offer tax exemption or credit on property taxes for residents. However, it depends on which state you live in, how long you have lived in the property, and your personal situation. Because potential exemptions are highly specific and subject to change over time, you should call your local tax commissioner or do a quick Google search to see if you are eligible. It varies from state to state, but property tax exemptions are more likely if you are over 65, disabled, or a veteran (in fact, Veterans Network United has a full list of veteran tax exemptions by state).
Citations
1. http://onforb.es/1ruWRKf – Forbes
2. http://bit.ly/1RngjmP – US News &World Report
3. http://read.bi/1SOMfgl – Business Insider
4. http://bit.ly/1TLJfDR – USMortgageCalculator.org
5. http://fxn.ws/24vyj5O – Fox Business News
