This is the title we will begin the first reporting season in the coming year with. The protracted trade war between the United States and China is bearing fruit, and the top companies in the world lower their expectations of profitability one after another. The year begins very nervously, with investors carefully monitoring the markets.
Citigroup and Goldman Sachs are starting to report on this “fun” topic for the last quarter of last year. When conversations and assumptions about the approaching recession, amid the strongest slowdown in China’s economy (the world's second largest economy), are cautious with the weakening Eurozone economy, Federal Reserve Chairman Jerome Powell is literally chanting “patience” at his speeches. At such a time, particular attention is paid to the banking sector. The largest banks in the world are trying to squeeze the most out of the current conditions.
Most experts around the world underestimate the profitability expectations of many large companies around the world at the most aggressive rates since the last world crisis. However, reputable agencies such as Bloomberg and Reuters, these forecasts are already taken into account in the quotes, given the massive sale of December last year.
The international rating agency Fitch notes the high quality of Citi Bank's assets, with an impressive capital and liquidity buffer, a conservative approach to risk and asset management. And Citigroup, referring to its research, notes that most of the low forecasts were revised in the USA, China and Japan. The leaders among the worst were oil and gas and high-tech companies.
Citigroup, while China is slowing down the economy, and the government of the Middle Kingdom is understating the demand for reserves for Chinese banks, plans to bite off a tasty morsel of this market. On January 8, Citigroup Inc agreed to sell its stake in the joint venture Citi Orient Securities to its Chinese partner. This opened the way for a US bank to create its own brokerage center in the world's second largest economy. The Chinese securities regulator and the state asset regulator will approve the transaction.
This deal gives Citi the opportunity to create an enterprise for managing securities owned by the biggest shareholder in China. The bank should complete the development by the end of this year. China has been a very difficult market for American banks for a long time, the regulator of the Middle Kingdom put a lot of sticks in the wheels. However, today, China is opening up for American companies.
Goldman Sachs Group Inc went the other way. This large investment bank is considering the possibility of paying large international corporations more on deposits than other banks (competitors). The bank, which will receive commissions and receive a client base for its foreign exchange business, can offer its corporate clients high interest on deposits if they sign an agreement to provide Goldman cash management services.
The business of wholesale payments and cash management in 2017 brought global income of about 250 billion US dollars. A stable income stream is more attractive for any bank that seeks to avoid unsustainable risks, especially after the financial crisis ten years ago.
Regulatory and operational costs of creating a global cash management platform will be very high in perspective and scale.
Goldman Sachs plans to increase profits by managing the following funds: cash received for processing, cash received from exchanging client money for other currencies during a transaction, and using deposits as balances on operational accounts, which is a cheaper alternative to wholesale financing. As a result, expenses are lower, and incomes are higher.
International consulting company Oliver Wyman, specializing in banking and financial services, predicts that over the next five years, revenue from wholesale payments and cash management will grow by 5% per year. Growing volumes and rising interest rates more than offset the decline in profits caused by increased competition.
This year for Goldman Sachs began under the slogan "innovative solutions for traditional banking, combining the legacy of a 148th anniversary of financial organization with flexibility and entrepreneurship."