Goldman Sachs and Apple are teaming up for a ‘bank branch in your pocket’; UBS using laser beams and 5G to trade

Dear Readers,

Like many of you, my eyes were glued to the Michael Cohen testimony earlier this week. While not nearly as distracting as March Madness, one research firm estimated that if workers watched two hours of the hearing it could cost employers $3.8 billion in lost productivity.

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But as we learned this week, that’s not the only reason the economy is cooling.

We had three excellent stories in the past few days about JPMorgan, which held its annual investor day on Tuesday. Investors closely watch JPMorgan and its executives’ views on the economy because it’s the biggest US bank by assets and has loads of insight into how Main Street’s doing.

What’d they learn?

According to JPMorgan CFO Marianne Lake, the bank is preparing for a broad economic slowdown. It’s even willing to give up market share in key businesses like mortgage, auto, and commercial-bank lending to protect itself against a recession.

“Where we’ve lost share it’s been intentional,” Lake said. “It’s been in order to preserve returns or, to a lesser extent, because we walked away from business that was outside of our risk appetite.”

In mortgages in particular, the bank is “de-risking” its business by rebalancing its portfolio and focusing on prime loans to borrowers with top-notch credit scores.

Loan growth at JPMorgan is also predicted to slow, and the interest it pays on those loans is expected to rise. This reduces the bank’s profit margins.

To be clear, JPMorgan isn’t predicting a recession – it’s simply preparing for one, as CEO Jamie Dimon said.

And while the bank’s caution represents a marked difference from the optimism of the past several years, this is probably to be expected after 10 years of a bull market.

What are the repercussions of JPMorgan’s pulling back in areas like mortgage?

It’s likely that some specialized mortgage firms (that are, by definition, far less diversified than JPMorgan), may go in the opposite direction and end up loosening their lending standards (e.g, lending to people with lower credit scores).

It means that when there’s some sort of downturn, smaller players could get hurt. That may end up punishing lower-income borrowers, who rely more heavily on nonbank lenders and, in the end, lock some of these people out of buying homes.

And when the economy does recover, big banks like JPMorgan will emerge even more powerful.

To read many of the stories below, you can subscribe to Prime (or email me at ooran@businessinsider.com for a free trial). As always, please reach out with any comments, tips, or feedback.

Thanks for reading! Olivia

Goldman Sachs’ partnership with Apple could move it a step closer to being ‘a bank branch in your pocket’

Goldman Sachs can’t redefine the credit card, but it can go along for the ride as Apple reimagines the digital wallet.

That’s the consensus of five experts across the spectrum of credit cards, mobile banking, and payments interviewed by Business Insider after The Wall Street Journal reported last week that the companies would this year launch a cobranded credit card designed to sync with an iPhone app.

The Goldman-Apple card will offer rewards that many people have come to expect – about 2% cash back on most transactions – with the potential for more on Apple products. The companies also have no interest in offering more or entering into the hypercompetitive rewards war fueled by Chase’s Sapphire Rewards card.

If the Goldman partnership is successful and drives millions more to Apple’s digital wallet, it could be the beginning of something much more interesting: the forging of some of the closest ties yet between Wall Street and Silicon Valley.

READ MORE HERE >>

Nasdaq’s CEO says it’s time for corporate America to get in on alternative data
Everyone could benefit from a little extra data.

The push among hedge funds to tap into alternative data feeds has never been higher, as firms look to get any kind of edge via the obscure, nontraditional data sets.

But the benefits of alternative data aren’t necessarily limited to Wall Street firms looking to find new trading opportunities.

Nasdaq CEO Adena Friedman said she sees ways that big companies could benefit from consuming alternative data sets.

“Corporates can use it for competitive analysis; they could use it for researching the next thing that they want to try to build or create,” Friedman said at a data conference Thursday. “They could understand foundational drivers in the economy to understand how much R&D they should be putting behind new things.”

For example, alternative data sets could provide insights for clothing companies considering what direction to take their latest fashion line, or the next type of sauce a big food company should put money behind researching.

Private-equity firms like Blackstone are already using this type of data to scout for investments, as well as to help improve performance with companies already in its portfolio.

READ MORE HERE >>

JPMorgan flipped the banking playbook, and it’s helped it find customers, sell more products, and build new branches

For years, the traditional approach to consumer banking was to get a customer’s checking account and then look to sell them other products, such as mortgages, auto loans, and investment advice.

JPMorgan has turned that strategy on its head.

The largest US bank has used its credit cards, including the hugely successful Chase Sapphire cards, as a way to acquire new customers, Business Insider’s Dakin Campbell reports. Once it’s gotten customers in the door, the bank has looked to sell demand deposit accounts.

That was one of the insights to emerge from JPMorgan’s annual investor day, held at the firm’s Manhattan headquarters.

And it makes sense in one regard: Credit cards are a product that can be sold nationally across digital channels, regardless of where the customer is or how close he or she is to a bank branch. Even so, Gordon Smith, the JPMorgan copresident who runs the bank’s largest business division, said JPMorgan has found something surprising about the customers coming into newly opened branches.

READ MORE HERE >>

Stock pickers are starting the year hot, but investors still pulled billions. It shows how the hedge-fund game has fundamentally changed.

stockpickers great 2019 cant stem redemptions chart

source
Shayanne Gal/Business Insider

Stock pickers can’t seem to win.

Traditional long-short equity funds still hold the most assets of any strategy in the hedge-fund world, with $758.2 billion in assets as of the end of January, Business Insider’s Bradley Saacks reports, but have seen money flow out of their strategies this year even when performance is up.

In January, the hedge-fund industry saw $1.7 billion leave overall, while traditional long-short funds bled $5.9 billion in net outflows, despite performance bouncing back after a disastrous end to 2018.

Already this year, several well-known stock pickers have gotten out to hot starts, and the traditional stock-picking space is up as a whole – nearly 6% through January.

With myriad cheap index options and an explosion of quant funds, investors are turning away from broad and expensive stock-picking funds and searching out specialty products in more niche strategies for their active exposure.

READ MORE HERE >>

UBS is using laser beams and 5G to trade stocks in the latest escalation of a technological ‘arms race’

From fiber-optic cables to dark fiber and microwaves, financial firms have spent the better part of a decade looking to slice fractions of milliseconds off how quickly they can trade stocks.

But the latest chapter in how firms are aiming improve their trading speed and execute trades more efficiently for their clients reads like something out of a science-fiction novel.

UBS has begun in recent months to use laser beams and millimeter waves, also known as 5G technology, to send orders wirelessly for its US equity-trading business, Business Insider’s Dan DeFrancesco reports. The Swiss bank tells Business Insider that the new infrastructure will allow it to send orders quicker and reduce the likelihood inclement weather could affect performance.

Fiber-optic cables are the most common way equity-trading orders are sent. Some firms use a more advanced cable, known as dark fibre, while even a smaller subset use microwaves. Laser beams and millimeter waves are the latest innovation. While the technology is not as effective at longer distances, the proximity between data centers in New Jersey makes it an ideal location.

READ MORE HERE >>

Quote of the week:

“The devil works hard, but Missguided works harder.” A now deleted Instagram post from February from fast-fashion brand Missguided is at the heart of a $10 million lawsuit from Kim Kardashian West. The reality-TV star said that hours after she shared a photo of herself in a golden outfit, Missguided posted a photo of an outfit that appeared to be a knockoff of the look.

Wall Street move of the week:

One of Wall Street’s youngest female executives who made managing director at 28 left Bank of America in London

Looking for a new gig? Call one of these folks:

Meet the 2019 rising stars of Wall Street headhunting

In tech news:

In markets:

Other good stories from around the newsroom: