Are big banks value traps ?

[Cigarbutt]

This link has broken since the GFC, with banks (especially the largest 5 banks decreasing the number of physical outlets by about 15%) while growing deposits by more than 250%,

Isn’t the growth in deposits for the larger banks mostly from acquisitions (during the GFC) and not organically? The organic deposit growth doesn’t look all that impressive to me.

If you want more "color" (probably more than you asked for). 

Like usual, you are correct and if you decompose into periods since the GFC, the early upheaval period was accompanied by a relative bump in deposits for the big boys as the FDIC margin (and patience) was wearing thin. However, deposit growth has been relatively steady overall
https://fred.stlouisfed.org/series/DPSACBW027SBOG
and increasingly (slightly) divergent versus the decreasing number of physical branches, especially for the big five.

The following shows some details related to the recent deposit growth, the competitive dynamics and how (big) banks have many internal levers to keep customers happy:
https://www.spglobal.com/marketintelligence/en/news-insights/trending/ALnK3nDipmnnl4bEkVQ96g2

So, to the question: Is the deposit growth rate impressive? I would say it depends on the perspective. If you believe wabuffo and think that the recent rise in deposits has been correlated (caused by?) rising liabilities then the answer may reside in the ability to answer the following questions: 1-Deleveraging, what deleveraging? and 2-Where are we in the cycle?

For question #1, the following gives an interesting perspective:
https://fred.stlouisfed.org/series/DDOI02USA156NWDB
The positive slope followed by a flat line is called a success by central bankers but I have doubts.

For question #2, if you are agnostic about exactly timing the cycles and/or if you can opportunistically build-up your position as a privileged insider and deep pocketed investor when the sun don't shine, you can still consider the option of focusing on the US "market leaders" and the "resilients". From a globalist and marketing-oriented report recently released and relayed by Bloomberg with sensationalist titles.
https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review-2019-the-last-pit-stop-time-for-bold-late-cycle-moves

[CorpRaider]

Didn't WFC just post like a +2% growth in deposits?  With no CEO and being a supposed national pariah? 

[JEast]

Another challenger bank bites the dust, but the multitudes still keep trying.  Maybe a few will eventually take hold in 10years time as the big FAANG types seem more focused with making 'content' for streaming these days.

https://www.fintechfutures.com/2019/10/us-challenger-bank-denizen-shuts-down/

[John Hjorth]

Didn't WFC just post like a +2% growth in deposits?  With no CEO and being a supposed national pariah?

CorpRaider,

Please read here.

[RuleNumberOne]

All the Dems have said they want to restore the corporate tax rate to 35%. Bank EPS takes a big hit right there.

[elliott]

I'm playing devils advocate here but I think you guys underestimate the banking business, particularly in today's world.

Calling the banks stodgy or tech-averse is superficial IMHO. Banks are not tech averse, they are incredibly financially disciplined (it's their raison d'etre!). These are not VC shops looking to cash in by inventing the next best tech.

Additionally you are ignoring the regulatory component. The FRB will be so far up a new bank's colon that it's too painful to think of. The large banks took 10 years to comply with FRB/OCC matters. And they are still not done.

Citi, Wells, JPM all have over 200,000 employees, each. Google and apple have half that. Simply to bring on the kind of manpower needed will be a billion dollar endeavor.

It is not just 'lets build some credit models and start slingin' cards". On the models side, these banks have 2, 3, 4 thousand models each. Who is going to build these? Who is going to validate them? How long is that going to take? It is not feasible. And the people building these models - they are not cheap. We billed out at 600, 700 an hour for regulatory models, not even valuation models which are much more important. And then you need a validation group which again, is incredibly not cheap.

Then you need to integrate into the markets. On the consumer side, now you need instantaneous scoring services at a massive scale and you need retail partners to integrate it. Retail partners who are already being serviced by these large banks and at a lower cost than you can provide. And these banks and policy teams who know these business better than you (and they) do. This is not just incredibly expensive but a hell of an endeavor to start from scratch. Systems migrations take two years - and that's a migration.

On the institutional side, it's even more opaque. First you have no idea what these product which are being traded. Show me anyone at Apple or Google who can explain why Kirk's spread option model is conceptually unsound but under what circumstances it is still acceptable to use. Nobody. Now tell me who is going to figure that out and then design a systems application to price certain products with certain models under specific circumstances. Of course you can use vendors to tap into the market in this way but the regulators will destroy you. And they're expensive as hell and there's a reason all the banks have migrated to in-house solutions. So unless you want to lose money on every trade for 4-5 years until you can build your own system to migrate over from a vendor platform, you're out of luck.

This article: https://seekingalpha.com/article/2561895-apple-pay-has-long-term-implications-for-visa-mastercard-and-retail-banks
postulates that Apple is entering the retail payments sphere as a means to enter the financial industry at a whole.
Well look at the payments - has Apple or Stripe built their own systems? No, they are playing on top of the established rails. Maybe this will change but it is difficult to see why. To build out such a system is incredibly expensive and the payoff is very uncertain. Expected ROI today is almost certainly very negative. And V/MC and the banks are expected to sit tight while this happens? I think not. Even if Apple or Google does go down this road they are opening themselves up to so many costs it will be absolutely brutal and the banks will slaughter them on the institutional side.

Anyways take it with a grain of salt because predicting the future is a foggy endeavor but if I had to wager I would say the odds are with the status quo.

I agree with you 100% that many forecasting the end of banks are not factoring in appropiately the complexity of regulations and the lending business.
But, will disruptors have to bear such complexities? Some say the real disruption is coming from the non banks.

In any case, I can imagine google, facebook, or amazon offering checking accounts to make money not from lending but simply from the users data. Actually, I thought that was precisely the reason behind their interest in banking. Granted, if they dont lend the money, how will they pay interest? Maybe they wont. There is a lot of money out there sitting in bank accounts earning 0% pa thanks to central banks. Alternatively, they could also assume the UI/client facing side of the deposit business by aggregating deposits from several banks. Banks would still exist in this scenario, but in this area at least they would have been commoditized.
How would that impact their profitability? I have no clue.

[elliott]

Google made a move.

https://www.cbsnews.com/news/google-checking-accounts-will-come-with-citibank-fees/

[Spekulatius]

Google made a move.

https://www.cbsnews.com/news/google-checking-accounts-will-come-with-citibank-fees/

More clarity from one of the horses mouth:
https://www.sfcu.org/stanford-federal-credit-union-announces-partnership-google/

It looks like a standard CU account with a GUI/ mobile wrapper from Google. It is interesting they they chose to partner with a CU. I wonder how they deal with the affiliation restriction for a CU. You have to be local or work for one of the many Company’s on that affiliate list or use a “backdoor” in order to join a CU.