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NEW YORK (Reuters) – Citigroup Inc is facing a unique dilemma among the four largest U.S. banks: it is light on deposits from individuals, an important funding source that costs little and tends to stick around.
While big rivals grew deposits dramatically after the 2007-2009 financial crisis from their broad networks of branches, Citigroup backed out of all but six U.S. cities and closed one-third of its branches. (Graphic: tmsnrt.rs/2MUPAyE tmsnrt.rs/2MUPAyE])
The bank is now trying to up its game with a new app it plans to begin marketing in the third quarter. Executives hope it can lure deposits without opening new branches, acquiring a rival or beating competitors’ rates – three ways to collect deposits with their own costs and risks.
“People are willing to switch to a bank that is able to provide this kind of mobile-first experience,” David Chubak, head of global retail banking and mortgage, said in a statement, citing customer research Citigroup conducted.
The app, which does not have a name, will augment the bank’s push to expand its wealth management business, he said.
Competing for deposits is important as interest rates rise. When banks start reporting second-quarter results on Friday, investors will be closely watching deposit levels and what they cost.
The stakes are high for Citigroup, which is less profitable than rivals and trying to meet elusive financial targets set by Chief Executive Officer Michael Corbat.
Citigroup, the third-biggest U.S. bank by assets, has 4 percent of U.S. deposits, compared with about 11 percent at JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co, according to S&P Global.
Its deposits also cost more, because a bigger portion comes from institutions and wealthy customers who demand higher rates. Citigroup paid 0.81 percent on U.S. interest-bearing accounts in 2017 compared with less than 0.30 percent at the other three big banks, according to their annual filings.
Citigroup has more than enough to fund its loans, but its earns only one-third as much revenue from U.S. consumer deposits as JPMorgan and Bank of America do, said Peter Nerby, a bank analyst at Moody’s Investors Service.
That gap could widen as other banks carry out plans to expand into new cities by building hundreds of branches to go along with their own apps. Citigroup has 700 branches, compared with Bank of America’s 4,400 branches and JPMorgan’s 5,100.
“Digital offers can only get you so much,” Dean Athanasia, co-head of Bank of America’s consumer banking division, said in an interview.
Even as customers embrace digital apps, they still want a local branch where they can see someone, he said.
Citigroup may open branches selectively over time in locations where it would help its wealth business, Chuback said.
For now, the bank seems unlikely to build any new brick-and-mortar locations, partly because its budget is tight. Management has vowed to cut $ 1.5 billion of expenses from its consumer bank by 2020 to reach Corbat’s targets.
“We’re completely focused on the implementation and execution of our national digital banking platform,” Corbat said at a conference in May when asked about rivals’ branch-building plans.
Citigroup is not the first bank to try to grow deposits without branches.
Companies including former General Motors subsidiary Ally Financial Inc, Discover Financial Services American Express Co and Goldman Sachs Group Inc have gone after deposits through mailings, call centers and digital tools. Those efforts, some going back decades, have gathered about 5 percent of U.S. deposits, according to consulting firm Novantas.
Lately, some small and regional lenders are also looking to expand their reach digitally at a relatively low cost.
For instance, Citizens Financial Group Inc, a Rhode Island-based regional lender, has said it will target customers outside of its markets with a new app. A bank 1 percent of the size of Citigroup can launch a decent app with software from outside firms for about $ 1 million a year, said Ryan Caldwell, CEO of MX Technologies.
Citigroup is betting its technology, familiar brand name and outreach to its 120 million U.S. credit card accounts can help it win some people over. It may also offer rewards for new deposit accounts to some card customers.
“Citi has been on a diet for about a decade,” said Moody’s Nerby. “They are playing the hand that they have.”
As of Friday, Citigroup shares had appreciated 83 percent since Corbat was named CEO in October 2012, compared with gains of 197 percent by Bank of America, 146 percent by JPMorgan and 65 percent by Wells Fargo, according to Thomson Reuters data.
Reporting by David Henry in New York; Editing by Lauren Tara LaCapra and Lisa Shumaker
(Reuters) – Investor Carl Icahn and Darwin Deason, the biggest- and third-largest shareholders of Xerox Corp, jointly plan to push the printer and photocopier maker to explore options, including a sale of the firm, the Wall Street Journal reported on Sunday.
Icahn and Deason, who together own 15.7 percent of the photocopier pioneer, have earlier separately called on the company to break off or renegotiate a joint venture with Fujifilm Holdings Corp, saying it was unfavorable to Xerox. Icahn has also called for Xerox CEO Jeff Jacobson to be replaced.
The two shareholders have now formed an alliance and plan to ask Xerox to explore options, including selling itself, breaking off its long-running joint venture with Fujifilm, and immediately firing Jacobson, the Journal reported, citing people familiar with the matter. on.wsj.com/2EYCRHd
The Journal had previously reported that Fujifilm and Xerox were discussing deals, including a change of control of Xerox, though not a full sale.
In a statement, Xerox said: “The Xerox Board of Directors and management are confident with the strategic direction in which the Company is heading and we will continue to take action to achieve our common goal of creating value for all Xerox shareholders.”
Deason has been asking the company to make public the terms of its deal with Fujifilm, which he called “one-sided”. Xerox has described Deason’s criticism as “false and misleading”.
The five-decade-old joint venture, 75 percent owned by Fujifilm and 25 percent by Xerox, is a pillar of Fujifilm’s business, accounting for nearly half the group’s overall operating profit. It has limited prospects for future growth, however, because of declining demand for office printing.
The reported operating profit of the joint venture, called Fuji Xerox, was about $ 750 million on sales of $ 10 billion in the year ended last March.
Fujifilm declined to comment on the Journal report.
Reporting by Kanishka Singh in Bengaluru; Additional reporting by Makiko Yamazaki in TOKYO; Editing by Peter Cooney and Muralikumar Anantharaman
On Wednesday, Apple confirmed what many customers have long suspected: The company has been slowing the performance of older iPhones. Apple says it started the practice a year ago, to compensate for battery degradation, rather than push people to upgrade their smartphones faster. But even giving that benefit of the doubt, there are plenty of better ways Apple could have accomplished the same goal without betraying customer trust.
Earlier this week, John Poole, a developer at Geekbench, published a blog post indicating that a change in iOS is slowing down performance on older devices. According to Apple, factors like low charge, cold climates, and natural battery degradation can all affect the performance of its mobile devices, and the company confirmed that this policy was implemented last year to counteract these effects.
As much sense as that explanation may make, Apple could have made plenty of choices that would have benefited consumers instead of penalizing them. These same choices could have also saved the company from the public shaming it suffered this week.
In a statement to WIRED, Apple confirmed Poole’s findings, saying it was purposely slowing down older iPhones to compensate for the effects of age on their batteries. “Lithium-ion batteries become less capable of supplying peak current demands when in cold conditions, have a low battery charge or as they age over time, which can result in the device unexpectedly shutting down to protect its electronic components,” the company says.
While many have speculated that the company has been doing this for years, Apple says the feature was implemented last year for the iPhone 6, iPhone 6 Plus, and iPhone SE. Now, with iOS 11.2, the iPhone 7 and 7 Plus are getting the same treatment, and the company intends to bring other devices into the fold down the road.
Rather than secretly hamstring the iPhone’s CPU, though, Apple could have simply educated users about the limitations of lithium-ion batteries, says Kyle Wiens, CEO of iFixit, a company that sells repair kits and posts repair guides for consumer electronics. While Apple does say in the iPhone user manual that batteries degrade over time and should be replaced, you’d have to dig through a few links outside of the manual to learn that by 500 charge cycles, your phone’s battery will hold a charge of about 80 percent.
Another tactic Apple could employ is selling battery replacement kits to consumers, letting them pop a fresh battery into their aging iPhone. It would be an easily understandable solution to an easily understandable problem, rather than software manipulation that feeds into a long-running, planned obsolescence conspiracy theory. But Apple has actively fought against laws that would require it to provide a way for users to repair their devices. According to a report from HuffPost, Apple argues that allowing consumers to replace the battery could make the iPhone more vulnerable to hacks, and that letting people peek inside would make the iPhone easier to counterfeit.
“Apple won’t sell batteries to consumers, people should be furious about that,” Wiens says. “Your battery is a maintenance item, and everyone should expect to replace their battery fairly frequently.”
Apple does cover one battery replacement under its one-year warranty program, but only for “defective batteries,” a term that isn’t clearly defined on the company’s site. If your phone is out of warranty and you don’t have an AppleCare+ plan, the company offers a battery replacement for $ 79 plus a $ 6.95 shipping charge. The problem, Wiens says, is that Apple doesn’t advertise this policy to consumers, leaving iPhone users to believe that the only solution is to buy a costly iPhone.
Direct battery fixes certainly would have made the most sense. But even allowing that a software tweak was the only way Apple could have proceeded—untrue, but just for argument’s sake—it had a much better option than making its software solution covert.
Rather than quietly push out an update that crimped older iPhones, it should have made that throttling opt-in. As it stands, there’s no way to avoid having your phone slowed down once the battery reaches its limits. By giving users the choice, and giving them the information necessary to make their own decision, Apple could avoid the frustrations many have expressed over the policy.
While making the throttling opt-in could cause performance issues for users who opt-out, it would give users a sense of control over the situation and avoid making them feel like they’re being tricked into buying a new phone. As it stands, Apple’s move comes off as deceptive.
Instead of leaving users confused about why their phones are suddenly slowing to a crawl, Apple could take user education a step further by providing a battery health monitor in the Settings app. That way, an iPhone owner could figure out if the battery is the issue, or if something else is going on.
Lay Down the Law
The damage, unfortunately, is already done. But it’s also unlikely that Apple will behave differently going forward. At the very least, the company almost certainly won’t shift gears and start selling battery replacement kits to consumers. For starters, the iPhone’s casing uses proprietary Pentalobe screws, which make it hard for average users to get inside to swap the battery.
Apple has also lobbied against right-to-repair legislation, which would allow third-party repair shops and typical consumers to more easily fix their broken phones. Proposed right-to-repair laws typically require companies to publish their repair manuals, as well as make the necessary repair tools available for purchase rather than requiring a specialist to make these repairs.
Wiens says that, ideally, right-to-repair legislation would pass and ensure consumers have the ability to fix their devices on their own terms without having to deal with warranties or acquire difficult-to-find tools.
Apple’s throttling is misleading, and it’s far from the best way the company could have handled the situation. Still, lithium-ion batteries are riddled with problems users should be aware of. The company isn’t likely to change its stance on the matter, but if you’ve noticed your iPhone getting slower over the last year, at least you know it wasn’t all in your head—and that a battery fix might bring your iPhone back up to speed.
HELSINKI (Reuters) – Nokia is still reviewing its options for its undersea cables unit, a business that underpins the global Internet, chief executive Rajeev Suri said on Thursday.
Reuters reported in May that Nokia was planning to sell the ASN division, which is one of the top suppliers of undersea cable networks in the world and is valued at 800 million euros ($ 944 million).
“We are still in the middle of our strategic review which we have set for ASN, so there’s no update,” Suri told a conference call.
Some analysts had expected a decision on the unit alongside the release of Nokia’s interim report released on Thursday.
The unit was bought by Nokia last year as part of its 15.6 billion-euro ($ 17 billion) acquisition of Franco-American rival Alcatel-Lucent.
($ 1 = 0.8471 euros)
Reporting by Jussi Rosendahl, editing by Terje Solsvik
Living in a knowledge economy, it almost goes without saying that knowledge is important. In fact, Eric Beinhocker went a step further in his book, Origin of Wealth, when he concluded that knowledge is the genesis of wealth. More specifically, he explained that “Knowledge … is information that is useful, that we can do something with, that is fit for some purpose.” In many ways this is an uplifting message. By recognizing knowledge as a primary vehicle for human progress, he also guides readers to a course of action that can improve almost any situation.
Of course, this insight also applies to the world of investing and underlies much of what compels the best investors. Because securities prices tend to gravitate to the sum of discounted future cash flows, there are typically handsome rewards for those who can identify and act on instances of significant deviations from intrinsic value. Typically anyway. Over the last few years, knowledge has lost much of its pre-eminence as a means by which to create wealth in the markets – and this has some very important implications for investors.
Historically, hedge funds have epitomized the application of knowledge for the purpose of creating wealth in the investment world. They tend to hire the smartest people and deploy the greatest resources in the endeavor of making tons of money. The industry is plastered with tales of their greatest trades and impressive track records.
Over the last few years something odd has happened with these funds, however: Many of them have been struggling. Of course, hedge funds often take risky bets and it is not unusual for one to occasionally have a big bet go bad. What is unusual is that a large concentration of the best hedge fund managers have been suffering repeatedly and closing funds down and/or closing their shop down. There seems to be some information content in this pattern.
Going back a couple of years to 2015, for example, the Financial Times documented market turmoil (here) that caught several of the big hedge fund names. As the article reports, “Some of the worst hit were funds that specialised in stock picking,” and noted that, “David Einhorn’s $ 11bn Greenlight Capital lost 17% up to the end of September.”
More recently John Burbank of Passport Capital shut down his long-short strategy (here) after a stretch of weak performance and some big redemptions. The story reports that the firm’s flagship Passport Global fund also suffered major redemptions this year which substantially reduced the firm’s assets under management.
Also of note is the case of Hugh Hendry and his Ecclectica funds. After suffering through a tough period after the financial crisis (here), Hendry changed strategic course and seemed to be stabilizing performance. That all changed fairly quickly this summer, however, when a couple of consecutive months of negative returns were followed by significant redemptions and Hendry decided to close down shop altogether.
Mark Hart also made news this year with his Corriente Advisors (here). Long a bear on the Chinese yuan, he “spent seven years and $ 240 million waiting on a crash in China’s currency.” His rationale for such a big trade was solid: “Hart believes that the Chinese crawling devaluation is an error as it carries with it the latent threat of much more devaluation in the future, thus encouraging even more outflows, which in turn forces China to sell even more reserves, which destabilizes the economy even further, forcing even more devaluation and so on.” Unfortunately for him and his investors, it just hasn’t worked out that way. At least not yet.
While periods of poor performance are endemic to the business, the breadth of significant performance challenges among such high profile funds begs the question as to why it is happening now. One simple explanation is that the hedge fund business is a tough one. While managers have the potential to earn substantial fees, this must be done in the context of an environment that is intensely competitive and for which many clients are impatient. Not only must you be right about your trades, but you must be right within a short enough time horizon that your clients don’t leave first.
That still doesn’t answer why these performance travails among top managers have been more concentrated recently, however. Something else appears to be going on. One explanation is that the mechanism by which knowledge produces wealth in the capital markets is broken. In other words, it’s not so much that these managers have been wrong as that the markets have failed to reflect information as accurately as they normally do. Unusually, mispricing in the markets has been both persistent and nearly systemic.
In an important sense, this is just another way of talking about valuation – which we and plenty of other commentators have been doing for some time now. One of the primary suspects in the case of persistent mispricing is the group of entities that are not sensitive to price (an issue we highlighted (here)). Whether this group has been comprised of central banks buying trillions of dollars worth of securities regardless of price or people buying passive funds with little regard for investment merits, this unbalanced demand for financial assets has changed the quality and quantity of information embedded in market prices.
As such, at least one of two things is likely to be true. One is that the phenomenon of widespread security mispricing is a temporary phenomenon and likely to revert. Insofar as this is the case, investors can expect the substantial disparities between intrinsic values and market prices to start dissipating. During this “normalization” process, it is likely that passive funds will persistently underperform and that some of the best active funds will post huge performance numbers.
The other possibility is that, we are now in a period of semi-permanent market inefficiency in which market prices remain detached from underlying values for a substantial but indeterminate period of time. Under this hypothesis, markets are no longer clearinghouses of supply and demand for securities that reveal useful information, but rather instruments of (often capricious) public policy and expressions of mindless attachment to stocks and bonds. In this scenario, market prices contain very little information and therefore provide little basis upon which to efficiently allocate capital throughout the economy.
This is a critically important point for investors. Information greases the wheels of capitalistic, free market economies and keeps them moving efficiently. Less information means less efficient capital allocation – means less economic growth – means less wealth creation. In other words, wealth is not signaled by securities prices per se, but rather by the information imbued in those prices. If those prices don’t contain useful information, then they are just arbitrary numbers
If this seems a bit unnerving, it should be. Anyone who is saving for retirement (or a similar long term goal) and is trying to maximize their chance of succeeding should be alarmed by any element of arbitrariness in the process. Yet this is exactly what happens with most investment plans because most plans focus almost exclusively on financial assets. Such an emphasis creates a discernible risk that the reported totals in these plans overstate the real wealth that has been accumulated. In other words, many investors probably don’t have as much saved up as they think they do.
Although this presents a challenge for investors, fortunately there are things that can be done. An example from the technology world points the way and not surprisingly, it involves knowledge! More specifically, as Tristan Harris describes (here), it essentially involves inoculating oneself against the imposition of false choices. Harris knows a lot about the subject; he spent three years at Google (NASDAQ:GOOG) (NASDAQ:GOOGL) as a Design Ethicist “caring about how to design things in a way that defends a billion people’s minds from getting hijacked.”
In his hijack prevention effort, Harris discloses something of a taxonomy of ways to fool people. The number one spot on that list is to “control the menu,” or, as he puts it, “If you control the menu, you control the choices.”
As he describes, “Western Culture is built around ideals of individual choice and freedom. Millions of us fiercely defend our right to make ‘free’ choices, while we ignore how those choices are manipulated upstream by menus we didn’t choose in the first place.” He provides an illustrative example: “This is exactly what magicians do. They give people the illusion of free choice while architecting the menu so that they win, no matter what you choose.” He concludes with the message, “I can’t emphasize enough how deep this insight is.”
While Harris’ intent is to prevent people from being sucked into a limited menu of apps on their smart phone and foregoing a world of other, often more fruitful activities, the lesson is just as apt for investors. It is much harder to make good decisions when you don’t consider the alternatives. As it stands, the vast majority of advisers, for a variety of reasons, focus almost exclusively on financial assets when creating investment plans. But that focus creates a false choice. Worse, when financial assets are overvalued, not only are they a false choice, but a bad choice. Paraphrasing Harris, no matter what you choose, you lose.
The best way to avoid being fooled by false choices (such as picking one fund over another) then is to always consider the broader realm of possibilities. As Harris notes, the types of potentially revealing, but rarely asked questions include things like: “What’s not on the menu?” “Why am I being given these options and not others?” “Do I know the menu provider’s goals?” “Is this menu empowering for my original need, or are the choices actually a distraction?”
And there’s the catch that seriously challenges the assumptions of most investment plans. Does this menu empower your original need? Do financial assets completely fulfill your needs for retirement? Or do they introduce undue risk and uncertainty?
No doubt, financial assets are great when they are working. You put away some money and it just keeps growing. You get a benefit with no extra work. But when they don’t work, and by definition there are no guarantees, they can fall in value at really inopportune times. And if they are overpriced to begin with, declines can be permanent. The nightmare scenario is when this happens at a time when you are too old to recoup losses, but young enough to have to endure the consequences for a long time.
Fortunately, it is not difficult to expand the realm of investment possibilities to non-financial assets. In fact many thoughtful investors may already be doing this on some level anyway – with or without help from their advisers.
One key non financial asset for consideration is cash. Not only does cash serve as a relatively secure store of value, but it also provides an option to buy other assets more cheaply in the future. In addition, real assets like rental properties can produce their own cash flows regardless of prices for the asset. Precious metals don’t produce cash flows, but can help preserve wealth against the threat of inflation. Finally, intellectual capital in the form of new skills that can be remunerated also constitutes a potential avenue for investment.
In many respects then, knowledge is more than just a virtue that can improve people’s lives. It is also a means by which to create, and to some degree, measure wealth. This ends up being a useful concept at times when market prices lose their information content and drift from intrinsic values. While many people enjoy watching prices go up, the reality is that this phenomenon only makes the job of accumulating wealth that much harder. At worst, it sets investors up for a nasty surprise at a time when it is too late to do much about it.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
At Interop ITX 2017, a container deployment expert will demonstrate how users can select an option for moving containers to the cloud.
IT pros face a variety of options when it comes to managing OpenStack — and those options vary, depending on whether they take a DIY or vendor-supported approach.
And they might be cheaper than you thought.
The post The Oculus Rift is Coming (With New PC Bundle Options) appeared first on WIRED.