Even a bank CEO who’s been at it for almost three decades hasn’t seen an economic environment quite like this one.
Richard Fairbank, the founder and longtime chief executive officer of Capital One Financial Corp., said with inflation running at 40-year highs and unemployment near historic lows, the current economy is unlike anything he and other banking titans have ever seen.
“The last time inflation was raging like it is now, we weren’t in the jobs that we’re in,” Fairbank said Tuesday at an investor conference in New York hosted by Goldman Sachs Group Inc. “For all of us, we’re going to sort of learn this as we go along.”
Fairbank, 72, has been CEO since Capital One was spun out of its former parent company Signet Bank in 1994. Under him, the McLean, Virginia-based company has grown to become the fourth largest U.S. credit-card issuer, with a market capitalization of $35.8 billion.
Fairbank said his company has begun to tighten underwriting for lower-income consumers, who have already started to go delinquent on card loans more quickly than their wealthy counterparts. Still, he said the company, which has been investing in travel products and offers the $395-a-year Venture X card, is looking to increase its share among big-spending, prime consumers.
“The good news is the credit metrics are still better than they were in the past but the bad news is the trajectory,” Fairbank said. “But along the way, we continue to trim around the edges.”
Boutique Investment Banks See Hiring Opportunity
Executives at boutique investment banks Moelis & Co. and Perella Weinberg Partners said the weakness in Wall Street compensation will help them add high-quality employees.
“If we see the right talent, we will pull the trigger and we will invest,” Ken Moelis, founder and chief executive officer of Moelis, said at the conference.
Incoming Perella Weinberg CEO Andrew Bednar, meanwhile, said his bank has a “mandate” from its investors and partners to expand, and that a decline in correlation between performance and compensation at the largest investment banks would create opportunities for his firm to do so.
“We’ve built a terrific business,” Bednar said, “but it’s time to scale the business.”
ICE Focused on Mortgages Even With Rates Rising
Intercontinental Exchange Inc. is “leaning hard” into the mortgage business even as high interest rates slow originations.
“The best time to build a business is when some of these things are out of favor, when your clients are looking for solutions,” said Jeffrey Sprecher, CEO of ICE, which owns the New York Stock Exchange. “It’s going well.”
ICE and other exchange operators have been branching into data and other areas of financial technology in recent years as growth stalled in the traditional exchange business. Earlier this year, the company agreed to buy mortgage-software provider Black Knight Inc. in a deal valued at around $13.1 billion.
Sprecher said that his company is trying to build an infrastructure that can change the cost of wholesale mortgage using automation tools. “That can fundamentally change the capital markets,” he said.
On the fallout from the collapse of crypto exchange FTX, Sprecher expects the biggest impact will be on consumer behavior.
“A lot of people that thought they were wealthy will start to worry about their day jobs,” bringing them back to the office “to put in the hard work and earn an income,” he said. And while there will also be regulatory scrutiny of the crypto markets, Sprecher said he doesn’t expect “massive law changes,” adding that regulations “already exist—they will just be implemented.”
JPMorgan Sees Trading Revenue Rising About 10%
JPMorgan Chase & Co. expects trading revenue to rise about 10% this quarter from a year ago on continued strong performance in macro, said Marianne Lake, co-head of the firm’s consumer and community bank.
The guidance is based on quarter-to-date figures, Lake said Tuesday at the conference. In a wide-ranging conversation, Lake also reiterated JPMorgan’s fourth-quarter guidance for expenses and net interest income, but noted that each could be “a little better” than the firm earlier expected.
“Markets performance is good, particularly in fixed income,” Lake said. “In terms of NII and expense for the fourth quarter, I would say things have played out pretty much in line with the guidance.”