The Wall Street Journal: Deposit Outflows Shine Light on Fed Program That Pays Money-Market Funds
By Eric Wallerstein and Nick Timiraos
April 5, 2023 (View Original Article)
Banks are under pressure from depositors’ embrace of money-market funds, pushing a popular Federal Reserve-sponsored financing program into the spotlight.
Money-market fund assets are increasing at a record clip. Much of that cash is making its way to the Fed’s overnight reverse repurchase facility, which borrows from money funds and other firms in exchange for securities such as Treasurys and then returns the money the next day.
The program, known on Wall Street as reverse repo, allows financial firms and others to earn interest on large cash balances. But some analysts contend it also is effectively draining funds from the banking system, where it otherwise could be invested or lent out.
As of Tuesday, $2.2 trillion sat in the Fed’s reverse repo facility, paying a 4.8% annualized rate. That is well above the rates on offer at most banks.
Some analysts are suggesting the Fed should change the terms of the facility to limit further bank distress. Any policy discussion is potentially complicated by factors including the Fed’s effort to raise interest rates to control inflation, and officials have indicated in the past that they prefer to allow market forces to work.
“Every day, firms are handing us over $2 trillion of liquidity they don’t need,” said Fed Governor Christopher Waller during a moderated discussion in January.
Bank deposits have fallen $363 billion to $17.3 trillion since the beginning of March, Fed data show. Assets in money-market funds have risen $304 billion to a record $5.2 trillion, according to Investment Company Institute data.
More than 40% of money-market fund assets are invested in the reverse repo facility, which the Fed created 10 years ago to lift interest rates with a banking sector that had been flooded with reserves. Roughly $2 trillion or more has been parked there since mid-2022. Demand exploded in 2021, when the Fed’s aggressive stimulus during the Covid-19 pandemic sent a wave of deposits into the banking system.
Use of the Fed facility hasn’t changed significantly in the weeks since the early March failures of Silicon Valley Bank and Signature Bank, but some analysts said banking-sector stresses have made it harder to predict how the central bank’s relatively new tools will influence overnight lending markets.
“What’s different this time is the money-market funds aren’t really as good at recycling money back into the banking system,” said William Dudley, who was president of the Federal Reserve Bank of New York from 2009 to 2018.
Banks have been unwilling to hold extra reserves—or liquid, readily available cash—at the Fed because of a decision that regulators made last decade, Mr. Dudley said. They chose to count those balances toward banks’ calculation of a key regulatory buffer known as the supplementary leverage ratio, he said.
Officials temporarily exempted reserves from the leverage ratio for a year from April 2020, as the pandemic put extreme stress on the financial system. Reverse repo demand began rising shortly after the one-year suspension of the rule ended.
The treatment of reserves in the leverage ratio “is a reason why some large banks in particular don’t want more reserves,” said Mr. Dudley.
To reduce the amount of cash sitting at the Fed each night, central bankers have a few options. One way would be to cut the rate paid to money funds, analysts said.
“To reverse the giant sucking of the overnight reverse repo facility, all the Fed needs to do is lower the interest rate it pays,” said Bill Nelson, chief economist at the Bank Policy Institute—a Washington, D.C.-based trade group—and a former Fed staffer.
In June 2021, the Fed raised the overnight reverse repo rate by 0.05 percentage point. With interest rates near zero, money-market funds were struggling to cover their operating costs, putting a vital part of the financial system at risk. The rate also serves as a floor on short-term interest rates.
With rates well above zero, the Fed has the option to push the overnight reverse repo rate back down to the lower end of the federal-funds target range. That would need to coincide with the Fed’s raising the rate it pays on bank reserves, according to Mr. Nelson—a move that could encourage money funds to lend to banks rather than the Fed. Interest on reserves is currently 4.9%.
Reverse repo explained
The Federal Reserve’s overnight reverse repurchase facility gives lenders such as money-market funds a way to earn interest on excess cash.
The Fed sells securities, such as Treasurys, to a firm with an agreement to repurchase them later at a higher price.
The difference between the original price and the repurchase price roughly equates to interest paid to the firm. The operations help the Fed keep the federal funds rate within its target range.
Other analysts said it wouldn’t be appropriate for the Fed to reduce the interest rate on the reverse repo facility to provide relief to banks that have been slow to raise deposit rates.
The facility has been meeting its core objective of “providing highly effective control of overnight interest rates,” said Brian Sack, a former senior executive at the New York Fed who helped design the facility. “I don’t think the Fed should be trying to force savers into bank deposits by making the alternatives less attractive. I don’t see reducing the reverse repo rate as an appropriate policy step.”
Greater competition among banks would tend to raise borrowing costs and hurt profits. That is a dilemma for bankers that was largely absent in the recovery from the 2008 financial crisis. Overwhelmed with deposits following monetary stimulus, many banks have chosen not to pay customers higher rates, even when the Fed raised them.
“Banks are still losing deposits, but it’s mostly small potatoes relative to the roughly $17 trillion in total deposits,” said Noor Menai, president and chief executive of Los Angeles-based lender CTBC Bank USA and advisory board member of the Federal Reserve Bank of San Francisco. “Absent any more bad news or unforeseen market events, the banking system is stable.”
Fed officials have said they expect reverse repo balances to decline as they drain reserves from the banking system by shrinking their asset holdings. If the balances don’t decline, central bankers could bump up against their goal that “ample reserves” remain floating around the banking system and raise questions over whether to prematurely end the portfolio runoff program.
Officials have signaled they would like to avoid that outcome. Federal Reserve Bank of Dallas President Lorie Logan, who helped design the facility as a senior executive at the New York Fed, called for patience in waiting for market forces to move reserves around the system.
“The process of redistribution from the overnight reverse repo facility to banks won’t necessarily be perfectly smooth,” she said in a January speech.
Fox Business: SVB's management, board caused collapse with 'irresponsible acts': Noor Menai
March 20, 2023 (Please View Original Broadcast)
Fox News contributor Robert Wolf and CTBC Bank USA president and CEO Noor Menai discuss the stability of the U.S. economy and the importance of regional banks on 'The Claman Countdown.'
Los Angeles Business Journal: Tough Talks: Banks Deal With Interest Rate Increases
By Gina Hall
February 1, 2023 (View Original Article)
Banks are having to manage tough conversations with borrowers to evaluate whether their businesses can withstand the increased strain of higher loan payments because of higher interest rates.
Bankers report that the burden is on the borrower to prove to lenders that they have the cash flow to support new loan requests at the current elevated rates. Some borrowers may think twice about obtaining growth-oriented capital, for, say, equipment or acquisitions, while interest rates are high. But others may still be seeking debt capital to keep their businesses operational.
Large banks were approving fewer small business loans at the end of 2022, with approval percentages in November dipping to 14.6%, the second lowest total in 2022, according Biz2Credit’s Small Business Lending Index.
Other lenders were approving small business loans at slightly higher rates — credit unions at 20.3%, small banks at 21.1%, institutional lenders at 25.8% and alternative lenders at 27.4%. Still, the approval numbers weren’t much different year over year, with approval rates actually about 1% higher at most lending institutions, except at large banks, whose approval rates were .2% higher year over year. Only credit unions, down .4%, were approving fewer loans than in 2021.
“We are having conversations with our existing borrowers to better understand the impact higher rates are having on their business or property and to determine if a loan modification might be needed to assist the borrower for a period of time,” Matt Fuhr, executive vice president and chief credit administration officer at Hanmi Bank, told the Business Journal.
Tough lending parameters haven’t necessarily slowed potential borrowers from requesting access to capital, but some bank executives are seeing a decrease in the number of borrowers who are qualified to take on the extra debt with higher interest rates.
“In some instances, the existing cash flow doesn’t support the amount of debt requested,” said Fuhr. “In these situations, we either ask for an additional equity contribution from the borrower or a lower loan amount. In general, qualified borrowers are in sound financial health and can meet these additional requirements.”
Noor Menai, chief executive of CTBC Bank, noted that his bank, which has its U.S. headquarters in downtown Los Angeles, is not necessarily asking for more collateral, but is taking extra care to assess the health of a business seeking a loan, ensuring owners can put up with the increased burden.
“Our priority in underwriting is based on how much cash you’re generating,” Noor told the Business Journal. “It’s based on past track record and what is going to happen to the underlying business. Will the customers stop buying?”
Business borrowers may have had strong financials to show from early last year, but if their year went poorly, then updated tax returns and financial statements may cause loan rejection rates to rise in the coming year.
“By end of year (2022), we continued to see high demand and high volume,” Brandon Ferrera, Fifth Third Bank’s Southern California market president, told the Business Journal.
According to a November survey by the National Federation of Independent Businesses, 62% of small business owners said they were not interested in a loan and 5% reported their last loan was more difficult to qualify for than previous attempts. About 23% of owners reported paying a higher rate on their most recent loan.
Banking industry executives said that their financial institutions continue to be conscientious when it comes to underwriting and credit administration. The impact of the 2008 financial crisis still has a major effect on how banks take on risk today.
Banks are being more cautious, but not because we are risk-averse,” Noor said. “Since 2008, banks have been very careful as to how they lend. The underwriting has been much better.”
“We always emphasize sound underwriting, diligent credit administration and ongoing client communication in both good and challenging times,” Fuhr said.
Interest rates have risen dramatically in the past year as the Federal Reserve Board continues to battle inflation. Small business loans are based on the prime rate, which is currently at 7.5%, the highest since 2007 and up from only 3.25% a year ago. This puts most Small Business Association loans at an interest rate of 10.5%, according to CNBC.
Restoring price stability
The Federal Reserve in December reminded investors and borrowers that it remained committed to returning inflation to 2% — which portends more interest rate hikes in the future.
In the United States, inflation remains high because of the pandemic-caused shortages and pandemic-related money injected into the economy as well as other pressures. Fed Chair Jerome H. Powell recently confirmed what many suspected: high interest rates appear to be around for the long haul.
“It is likely that restoring price stability will require holding policy at a restrictive level for some time,” he said in a speech at the Brookings Institution in November. “History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
If there is a decrease in lending, executives and experts feel that the banking business at large is still in good shape. “The economic environment is more complicated than it has been in recent history,” said Ferrera.
Executives cited inflation, threat of recession, supply chain issues and the war in Ukraine as concerns, but not cause for alarm.
“There has been no shift in our lending focus, which is intentionally diversified by loan type and industry,” said Fuhr. “We’re remaining consistent with our underwriting discipline, which may temporarily put pressure on the number of loans that we fund in one area, but we would expect that to be offset by loan demand in other areas of our business.”
In a 2023 outlook on banking and capital management, tax consulting firm Deloitte advised interest income would likely not be enough for many banks and most institutions should be expanding their non-lending and transaction banking productions.
“We’ve seen an increased interest in our financial risk-management products,” said Ferrera.
“The ripple effects from a more fragile and fractious global economy will be felt disparately across the global banking industry,” Deloitte noted in the report. “Large, well-capitalized, diversified banks should weather the storms reasonably well.”
“We are in good health,” Noor agreed.
Los Angeles Business Journal: Banking & Finance Quarterly: Mood: Optimistic
By Gina Hall
September 19, 2022 (View Original Article)
Business owners have weathered a lot of turmoil since 2020, but many financial experts agree that a large percentage of them are still looking to grow their enterprises in the year ahead. There have been some changes in the lending landscape since the start of the pandemic, and some caution is warranted in the future, but executives at several Los Angeles banks are optimistic about the coming months.
According to a recent Small Business Credit Survey issued in May by the 12 Federal Reserve banks, 85% of employer firms experienced financial challenges in the last 12 months, up four percentage points since 2020 and nearly 20 points since 2019.
Regardless of the hardships, however, a 2022 small business-owner report by Bank of America Corp. indicated that about 70% of business owners plan to obtain funding for their business in the next 12 months, despite concerns about inflation, commodity prices and the supply chain.
In Los Angeles County in the first half of 2022, Bank of America loaned $1.4 billion to small businesses – firms with less than $5 million in revenue – and $9.8 billion to commercial businesses – firms with revenue between $5 million and $2 billion.
“We’re seeing very positive lending rates and approval,” Angela Antonio, small business region executive for Los Angeles with Bank of America, said. “A significant percentage of small businesses are currently looking to expand.”
Some 72% of business owners say ownership has become harder over the past decade due to a more competitive business landscape, challenges reaching new customers, a more competitive labor market and ecommerce corporations impacting sales.
Relationships matter more
In the BofA report, almost 80% of business owners said their business was negatively affected by the pandemic, with most noting negative impacts to sales, products and inventory.
“A lot of businesses had to decide if they wanted to remain open,” Richard Raffetto, president of downtown-based City National Bank, told the Business Journal. “And many clients learned where they stood with their bank.” “Relationships are more important than ever,” he said. “Knowing your banker has become very important.”
Having a strong connection to a bank played out during the early months of the pandemic when financial partners were able to quickly service existing clients through the Paycheck Protection Program (PPP), the Small Business Administration-backed loan program that helped companies keep their workforce employed at the peak of the pandemic.
While business owners who didn’t have strong ties to their bank were eventually able to access funds, firms with solid banking relationships were likely less stressed during the loan process.
“We turned crisis into opportunity,” said Anthony Kim, executive vice president and chief banking officer at Koreatown-based Hanmi Bank. Kim noted that the PPP loans made it to customers in a timely fashion, which encouraged them to bring more business to the bank and refer colleagues. As a result, “referrals increased and loan demand also increased.”
As the pandemic months wore on, banks also bolstered their fintech options, making online banking easier and accessible to community bank customers. But while financial relationships can now be built remotely, Joe Yurosek, regional president of Western markets at Fifth Third Bank, observed that in-person meetings are still as valuable as they were pre-pandemic.
“We are meeting the client where they want to be met,” Yurosek said. “The in-person meeting is not going away, but the frequency could be replaced with remote opportunities.”
Update your business plan
For owners, there may be several aspects of their business plans that need special attention in this new era.
“You have to go down to the next level of detail,” said Noor Menai, president and chief executive of CTBC Bank Corp., USA. But he says the credit is still out there even as interest rates go up.
“We ask about remote strategy,” Yurosek said. “And with supply chain disruptions, we look at alternative supply chain options.”
At places like Fifth Third, potential borrowers will discuss emergency contingency plans in detail with their financial partner and benefit by placing added emphasis on working capital needs and inventory investments, said Kim investments.
Kim noted that financial planners at his bank are paying particular attention to loan customers’ liquidity status and secondary payment sources.
More than 60% of owners surveyed recently told Bank of America that their business has fully or partially recovered from the pandemic, with more than half citing increased consumer spending as a factor that will help or has helped their business recover.
Loans for businesses may largely depend on the sector. Menai observed that industries that he’s seen doing well include ecommerce and multifamily and industrial real estate. “We’re going to see a lot of impacted sectors healing quickly,” Yurosek confirmed. “Consumer travel is booming, although business travel is lagging. (We’re) seeing weekday use of hotels and flights slow.”
Several executives cited hospitality as one sector that has been slow to rebound. Per the SBCS 2022 survey, half of the firms in the leisure and hospitality industry reported a large negative effect from the pandemic, compared to only 26% of manufacturing firms.
The SBCS survey also noted that firms owned by people of color “were most likely to be in fair or poor financial condition.” The survey found that 76% of Black-owned businesses categorized themselves this way, compared to 55% of white-owned businesses.
To help some entrepreneurs, banks are developing programs in certain sectors to bolster access. For example, Bank of America is launching a pilot program in which female and minority borrowers can receive a grant for a down payment on commercial real estate.
More than half of business owners in the BofA report are working to shield themselves from future risks following the pandemic months.
Some 37% of respondents said they were focused more on digital sales, 36% had adopted new technology and 31% diversified their revenue streams.
For their part, lenders hope they will continue to play a positive role for small business borrowers.
“We got to wear the white hat this time as opposed to how bankers were perceived after the 2008 financial crisis,” said Raffetto.
“Our government stepped in and the end of the world didn’t come,” said Menai.
“Community banks will continue to be the last mile for borrowers. “So much hasn’t changed,” said Yurosek. “Although we went through a disruption, we proved we can do it on a temporary basis.”
Los Angeles Business Journal: Fintech Slump Could Bring Much-Needed Reassessment and Stability
By Steven Crighton
May 3, 2022 (View Original Article)
Financial technology stocks have taken a wallop in recent weeks — driven primarily by runaway inflation and rising interest rates — that’s made the general market downturn seem comparatively mild. Analysts, however, say the slump is prompting some self-reflection that could ultimately inject much-needed stability into the fintech industry.
The flood of SPAC-backed fintech debuts have all but evaporated, and leaders like the digital stock broker Robinhood Markets Inc., Block Inc. and Paypal Holdings Inc. are down more than 60% from October 2021. Over the same period, the S&P 500 dropped 8%.
Local fintechs haven’t fared much better than their NorCal counterparts: After a promising public offering in January that saw its stock price rise to a high of $14.30, shares for the West Hollywood-based fintech and banking app company Dave Inc. closed at $4.42 on April 25.
Jason Wilk, the chief executive officer of Dave, acknowledged the general market turmoil in a statement to the Business Journal, and in spite of it says he’s “never been more excited about the future of Dave.”
“While the public markets are challenging at the moment, we are thrilled we achieved this milestone and that we have the necessary capital to continue on our mission to level the financial playing field of our members,” said Wilk. “There’s still 150 million people in the U.S. alone who could use our help; we’re just getting started.”
Likely concerned with facing a similar predicament, some still-private fintech firms in Los Angeles with prospective SPAC plans have gone mum on the timeline of their debuts. The Marina del Rey-based sustainability fintech Aspiration Partners Inc. in August announced its plans to debut via a business combination with the blank-check company InterPrivate III Financial Partners Inc.
The company has won support from major investors including former Microsoft chief executive Steve Ballmer, raked in hundreds of millions in financing, and recently released a stellar fourth-quarter 2021 report, but its leaders have been guarded on the subject of its public offering plans. Andrei Cherny, Aspiration’s chief executive officer, recently told Bloomberg that the firm was “excited about the prospect of being a public company, hopefully in the not-too-distant future,” but a company spokesperson noted in an email to the Business Journal on April 25 that no firm timetable for the debut has been set.
Joshua Lastine, a transactional attorney at Lastine Entertainment who regularly advises clients on fintech matters, said the defensive posture these fintechs are taking is completely reasonable given the current calamity of the economy. “The chaos of the last few months – from the pandemic, to the war, to regulations and threats of regulations, interest rates and inflation, I could go on, but all of that’s reasonably given these companies pause,” said Lastine.
While the short-term outlook seems bleak for fintechs compared to the booms of 2020 and 2021, Lastine said the lull is giving the industry some much-needed time to reflect and reassess.
“It was easy to get caught up in the craze, but the market at the time was really the wild, wild West. It was an unnatural evolution of the industry,” Lastine said. “Whatever emerges from here seems as though it will have more of a traditional backing.”
Noor Menai, president of the downtown-based CTBC Bank Corp. USA, shared a similarly optimistic outlook for the long term. While upstart fintech companies gained an upper hand in the early days of the pandemic as an unconventional alternative skirting the regulatory requirements faced by institutional banks, Menai said those traditional competitors spent that time developing their fintech and shoring up their infrastructure.
“Until recently, you would have needed billions to compete with a Robinhood or any other neobank. That was a theme that was set, even pre-Covid , so what hope would there be for a community bank?” said Menai, who also serves as deputy head of international business for CTBC’s Asia-based parent company. “Then the pandemic hit, and suddenly on one Friday in March of 2020 (remote) payment systems became the lifeblood of every financial institution. Suddenly, we all became fintech.”
The post-Covid realignment helped big banks regain some of that lost footing, Menai said, but it’s local outlets that are finding the greatest tailwinds. “The community banks, which everyone wrote off as part of the horse-and-buggy crowd, have become the application gateway for these big banks,” said Menai. “The impossible nature of interaction with the government made it easier. Your typical restaurant owner couldn’t deal with the city, they couldn’t even deal with the prominent traditional banks; but they could get in touch with their community bank.”
Currency exchanges for many U.S. companies and consumers are almost wholly digital, Menai noted, making the distinction between a pure fintech like Robinhood and community banks with fintech capabilities less important. Given the growing complexity of blockchain, NFTs, and everything else under the fintech umbrella, Menai said he suspects consumers will increasingly turn to local alternatives that can lay out options in practical terms.
Menai said the story of fintech, like many new industries, is a case of the technology rapidly outpacing the laws governing it. Making matters worse, Menai said, the industry was dominated until recently by disruptors and visionaries who were eager to eschew the traditional financial infrastructure.
“You can’t stress enough how far ahead these guys are,” Menai said. “They’re not bad actors, they’ve just been monomaniacally obsessed with breaking the shackles of the modern financial system. … But you have to actually go out there and design the infrastructure.”
Between fintech disruptors and consumers is a gap that community banks can work to bridge, Menai added. The deeper their roots are set in a community, the more a bank can benefit from their fintech edge.
In that regard, he said, Los Angeles is in a great position. “Los Angeles is fast becoming the destination of these technology firms, not just necessarily fintech firms,” said Menai. “And they’re benefitting from all the infrastructure that comes with it.”
Bloomberg: Wall Street Poaching Season Heats Up With Fintech and Funds on the Hunt
By Anders Melin
March 2, 2021 (View Original Article)
- Goldman exits underscore unusually sweet opportunities in 2021
- Financial startups need experts in the industry’s mechanics
To the outside world, Wall Street banks looked like great places to be last year, as they printed profits during the pandemic slump. To those inside, they now look like great places to leave, too.
Technology upstarts and investment firms are offering some unusually attractive opportunities to seasoned Wall Street professionals, including shots at multiplying their paychecks -- an allure all the greater after banks showed restraint in doling out rewards for 2020. Exits are now proliferating as bonus season wraps up.
A pair of Goldman Sachs Group Inc. partners, including an architect of its consumer business, became the latest examples over the weekend by giving up their coveted spots for an unconventional alternative: Walmart Inc.’s nascent financial-technology venture. A day later, news broke that another top Goldman executive left to join Tiger Global Management.
While Walmart certainly isn’t Wall Street, recruiters and industry veterans say the allure of such an opportunity is obvious: A shot at building something from scratch with enough resources to challenge incumbent players. That’s not to mention the potential riches if the new business succeeds.
“These people are very motivated, they’re super smart and they set goals for themselves,” said Noor Menai, chief executive officer of CTBC Bank USA. They’re saying, “‘I built this, now I need to build something else.’”
Fintech is a hot space right now. Venture capital firms are pumping money into young companies. Businesses focused on cryptocurrencies, payments, financial advice and no-fee trading are taking off.
Companies embarking into financial services need experienced people -- not so much generic investment bankers or management consultants, but those who understand the intricate, unsexy details of consumer banking, like consumer protection and lending risk, said Menai.
A division chief making $10 million to $15 million at a top bank can make two to three times that taking the helm of a company, with more upside over time, one senior executive estimated.
The Goldman consumer bankers -- Omer Ismail and his deputy David Stark -- had scored promotions in recent months to carry out the 152-year-old firm’s biggest strategy refresh in decades. So it wasn’t that Ismail was looking to leave Goldman but that an opportunity arose to make a big impact.
Walmart announced plans in January to build a fintech business with Ribbit Capital, a venture capital firm. Though they’ve disclosed few details on their aspirations beyond saying it will serve Walmart shoppers and associates, the companies’ resources and credibility are enough to get Wall Street buzzing. JPMorgan Chase & Co. CEO Jamie Dimon pointed to Walmart during a Bloomberg Television interview Monday when asked about the competitive environment.
Jumps to investment firms are an older phenomenon, but they could pick up this year as senior money managers look to pass the torch or reinvest their profits from the bull market.
On Monday it emerged that Eric Lane, who became Goldman’s co-head of asset management less than six months ago, would join Chase Coleman’s Tiger Global as president and operating chief. The move evoked memories of investment-bank boss Gregg Lemkau’s recent exit for billionaire Michael Dell’s investment firm.
Despite their windfall last year, Wall Street banks are under pressure to improve shareholder returns by holding down costs -- especially as some firms set aside cash to cover potential losses on loans. Keeping a tight hand on compensation helped big banks post results that sent some of their stock prices to record heights in recent weeks.
Initial recruiting packages may offer an immediate boost and have the potential to get dwarfed by greater payouts down the line if the venture proves successful. Closely held companies with external investors, like Walmart’s tie-up with Ribbit, can offer profit-sharing plans or equity awards separate from the parent company’s publicly traded stock.
“If Newco is being set up with an equity plan there could be substantial wealth creation realized while building something new,” said Charley Polachi, who runs executive search firm Polachi.
Money, however, isn’t the primary driver for many making the shift from finance to fintech, said Jon Pomeranz, a partner at executive search firm True Search in charge of those two areas.
“It’s the build,” he said. “The opportunity to be linked up with a brand that’s known by billions of consumers around the world -- and the opportunity to get into an organization where you can build a differentiated financial-services company.”
— With assistance by Sridhar Natarajan
Los Angeles Business Journal: CTBC’s Frida Bank Named to LA Business Journal’s Women of Influence List
February 22, 2021 (View Original Article)
From wrestling with the fiscal repercussions of a global pandemic, to the continuing global impact of Brexit, to charting a course for responsible data protection in the age of A.I., leadership of the banking sector has faced many key challenges during the past year. The good news locally is that many of the country’s top banking industry thought leaders are based in the LA region. With 2021 well underway, and businesses focused intently on fiscal planning and protecting the bottom line, bankers are perhaps more essential than ever. There are some particularly stellar bank industry thought leaders and trusted advisors in the LA region – who happen to be women – and we’ve alphabetically listed some of the very best of them here, along with key information about their careers, practice and some relevant recent successes they’ve achieved.
These are the women we chose to recognize for exceptional leadership, knowledge, skill and achievements in banking
across the full spectrum of banking responsibility along with the highest professional and ethical standards, and for
contributions to the Los Angeles business community at large.
The Hill: Double down on community banks and PPP loans
|By Noor Menai , Opinion Contributor
November 30, 2020 (View Original Article)
With the general election behind us and Congress seemingly at a standstill on economic relief measures, the United States must unite around helping small businesses brave a long winter with rising COVID-19 caseloads. The best way to do this would be through a new version of the Paycheck Protection Program.
Since the onset of the novel coronavirus, Americans and U.S. business owners have demonstrated incredible resilience. The quickly-enacted Paycheck Protection Program played a crucial role in saving millions of jobs as it provided for nearly 4.9 million loans. While some decried the PPP as a handout to big banks and corporations, in fact 86 percent of the $521 billion in loans made under the program were for less than $150,000, and 82 percent of the lenders participating in the program were community banks having less than $1 billion in assets.
Clearly the collaboration between community banks and small business was key to the survival of countless businesses and jobs. Small firms employ over half of the private sector workforce in the U.S. and created nearly two-thirds of the nation’s net new jobs over the past decade.
However, the successful PPP program expired in August, leaving businesses without this vital financial support, at a time when infection rates are now running at more than 150,000 new cases a day. Under these conditions, economic recovery will remain elusive, particularly for the already decimated hospitality industry — restaurants, bars, entertainment venues, hotels, travel — which employ millions of Americans.
President-elect Biden has indicated he will rely on proven tactics — masks, social distancing, contact tracing — to counter the virus when he takes office. That discipline, coupled with the efforts to develop a vaccine and therapies, should have a positive impact on the economy.
But it will take time, likely well into 2021 even with the new vaccines. Small businesses and the millions of people they employ cannot wait that long.
Biden must quickly find a way to break congressional gridlock and enact a new round of stimulus that includes robust business assistance and loan programs. While a new legislative package has stalled, there is significant consensus on both sides of the aisle on the need, giving hope that a way forward can be hammered out.
As we saw, the success of the first PPP relied heavily on the effectiveness of banks, particularly community banks, in partnership with regulators in the early months of the pandemic. In stark contrast to the 2008 financial crisis — when banks were the focus of a strong backlash — today, banks have earned back the public’s trust. Research conducted by FTI Consulting found that 47 percent of the U.S. population views financial service companies more favorably than before the pandemic as a result of their strong, positive actions amid the crisis.
Key to the successful performance by financial institutions was regulators working seamlessly with banks to provide the guidance that allowed them to quickly provide fresh capital to businesses. Additionally, in recognition of the critical financial condition of small businesses, regulators altered some lending/borrowing regulations and permitted banks to give forbearances and favorable terms on small business loans made independently of the PPP program.
The need for a new stimulus and businesses assistance loan program is obvious.
America’s nearly 5,000 community banks are under stress. In the past two decades the number of banks with assets of less than $500 million declined by about 70 percent. Consolidation, regulatory issues and compliance costs have played a role, but their value, across the country, particularly in underserved areas, small towns and rural regions, cannot be underestimated. Community banks are an essential component of America’s financial success given their unique community knowledge and relationships that allow programs like PPP to succeed.
Only a few years ago many experts said community banks were “the walking dead,” obsolete and too small to survive. This pandemic has proven how wrong those pronouncements were.
A relief package must come quickly, and with an evolved and improved PPP program. Community banks have proven invaluable in this time of crisis, and it is now time to ensure they are supported and healthy for the long term.
Los Angeles Business Journal: LA500 Special Issue: The Most Influential People in L.A.
|By Scott Robson
May 25, 2020 (View Original Article)
This may seem like an odd time to stage a celebration.
Yet as the Business Journal unveils its fifth annual LA500 list, honoring the most influential leaders and executives in Los Angeles actually seems like just the kind of thing we can all use at this point in time.
Sure, this year’s collection of the leading figures from the city’s business community highlights the work that took place and the progress that was made in the months before Covid-19 arrived.
But it also serves as a reminder that L.A. is peopled by some of the smartest, most innovative and staunchly resilient business talent anywhere in the world.
In that context, this year’s LA500 shines a light on many of the figures who not only can help us navigate the crisis today but stand to help us find our way through to the other side of this situation.
That includes people like Patrick Soon-Shiong, who has marshaled his considerable medical experience as well as his biotech companies to tackle Covid-19 head on, embarking on a quest to provide treatment at his recently acquired St. Vincent Medical Center and to uncover a possible vaccine.
Then there are executives like Cedars-Sinai Health System Chief Executive Thomas Priselac, Kaiser Permanente Southern California President Julie Miller-Phipps and UCLA Health Chief Executive John Mazziotta who are leading organizations on the front line of the fight.
And don’t forget philanthropists like Michael Milken, who saw the pandemic coming early and repositioned the Milken Institute to offer leadership and support for the experts and companies working to combat the virus.
Of course, the civic leaders who made this year’s list are among the most significant players in the Covid-19 drama, leading the local response and attracting national headlines. That includes Mayor Eric Garcetti, Port of Los Angeles Executive Director Gene Seroka and Port of Long Beach Executive Director Mario Cordero.
On the pragmatic side of the pandemic, L.A.’s banks are rising to the occasion. With deep reserves and executives who were battle- tested by the Great Recession, some believe this sector will play a key role in pulling the local economy through this crisis. They’re also helping to efficiently and quickly disburse funds to small and midsized businesses through the Paycheck Protection Program.
That is why people like City National Bank Chief Executive Kelly Coffey, CTBC Bank Corp. President and Chief Executive Noor Menai and East West Bancorp Chief Executive Dominic Ng figure so prominently on this year’s LA500.
Then there are executives and businesses that are making the crisis a bit more bearable for everybody playing by the safer-at-home rules — and remaking some of the world’s most watched industries in the process.
Topping that category are streaming leaders like Netflix Inc. Chief Content Officer Ted Sarandos; Amazon Studios Head Jennifer Salke; and Hollywood heavyweight and Walt Disney Co. Executive Chairman Bob Iger, who showed that an old studio can learn new tricks with the hugely successful launch of Disney Plus.
And let’s play it forward for gaming executives such as Activision Blizzard Inc. Chief Executive Bobby Kotick and Riot Games Inc. Chief Executive Nicolo Laurent, whose companies have enjoyed explosive growth since mid-March as players everywhere seek the kind of connection and escape that only video games can offer.
Now, no LA500 rundown is complete without a deep dive into the region’s real estate power players. The industry drives much of the local economy, and it makes up the largest category on this year’s list.
While business may have slowed, it hasn’t stopped. People still need places to live. Cargo still has to be stored and distributed. Properties still need to be developed.
This year’s list, as always, represents the full range of the real estate industry, with high-flying residential brokers like Compass agent Chris Cortazzo, developers like Rick Caruso and and Rexford Industrial Co-Chief Executives Howard Schwimmer and Michael Frankel.
And while this edition of the LA500 contains the full complement of 500 names — including nearly 100 new members — the list still feels short by two names.
The first would be the recently departed developer Jerome “Jerry” Snyder, who held a revered place on the list during its first four years. The other name, of course, is Kobe Bryant, who inspired much of the planet as an athlete and a businessman before leaving us far too soon earlier this year.
But just as the city rallied following the tragic loss of Bryant, it’s likely it will do the same in the coming months as businesses figure out how to work through the coronavirus.
Because as L.A. has shown, as well as any major city during this crisis, there’s substantial strength in our community and remarkable power in our solidarity.
See the full LA500 list and features in the 2020 LA500 Special Edition.
Business Insider: 'We're all fintech firms now': The head of $180 billion CTBC Bank's US operations explains why it is weighing a bigger digital budget to hire from tech giants like Amazon
By Joe Williams
May 12, 2020 (View Original Article)
The financial services is industry is poised for a permanent upheaval as a result of the coronavirus pandemic, according to CTBC Bank's US CEO Noor Menai.
"We're all fintech firms now," he told Business Insider. "It's a profound change, but it turns out it wasn't that hard. It just took an emergency … to focus the mind."
For a company like CTBC Bank that operates more like a community lender in the US, the pivot to digital means more than just creating new applications.
The firm is weighing an increased budget to hire top talent from corporations like Amazon to help market the new products to customers, according to Menai.
The coronavirus pandemic upended nearly every US company and it remains to be seen what industries will be able to return to business as usual once the outbreak subsides.
But one sector that is poised for a permanent disruption is financial services, according to CTBC Bank's US CEO Noor Menai.
"We're all fintech firms now," he told Business Insider. "It's a profound change, but it turns out it wasn't that hard. It just took an emergency … to focus the mind."
Unlike traditional banks that still rely on brick-and-mortar locations, fintech startups like NuBank, Revolution, and Chime have used mobile-first strategies to attract millions of customers.
While industry behemoths like JPMorgan Chase and Citigroup employ many of the same digital tools, the legacy aspect of its business remain a key investment area.
But as the coronavirus leads to rapid changes in consumer behaviors — namely a reduction of in-person interactions — Menai argued that old-school financial institutions will no longer look at "fintech as something curious, something that other people were doing."
Now, "we're all seeing those models around convenience and delivery and doing things not necessarily involving humans is not just doable, but desirable," he said.
And the pivot to the digital world will have even more ramifications for the smaller banks.
While Taiwan-based CTBC Bank globally manages $180 billion in assets, its US business operates more akin to a community lender. Its 13 physical locations are segmented to California, New Jersey, and New York.
And the hyperlocal tendencies of regional players like CTBC were obliterated by the pandemic, forcing many to pivot to a technology-first model, according to Menai.
No longer will smaller banks be limited to specific zip codes or be forced to open physical branches if they wish to expand to new locations, he added.
"For community banks, we were always geographically bound," said Menai. "The more traditional type of bankers may want to go back to that model and may be pining for it, but I don't think customers will want that anymore."
'We're not talking about hardware, software'
But such a shift is more complicated than just investing in new digital tools, like a consumer-facing application that would allow clients to deposit checks or access accounts entirely virtually.
Fintech firms were able to achieve immense scale in a short period of time by offering their products for free and eliminating requirements that legacy institutions rely on, like minimum balances, according to Menai.
"Long-term, that's a crazy model. We just cannot do it, which is why you don't see even high-tech adopters or innovators like Citigroup or JPMorgan giving away their products for free," he said.
So as CTBC pivots to adopt more of the fintech operating model, it has to begin embracing some of the marketing strategies that have divided the new entrants from the incumbents.
"The labels might be the same as if you were doing a traditional product, but the steps involved are completely digital. And the science around data management and the targeting of those are very different," he said.
To help in that transition, CTBC is considering increasing its digital budget to hire the right skill set from top tech firms like Amazon.
"We're not talking about hardware, software. We're not talking about capital expenditures. We are talking about making the key hires," he said. "We need to bring in the pools of talent who can help us map out the pathways to being digitally native."
In the past, top Silicon Valley talent may have looked to industry heavyweights like Goldman Sachs or Chase.
But Menai said those firms "may have enough of those guys and the next place for these experts is where the other mass of people actually bank" — like community and regional lenders.
The change also means that CTBC can pivot more employees to the remote setting, a dramatic shift for a company that pre-coronavirus largely eschewed the concept of work-from-home.
"The core of getting a job done will get done without the physical cues, without the emotional strengthening of like-minded people being together in a physical location," said Menai.
Los Angeles Business Journal: Pacific Rim Perspective
By James Cutchin
March 16, 2020 (View Original Article)
Menai and CTBC have a unique view of the region’s challenges and opportunities
As the U.S. head of one of Taiwan’s largest banks, Menai has unique insight into the local economic impact of major events like the trade war and the coronavirus outbreak. The chief executive of downtown-based CTBC Bank Corp. (USA), Menai was born and raised in Pakistan. He spent his career traveling the world before arriving in Los Angeles just under eight years ago.
Menai got his start working in IT at a bank that was later acquired by JPMorgan Chase & Co. He went on to hold a range of positions, including CEO of Charles Schwab Corp.’s San Francisco-based bank, and managing director of a Middle Eastern sovereign wealth fund. Since taking the reins as chief executive at CTBC USA in 2012, Menai has more than doubled its assets, from $1.49 billion in 2012 to $3.74 billion this year, according to the bank. He also increased its annual pre-tax income fivefold, from $9.1 million in 2012 to $50 million in 2019.
Menai’s business, steeped in international investment and commerce, exists in a space deeply affected by recent U.S.-China tensions. Despite the circumstances, the CEO is sanguine about prospects for Los Angeles businesses and opportunities in an increasingly turbulent global environment.
Drinking from the firehose
At its peak, Chinese investment helped transform Los Angeles’ skyline and fund major projects like the Metropolis Los Angeles and Oceanwide Plaza complexes — both $1 billion projects with luxury condos, shopping centers and hotels.
Chinese direct investment in the United States peaked in 2016 at $46 billion. Since then, it has fallen sharply. In 2018, the most recent year with data available, Chinese direct investment totaled $4.8 billion, down 90% from its 2016 high, according to independent researcher Rhodium Group.
Menai says, however, that these numbers can be misleading. “There was a peak,” he said, “but because that was like drinking from a firehose, it is still a very substantial inflow.”
According to Menai, large “vanity projects” like massive hotel and condominium developments in markets like Los Angeles helped inflate the value of Chinese direct investment leading up to 2016. Deals like Beijing-based property developer Wanda Group’s purchase of AMC Entertainment Holdings Inc. seemed poised to reshape entire sectors of the U.S. economy.
Then, in 2017, a Chinese government crackdown on these megaprojects choked off a huge swath of investment funds. Chinese conglomerates like Wanda were pressured to divest a range of overseas investments — especially those with little relation to their historical lines of business.
“There was a proper response from the Chinese government to say, ‘Guys, pick a lane,’” Menai said.
While some high-profile projects were deeply impacted by the new policies — such as Wanda’s $420 million sell-off of a flagship Beverly Hills property in 2018 — Menai says large portions of the U.S.-China investment space were unaffected.
“We actually haven’t seen much let-up in demand for investment in the residential (real estate) side,” he said.
Individual Chinese citizens, according to Menai, have still found ways to keep up purchases in the Los Angeles property space, despite the crackdown on capital outflows from Beijing.
“Chinese investment in residential is like water,” Menai said. “It will find a way.”
The majority of U.S.-China business was also unaffected by Beijing’s investment policies, according to Menai.
“If you cross out those big hotel projects which were distorting the total investment numbers, and you just look at the middle-market,” he said, “the bread and butter of supply chains was largely untouched.”
Menai raised the example of Gardena-based Tireco Inc. “If they are getting tires manufactured in Asia, it’s a substantial business, but it’s not in the Fortune 10, they’re not General Motors,” he said. “Those things worked unabated.”
It took two phenomena, one systemic and one political, to finally shake these long-standing supply chains.
Trade war opportunities
In the years leading up to the U.S.-China trade war, American manufacturers were already looking to diversify supply chains away from China.
“It was more of a macroeconomic consideration,” Menai said, “The cost of production in China is going up, so where is the next China?”
Companies had been exploring alternatives, such as Vietnam, for some time, according to Menai, when the trade war hit.
“Then companies were thinking, ‘Well, now if it’s politically unpopular for me to be manufacturing in that part of the world, what are my alternatives?’” he asked.
Rather than presenting a threat, Menai said these shifts in global supply chains offered unique opportunities for his bank.
“We own the entire Pacific Rim,” he said. “We’re in Malaysia, we’re in Hong Kong, we’re in Japan, we’re in Taiwan, we’re in China and we’re in North America.
“We can look and say, ‘Tariffs are going to hit. They are gonna hit this sector and here’s the trickle-down effect on you.”
According to Menai, CTBC’s on-the-ground understanding of both North American and Asia Pacific markets leaves the bank well positioned to help companies redesign their supply chains.
“We could go from factoring your loads and your inventory in any one of these countries,” he said, “all the way to being your partner as you strategically shift some of your manufacturing from country A to country B.”
“It’s not just China that’s the world’s factory,” Menai added. “It’s the Pacific Rim that’s the world’s factory.”
Best laid plans
Yet, even an optimist like Menai is watching some news with a wary eye.
Panic over Covid-19, the disease caused by the coronavirus, has roiled global markets. All three major U.S. stock market indexes plunged into bear market territory on March 12 as investors reeled over President Trump’s announcement of a coronavirus-driven, 30-day ban on most travel from Europe. It was the Dow Jones Industrial Average’s worst day since the 1987 Black Monday crash.
Menai said banks like his were relatively well equipped to face the spread of the virus.
“We have pandemic policies and procedures that we stress test regularly,” he said. “We know how to keep our business operational. We know how to keep our employees and our customers safe.”
These policies, part of a bank’s standard business continuity planning, are mandated by regulators to ensure that the country’s economic infrastructure doesn’t collapse in the event of a crisis.
“We’re the guys who are double-knotting our shoelaces, and wearing belts and suspenders because our job is to be conservative,” he said.
The CEO conceded, however, that all this planning could only go so far in the event of a pandemic.
“We’re not insulated from what happens to the U.S. economy,” he said. “We have a diversified business model, but things still tend to go down when the economy goes down.”
CFO Tech Outlook: The Digitally Enhanced Future
By Richard Kung, Chief Financial Officer, CTBC Bank (USA)
July, 2019 (View Original Article)
1. In light of your experience what are the trends and challenges you’ve witnessed happening with respect to the Revenue Management landscape?
Challenges include unpredictable yield curves with prolonged high short-term rates and extremely flat long-term rates directly and indirectly impacted by the current evolution of digital banks, trade conflicts, geo-political concerns and other uncertainties. Consumers are showing sensitivity to deposit pricing with even more challenges on loan pricing. Mega-banks have the resources to deploy both sophisticated digital banking with big data capabilities to grow or maintain their share of low-cost deposits, while community banks solely relying on interest income will likely to suffer net interest margin (NIM) compression.
"Providing tailored experiences for defined customers, however, would differentiate us from competitive peers"
2. Could you talk about your approach to identifying the right partnership providers from the lot?
There are limited resources, so community banks have to prioritize their strategic options from focusing on specialized segmented banking to high tech based banking. At CTBC Bank USA, we continually monitor the ever evolving financial industry and its various technology disruptors. There are numerous potential fintech partnership potentials within payment technology, robo advisory, banking automations, AI, etc., which we, like other community banks, continue to explore for viable options and a future right to play.
3. Could you elaborate on some interesting and impactful projects/initiatives you’re currently overseeing?
Enhancing the online banking platform to improve customer experience is a major ongoing project. Along with our community peers, we continuously explore areas of priority for both consumer and business on-line banking platforms. Given the scarcity of resources and our strategic position within a community bank, CTBC always carefully evaluates the right “qualifiers” to stay in the game.
4. What are some points of discussion that go on in your leadership panel? What are the strategic points you go by to steer the company forward?
Opportunities to drive growth are often discussed, though they are seen as a challenge for community banks. Providing tailored experiences for defined customers, however, would differentiate us from competitive peers. CTBC’s global presence means we are able to provide one-stop solutions for business customers while prudently selecting products and services for our current customer segment. The challenge is getting on board generation Z, which adopts and relies on fast-changing technologies.
5. Can you draw an analogy between your personality traits, hobbies and how they reflect on your leadership strategy?
Self-awareness is probably one of the most important personality traits a leader can possess, in order to balance oneself with others of complementary skills. I have immense curiosity, I’m constantly exploring and experimenting with new technologies, reading between the lines of financial reports for a feel of our competitors’ strategy, etc.
6. How do you see the evolution of the Revenue Management industry a few years from now with regard to some of its potential disruptions and transformations?
The ubiquity of digital and the development/deployment of 5G means all products, services and delivery of contents will be “on-demand”. For instance, tradition TV viewing is disappearing with Netflix, Hulu and YouTube TV. Similar concepts apply to the banking space where deposits and withdraws happen in real-time over an on-line platform. The disruption in payment technology may potentially place the credit card industry in jeopardy, while AI may provide instant, next best product and services in the blink of an eye.
Los Angeles Business Journal: CTBC Bank CEO Joins FDIC Panel on Supervision Modernization
By Pat Maio
March 7, 2019 (View Original Article)
Noor Menai, president and chief executive officer of downtown-based lender CTBC Bank Corp. (USA), was named by the Federal Deposit Insurance Corp. to a community banking advisory panel looking at ways to adopt better technology and data sources used in safety and soundness examinations in the banking system.
Menai is working with other banking and technology executives on the panel – called the FDIC’s Subcommittee on Supervision Modernization – in support of the regulatory agency that insures deposits for the nation’s 5,400 bank and thrift institutions.
Menai was invited to be part of the panel by FDIC Chairman Jelena McWilliams. The initial two-day meeting of the panel ended March 6, in Washington, D.C.
Menai oversees CTBC’s U.S. operations, a $3.45 billion-in-asset company, which includes the bank’s commercial, industrial, and commercial real estate lending groups. He also oversees North American operations for the parent bank, based in Taiwan. Prior to CTBC, Menai spent three years in private equity as founder and managing director of Fajr Capital. Earlier, he served as chief executive of Charles Schwab Bank and in several senior roles at Citigroup. He began his career at JPMorgan Chase.
Bloomberg: How U.S. Trade Tension Impacts China's Financial Services
February 21, 2019
Noor Menai, chief executive officer at CTBC Bank USA, discusses the impact of U.S.-China trade on financial services, concerns about Huawei and China's economy, and the potential for Chinese bank consolidation. He speaks on "Bloomberg Markets."