On Tuesday, Goldman Sachs' (NYSE:GS) U.S. Financial Services Conference on Tuesday will bring together executive officers from all of the top financial institutions. During last year's conference, Goldman identified three major themes for 2015: the rise of mobile technology, increased regulation, and improving loan growth. How did things pan out?
Prediction: The rise of mobile technology will provide a better experience for consumers, but it will also foster new competitors to traditional financial institutions in payments and lending.
Outcome: Goldman was spot-on, here: It's been several years since the digital challenge to banks emerged, and that trend certainly didn't reverse in 2015. The level of activity in the payments industry has been nothing short of frenetic. Google and Samsung launched their mobile payments solutions, Android Pay and Samsung Pay, with the hope of catching Apple Pay, which debuted in Sept. 2014.
2015 also witnessed the highly anticipated initial public offerings of online payments start-up Square, and the spinoff of PayPal Holdings from eBay. Payments company Worldpay Group, which was the U.K.'s largest IPO in 2015, announced on Friday that it will begin offering loans to small businesses. Square already offers financing to businesses, while PayPal lends to businesses and consumers.
Prediction: Increased regulation will raise banks' cost base, forcing them to reassess the viability of certain activities. On the brighter side, increased regulation also means a lower risk profile and more predictable earnings.
Outcome: There's no question about it, regulation remained front and center on banks' agenda this year.
Indeed, January 1, 2015, was the deadline for a full implementation of minimum capital requirements under the new Basel III framework. Banks were also forced to disclose their leverage ratios and begin phasing in minimum requirements on their liquidity.
The top U.S. banks were already comfortably compliant with the minimum capital requirements and have settled on their post-crisis business models, but these requirements were a key factor in major reorganizations at Barclays, Credit Suisse, and Deutsche Bank.
Goldman displayed good judgement in identifying these three trends affecting the Financials sector in 2015 (not that they were completely hidden, mind you); it'll be interesting to hear the company's outlook for 2016, based on this year's conference.
Prediction: Consumer and commercial real estate loan activity will pick up, and underwriting standards on mortgages should start to ease.
Outcome: The latest Consumer Credit data from the Federal Reserve show an increase in the flow of consumer credit in the year to September. Moreover, the latest Fed release of Assets and Liabilities of Commercial Banks, shows a marked increase in the rate of accumulation of residential and commercial real estate loans, and consumer loans on banks' balance sheets in the year to October.
(Speaking of consumer loans, the Fed will release its latest Consumer Credit data on Monday at 3 p.m. EST. Only professionals will be tracking this report: Friday's employment report appears to have sealed the deal as far as a December interest rate hike is concerned.)