Finn Who has the competitive advantage in setting up a modern youth-oriented mobile and internet banking service: - a bank, or
- not a bank?
The bank has some obvious advantages. Banking is a very regulated business, and if you are already a bank you already have most of the necessary regulatory approvals and the know-how and connections to get the rest. If you're already a biggish bank, you probably have some name recognition, which will make it easier to attract customers and convince them to trust you with their money. You already have the back-end technology to, like, keep track of the money, so you can just build a mobile and internet interface on top of that rather than starting from scratch. Plus you already have money; you have deposits, and a process for investing them in assets, etc., so you don't have to start from scratch there either. There are some disadvantages. If you are a bank you probably have a lot of branches and tellers and employees, all of which cost money, money that a pure financial-technology startup doesn't have to spend to compete with you. Plus your own mobile-and-internet bank might be undermined by your traditional branch-based bank: The old-timey bankers will meddle with your app design, or you'll worry about cannibalizing the branches, or you'll have to design the app for a consistent user experience with the branches, etc. If you're already a biggish bank, you probably have some name recognition, but you're a bank in 2019; the name recognition is probably bad, and young customers might be more inclined to trust a novel assortment of random letters than your venerable but tarnished name. (The same might be true of the engineers and designers you need to hire to build the mobile-and-internet business.) You already have the back-end technology, but it's 50 years old and written in Cobol, and stapling your modern app interface to that infrastructure might be harder and less reliable than just building a new one from scratch. Here is a postmortem on JPMorgan Chase & Co.'s "digital-only bank, Finn," which was named after John Pierpont Morgan Sr.'s fun chill nephew, Finn Morgan. (No that's a lie I actually have no idea where they got the name from; I assume it was just from, like, the "fin" in "fintech," the way consultants suggested that Goldman Sachs Group Inc. name its online retail bank "Muni," to sound like "money." Goldman sensibly declined and called it Marcus, after founder Marcus Goldman, and honestly I don't understand why JPMorgan isn't constantly using "Pierpont" in its branding.) The thesis behind Finn seems to have been basically "what if a fintech startup, but at JPMorgan," and the article gives some pretty compelling reasons why not. Like the Cobol: "I understand that they tried to separate the tech as much as possible from the JPM core, but they still had to run it on that core," said Todd Baker, a senior fellow at Columbia University who is a managing principal at Broadmoor Consulting LLC. "JPMorgan is sitting on 50 years of COBOL and Fortran," he said, citing old programming languages. That makes it more expensive and sets up a cost structure that's even more prohibitive than what a startup might face, according to Robert Sears, a consultant and former BBVA exec in charge of open banking and head of product for new digital businesses. And the internal competition: Perhaps Finn's biggest shortcoming was how the threat it posed to Chase's traditional checking account was felt internally, one of the people said. The two sides were in a zero-sum game in which a new account on Finn could mean a missed opportunity for Chase. More than half of Finn's users already had relationships with Chase, a spokesman told The Journal last month.
"Imagine if you were running the checking-account business for Chase and then some other group is like: 'I'm going to launch a checking account, but don't worry — it's just going to be for millennials. I swear it won't impact your business,'" the person said. "And you, as the head of the checking-account business, have no say into what it is, how it is structured." And a certain awkward how-do-you-do-fellow-kids vibe that you get when a giant bank pretends to be a startup: It also allowed users to rate their transactions with emojis, which some people didn't understand. You can see the appeal of Goldman's Marcus. (Disclosure, I used to work at Goldman, when I was a cool young person; I also have a Marcus savings account, and a JPMorgan checking account for that matter.) Goldman is, accidentally, a bank, and it is wise in the ways of bank regulation. But before Marcus it was not particularly a retail bank; there was no vast legacy business of bank branches and checking accounts to feel threatened by Marcus, and there was probably less of a legacy codebase of bank-account-handling infrastructure to build on. Also Goldman is not really a rate-transactions-with-emojis sort of place, or wasn't when I was there, although with the dress code these days I do not know what to think. Sure yes of course Goldman's brand has some … issues … in the popular consciousness, but if you call it "Marcus" then people might forget. The trick to doing online banking for the young people these days might be to be a bank, but not too much of a bank. Insider trading I am growing increasingly fond of the idea that there is a secret global network of high-powered investors and corporate insiders who all know each other and leak corporate secrets to facilitate each others' insider trading. Like, if you were just writing a movie about that scenario, you'd probably have the members of that shadowy organization meet to exchange tips in a louche and secretive London nightclub, and here you actually go: "You know Walid?" asks the young receptionist at the discreet entrance on 40 Jermyn Street in London's high-end Mayfair district. The answer can determine whether or not you get into Tramp, a private members' club famous for "50 years of celebrity debauchery" that's been graced by Frank Sinatra, the Beatles and Rihanna. It has gained fresh notoriety as the epicenter of London's biggest insider-trading case in years. A "yes, I know Walid," can unlock an exclusive club that dubs itself "London's favorite place to misbehave" and the Londonist website called a "hedonistic Mayfair nightclub where movie stars and rock gods came to drink." The Walid in question is day trader and longtime member Walid Choucair, who was found guilty of insider trading by a London jury this week. Prosecutors allege that Choucair, 40, used the allure of Tramp and the "glamorous lifestyle" it offered to coax Fabiana Abdel-Malek, then a UBS Group AG compliance officer, into passing on confidential information that netted him a 1.4 million-pound ($1.8 million) trading profit. Abdel-Malek was also found guilty of insider trading. "London's favorite place to misbehave"! The sheer flair of it, luring a bank compliance officer to a club that advertises itself as a place to misbehave so that she could misbehave by passing along merger tips. It's the last place anyone would think to look! I like these insider traders. They were each sentenced to three years in prison. Elsewhere in the theorized global insider trading ring, here's this: The U.K.'s Financial Conduct Authority is investigating whether David Johnson, who left Citi in 2013, collected details about impending deals from a former colleague and passed them to traders, the people say. The Securities and Exchange Commission is investigating the allegations, the people say. Federal prosecutors in New York also are looking into the alleged insider trading, a person familiar with the matter said. … The FCA investigation is examining Mr. Johnson's relationship with Alshair Fiyaz, a Belgian-Pakistani investor, as well as an unidentified Citigroup employee, the people said. Mr. Johnson occupies a £12.5 million ($15.8 million) London home owned by Mr. Fiyaz, according to documents reviewed by the The Wall Street Journal. In response to questions about any dealings with Mr. Fiyaz, Mr. Johnson said in an email that "no service or good (whatever that means) has been provided to me by Mr. Fiyaz." At least in U.S. insider trading law, it matters a great deal whether you pass along inside information in exchange for a "personal benefit," but the definition of "personal benefit" is vague and expansive. So I appreciate that he expressly says he got "no service or good (whatever that means)"; that is the right thing to deny! Weird to live in the guy's house though. He says he rents it "on normal commercial terms." What is a company We have talked a couple of times about an existential crisis at Citgo Petroleum Corp. Citgo is a U.S. company that is wholly owned by Petróleos de Venezuela SA, which is a Venezuelan company that is in turn wholly owned by the Venezuelan government. The U.S. is at odds with the current Venezuelan government, and has imposed a range of sanctions on it and its instrumentalities, making it difficult for PdVSA to do business, through Citgo, in America. There is a dispute about who really runs Venezuela, and thus PdVSA. Also a lot of the people who work at Citgo are Americans living in America, and their corporate and national loyalties may not match up. The result of all of this is that Citgo has tentatively declared its independence from PdVSA: It has stopped taking orders from its PdVSA bosses, has installed a new board of directors, and generally sort of floats around as an independent company. But it's not like Citgo has been expropriated from PdVSA; it's not like its workers have seized the means of production for themselves, or like the U.S. government has declared that it owns Citgo, or whatever. Citgo is just sort of … temporarily ownerless? Eventually something will be resolved and someone—the current Venezuelan government, or a future Venezuelan government, or Citgo's creditors, or perhaps the U.S. government or a worker cooperative or a court-ordered trust or who knows what—will end up owning Citgo. But now it is just … I don't know … itself? It's a puzzle of international relations, but it is especially pleasing as a counterexample in the theory of corporations. Corporations have shareholders, and the shareholders are the residual claimants on the corporation's profits, and the corporation has fiduciary duties to the shareholders, etc.; the details are disputed but the basic ideas are pretty foundational. But here Citgo is, having cast off its shareholders, just muddling along, being a company, buying and refining and selling oil; everything is fine, but also very weird. This is not quite the same thing but still interesting: The U.S.-based research arm of China's Huawei Technologies Co Ltd - Futurewei Technologies Inc - has moved to separate its operations from its corporate parent since the U.S government in May put Huawei on a trade blacklist, according to two people familiar with the matter. Futurewei has banned Huawei employees from its offices, moved Futurewei employees to a new IT system and forbidden them from using the Huawei name or logo in communications, a Futurewei employee told Reuters on condition of anonymity. Huawei will continue to own Futurewei, the employee said. This is not so much the child corporation emancipating itself from its parent, and more the parent kicking the child out of its house for the child's own good, or something. Maybe the child asking the parent to drop it off two blocks from school so its friends don't see them together. But it's still odd. If you change the locks on the doors and don't let your corporate parent in, and you don't send them money or tell them what you're working on, do you eventually drift apart? Does their ownership start to feel kind of theoretical? If, much later, they come back and assert it, do you feel emboldened to say no? What if you're in a country whose government and legal system distrust your corporate parent anyway? Might you try to make a break for it? What would that even mean? How's Martin Shkreli doing? You know, I genuinely wish I could say that the answer was "great, so great, he's never been happier than in prison, in fact when he gets released he's going to rob a bank on his way home just so he can go back." There was a time when I thought that might be the case, when Shkreli was gleefully blogging and running a business from prison and seemed to have really found joy and inner peace. But that's all over—they took away his contraband cell phone and moved him to another prison—and I am sorry to inform you that now he would like to leave: Martin Shkreli says the judge and jury in his fraud case got it wrong. With Shkreli locked up in a Pennsylvania federal prison, his lawyers will try to persuade an appeals court on Friday to overturn his conviction and give him a new trial. ... Now Shkreli's lawyers say the trial judge in Brooklyn, New York, gave incorrect legal instructions, leading to an inconsistent verdict in which jurors found him guilty of one count of conspiracy and two counts of securities fraud but cleared him of five other charges. It was kind of a weird verdict; Shkreli was convicted of an assortment of ultimately harmless frauds, but not of the really bad stuff he was charged with, and he was sort of sentenced for the bad stuff anyway. Blockchain blockchain blockchain Uhh: The Trump administration has tapped Israeli crypto startup Orbs to develop blockchain solutions for the region's longstanding political conflicts. The disclosure comes this week from a summit convened by the White House in Bahrain to discuss the Israeli–Palestinian conflict. The New York Times reported Treasury Secretary Steven Mnuchin said investments in the Palestinian territory would be like a "hot I.P.O." The White House is aiming to put $50 billion behind it's so-called "Peace to Prosperity" plan. Orbs cofounder Netta Korin told CoinDesk in an email that her team has been "working with the U.S. Administration and the State Department … on several projects that are currently in stealth mode." The thing about crypto/blockchain mania is that there may never have been a more general-purpose episode of mass credulity. It's not just that a lot of people think they can get rich quick on crypto, it's that they think crypto can solve all of the world's problems, that it can end famine and stop climate change and save journalism and cure cancer and bring peace to the Middle East. Still there is more work to be done, in terms of setting up and raising money for crypto startups to propose implausible blockchain solutions to comically large problems. If I set up a crypto startup to prove the existence of God on the blockchain, do you think I can get a meeting with the pope? If I set up a crypto startup to build a perpetual motion machine on the blockchain, will the Department of Energy meet with me? If I set up a crypto startup to travel faster than the speed of light, on the blockchain, can I pitch it to NASA? If I set up a crypto startup to develop time travel on the blockchain, can I show it to Benjamin Franklin? Honestly why am I wasting my time writing this column. I bet if you Google these you'll find someone is already doing like half of them; I thought I was kidding about "cure cancer" and there are multiple pages of search results. Here's "opioid epidemic." Really almost anything you can think of. Blockchain really can do anything, or at least raise money for promises to do anything, so where is my share of that money? Things happen King of the Snitches: The Fashion Photographer Who Duped Drug Lords and the DEA. Deutsche Bank Plans to Cut Up to Half of Global Equity Jobs. Deutsche Bank Gets a Win as Fed Unleashes Payouts for Banks. Bond Fight Pits Main Street Against Wall Street. Democrats Back Wall Street Push to Free Up $40 Billion in Margin. White House Considers Capital Gains Tax Break That Would Benefit Wealthy. Americans Lose Trillions Claiming Social Security at the Wrong Time. North Carolina Regulators Seize Control of Life Insurers Owned by Greg Lindberg. Swiss Bourse Fate Hangs in Balance on EU Brexit Hardball. Reservations for Taco Bell's hotel sell out in 2 minutes. Cops bust man who kept 'attack squirrel' hopped up on meth. If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! | 
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