Connect with us

Banks

Most Banks Are Screwing Up On Their Stock Picks

Published

on

Let’s say that a bank such as Goldman Sachs publishes a recommendation to “Buy Stock X”.

It’s hard to ignore a bet by a powerful investment bank such as Goldman. We are mere mortals in the pecking order, and they are supposed to be the all-knowing smart money from Wall Street.

Do we buy the stock, or is it simply wiser to pass?

Bank Performance Overall

The folks at InterTrader have done considerable legwork to dive deep into the data on investment bank recommendations made in 2015. They looked at every bet made by the 16 top banks throughout the year to assess both potential returns and accuracy.

The results are pretty underwhelming.

If you bought every stock recommended and held until the end of the year, here’s what your performance would look like:

Total performance of investment banks

Overall, when holding the stock picks for the year, banks were only 43% accurate with their predictions.

That’s right – flipping a coin would have been potentially more effective than buying bank stock picks, which ended up down -4.79% on the year. The S&P 500 finished down only -0.69%, but simply just making any interest in a savings account would have been more effective as well.

A Closer Look at Individual Banks

While banks as a whole struggled with picks in 2015, it’s also important to look at banks on a more micro level to see how they performed.

Here’s a look at the recommendations by Deutsche Bank, and how they did:

Deutsche Bank performance

Deutsche Bank nailed 41% of their predictions, and had a -8.93% return if picks were held throughout the year.

As you can see, some of their picks such as Microsoft and Wix.com gained double digits. On the other hand, recommendations such as Whiting Petroleum got absolutely crushed throughout the year, dropping -70.1%.

Overall, Deutsche Bank’s performance here definitely didn’t do much to help the struggling company get out of its rut.

Which Banks Were Most Accurate?

Here are the banks, from best to worst, based on accuracy of their calls:

Most accurate investment banks

Nomura, Credit Suisse, BAML, and Barclays all batted above .500 if stocks were held throughout the year, while 10 banks all did worse than a coin flip.

Citigroup had an off year, only nailing 14% of its picks.

Which Banks Had the Best Returns?

Here are the banks, from best to worst, based on the performance of these recommendations:

Best returns by investment banks

Just two banks, Credit Suisse and Nomura, had positive returns if stocks were held through the year. Meanwhile, Canaccord Genuity’s picks were knocked down -16% over the course of 2015.

An Important Caveat

Throughout the above article, we are showing the results if stock picks were held from when they were made until the end of the year.

However, it is worth noting that the investment banks actually did slightly better if picks were held for shorter durations of time:

TimeAccuracyGains %
30 Days55%0.80%
90 Days49%-1.48%
180 Days42%-3.66%
End of Year43%-4.79%

In other words – if you sold all stock recommendations exactly 30 days after buying, you would have actually made a 0.8% return throughout the year. This is still a lower return than a savings account, but it is an improvement on losing -4.79%!

For a more in-depth dive into the data, we highly recommend checking out InterTrader’s interactive version of the results.

Continue Reading
Comments

Banks

Why Anti-Money Laundering Should Be a Top Priority for Financial Institutions

Anti-money laundering cost financial institutions about $25.3B in 2018. How can organizations improve their processes & gain a competitive advantage?

Published

on

anti-money laundering

Why AML Should be a Top Priority for Financial Institutions

The to-do list for any financial executive is surely daunting. From navigating technology changes to managing talent effectively, there’s many initiatives competing for attention.

One issue that’s been in the headlines for many years is anti-money laundering (AML). When criminals are able to successfully hide the illicit origins of their cash, both the financial institution and society suffer. So, what makes AML more important now than it has been in the past?

Rising up the Priority Ladder

Today’s infographic from McKinsey & Company explains the factors which have brought anti-money laundering urgently to the forefront in recent years.

1. Regulatory Action

Enforcement actions related to AML have been on the rise. Since 2009, regulators have levied approximately $32 billion in AML-related fines globally.

2. Threat Evolution
Criminals are using more sophisticated means to remain undetected, including globally-coordinated technology, insider information, and e-commerce schemes.

3. Reputational Risk

AML incidents put a financial institution’s reputation on the line. There’s a lot at stake: today, the average value of each of the top 10 bank brands is $45B.

4. Rising Costs

Most AML activities require significant manual effort, making them inefficient and difficult to scale. In 2018, it cost U.S. financial services firms about $25.3B to manage money laundering risk.

5. Poor Customer Experience

Compliance staff must have multiple touch points with a customer to gather and verify information. Perhaps not surprisingly, one in three financial institutions have lost potential customers due to inefficient or slow onboarding processes.

It’s no wonder anti-money laundering has now become a top priority for many CEOs in the financial industry.

A Wave of Innovation

In the last five years, there has been an explosion of “RegTech” startups—companies that address regulatory requirements using technology.

Global RegTech Investments, 2014-2018

YearAmount Invested (USD)
2014$923M
2015$1,110M
2016$1,150M
2017$1,868M
2018$4,485M

Over 60% of these are focused on solving Know Your Customer (KYC) and AML issues. What does this technology look like in practice?

Customer onboarding

A hypothetical U.S. retail firm, ABC Electronics, applies online to open an account at AML Innovators Bank. Their information is verified and screened using a fully automated process.

If they are determined to be a lower-risk client, they will be fast-tracked through the approval process with decisioning in six hours or less. For high-risk clients, decisioning occurs within about 72 hours.

Transaction Monitoring

ABC Electronics requests to send multiple international wire payments to various beneficiaries. Each transaction is automatically screened based on various factors:

  • A same name or subsidiary transfer carries the lowest risk
  • Transfers to a known, similar industry in a high-risk jurisdiction carry medium risk
  • Transfers to an unknown industry in a high-risk jurisdiction carry high risk

These transaction scores, combined with algorithms that track a client’s expected vs. actual transaction behavior, will update ABC Electronics’ risk rating in real time.

Management oversight

As risk updates occur, ABC Electronics’ rating is integrated into AML Innovator Bank’s overall portfolio risk.

Senior risk management teams will be able to view a heat map that highlights the highest risk areas of the business.

Structural Change, Big Gains

Just as financial crimes continue to evolve, so do AML schemes.

How can organizations stay ahead of the game? They can focus on actively managing risk, deliberately investing in technology and analytics, and prioritizing areas where RegTechs will have the highest near-term impact.

By investing in AML, financial institutions create competitive advantages:

  • Improved efficiency
  • Superior customer experience
  • Scalability
  • Readiness to adapt to new regulations
  • Reduced reputational risk
  • Ability to attract top talent

With such benefits on the table, one thing is clear: Anti-money laundering efforts are more important now than they have ever been.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Banks

Visualizing the Importance of Trust to the Banking Industry

In the digital age, the issue of trust is emerging as the game-changing factor in how consumers choose financial services brands.

Published

on

Visualizing the Importance of Trust to the Banking Industry

In the digital age, money is becoming less tangible.

Not only is carrying physical cash more of a rarity, but we are now able to even make contactless payments for many of the products and services we use on the fly.

Our financial transactions are starting to be analyzed and optimized by artificial intelligence. Meanwhile, investments and bills are paid online, and even checks can now be deposited through our phones. Who has the time to visit a physical bank these days, anyways?

Trust in the Digital Age

The migration of financial services to the cloud is increasing access to banking solutions, while breaking down barriers of entry to the industry. It’s also creating opportunities for new service offerings that can leverage technology, data, and scale.

However, as today’s infographic from Raconteur shows, this digital migration has a crucial side effect: trust in financial services has emerged as a dominant driver of consumer activity.

This likely boils down to a couple major factors:

  • Tangibility
    Financial services are becoming less grounded in physical experiences (using cash, visiting a branch, personal relationships, etc.)
  • Personal Data
    Consumers are rightfully concerned about how personal data gets treated in the digital age

Further, the above factors are compounded by memories of the 2008 Financial Crisis. These events not only damaged institutional reputations, but they elevated trust to become a key concern and selling point for consumers.

Trust, by the Numbers

In general, trust in banks has been slowly on the rise since hitting a low point in 2011 and 2012.

At the same time, consumers are consistently ranking trust as a more important factor in their decision of where to bank. To the modern consumer, trust even outweighs price.

Top Five Factors for Choosing a Bank:

  1. Ease and convenience of service (47%)
  2. Trust with the brand (45%)
  3. Price/rate (43%)
  4. Service resolution quality and timeliness (43%)
  5. Wide network coverage of ATMs (40%)

It’s important to recognize here that all five of the above factors rank quite closely in percentage terms. That said, while they are all crucial elements to a service offering, trust may be the most abstract one to try and tackle for companies in the space.

With this in mind, how can financial services leverage tech to increase the amount of trust that consumers have in them?

Tech Factors That Would Increase Consumer Trust:

  1. Reliable fraud protection (36%)
  2. Technology solves my problems (13%)
  3. Useful mobile application (9%)

Better fraud protection capability stands out as one major trust-builder, while designing technology that is useful and effective is another key area to consider.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading
Pasha Brands Company Spotlight

Subscribe

Join the 120,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular