JPMorgan and Goldman Sachs in battle for British deposits
In October, during a tense meeting with then chancellor Kwasi Kwarteng at the UK Treasury’s office in the centre of London, the chief executives of Britain’s high street banks bemoaned the fact that Goldman Sachs and JPMorgan were using customer deposits to fund risky trading operations.
The UK’s ringfencing rules, imposed in 2019, allow banks to raise up to £25bn in retail deposits before they must be separated from their investment banking arms. That limit, the domestic banks told Kwarteng, puts them at a clear disadvantage in a fight with Wall Street insurgents hoovering up UK savings.
JPMorgan, who views the UK as a testing ground for low-cost digital banking, found the complaint ridiculous. A person close to the bank pointed out that they already had the largest consumer bank in America for gathering deposits. In the US, the Glass-Steagall Act of 1935, which prevented deposit-taking banks from dealing in securities, was fully repealed in 1999.
Others outside of the banks have also voiced doubts about the ambitious and expensive plans. “I’ve heard about this story for 25 years and haven’t seen any success,” said one senior figure at a large European bank.
An executive at a UK bank said that while they had seen some outflows of money to Chase, they expected it to be temporary. A similar trend had taken place when Marcus first launched but much of this cash had returned, they added.
“For the big banks, it’s something they are monitoring closely but not unduly concerned about,” said Neil Veitch, global investment director at SVM Asset Management. “They’ll be more concerned if they start to feel clients are paying their monthly salary into that type of account.”
UK launch pad
Despite the challenges, Chase at least is intent on expanding. Somani at Chase said it is aiming to further integrate its digital wealth management arm Nutmeg, which it bought last year for about £700mn, with its retail banking app.
Chase also plans to use the UK as a launch pad and Goldman might eventually follow suit. Last year, Chase acquired a minority stake in the Brazilian digital bank C6. Marcus had hoped to push into Germany as its first market in mainland Europe, although a person close to the bank said those plans are on hold.
But to push further afield requires success in the UK, where both are building themselves up into fully-fledged banks. Competitors remain sceptical they can take the next step.
“You can’t fake being young — they’re very long established investment banks with new retail bank arms,” said another challenger bank executive. “I’ll be personally surprised if they make much headway, but I’ve been surprised before.”
This story originally appeared on: Financial Times - Author:Emma Dunkley
