The Biden administration has taken a decisive step towards the banking industry with a new regulation proposed by the U.S. White House and the U.S. Consumer Financial Protection Bureau (CFPB) on January 17th. The regulation suggests that banks should only charge overdraft customers for the break-even costs associated with covering their overdrafts. This proposal could impact approximately 175 of the largest banks and credit unions in the United States. Since the year 2000, American consumers have paid an estimated $280 billion in bank overdraft fees, as reported by the CFPB.
This proposal is part of the Biden administration's initiative to address so-called "junk fees," a topic that President Joe Biden highlighted during his State of the Union address in 2023. In his recent statement, President Biden remarked, "Banks call it service - I call it exploitation." Following the announcement, U.S. bank stock indices, including the KBW Bank Index (BKX), experienced a decline, marking its sixth consecutive session of losses.
In a separate development, Goldman Sachs' latest financial disclosure has caused a stir on Wall Street. The report indicates that by the end of the fourth quarter of 2023, Goldman Sachs Capital Management's investment in its own funds stood at $16.3 billion, a reduction of $13.4 billion (approximately Rs. 96 billion) from the end of 2022, marking four consecutive quarters of reduction. Financial blog ZeroHedge noted that while Goldman Sachs has been reducing its holdings, its analysts have been advocating for a bullish stance, suggesting that clients heeding Goldman Sachs' advice to buy may be purchasing stocks that the firm itself has sold off.
The CFPB is also contemplating the introduction of a stricter regulatory framework for overdraft programs. CFPB Chief Rohit Chopra stated, "Today, we are proposing rules to close a long-standing loophole that has allowed many big banks to turn overdrafts into a giant junk-fee machine." Under the proposed rules, banks and credit unions with assets exceeding $10 billion would be required to disclose interest rates on overdraft loans and assess a person's ability to repay such a loan.
The public feedback period for the proposal will close on April 1st, after which the CFPB will propose final regulations. The CFPB anticipates that the new regulations will take effect in October 2025 and is also expected to issue a final rule on overdrafts.
CNBC reports that banking trade groups, which are strongly opposed to any changes to overdraft rules, have begun mobilizing their opposition, which is expected to intensify. In January, the Consumer Bankers Association launched a website to emphasize "the value of overdraft services and why the government's directive is misguided."
On January 16th, Goldman Sachs released its financial results for the fourth quarter of 2023, revealing a revenue of $11.32 billion, surpassing expectations of $10.8 billion. The net profit of $2.01 billion represented a 51% year-over-year increase, and the diluted earnings per common share (EPS) of $5.48 significantly exceeded analysts' forecasts.
For the full year of 2023, Goldman Sachs reported a revenue of $46.25 billion, a 2% decrease from the previous year, and a net income of $8.52 billion, down 24% year-over-year. This marks Goldman Sachs' lowest profit in nearly four years, with only Citibank experiencing a greater decline. Additionally, the investment balance of Goldman Sachs Capital Management's own funds investment was $16.3 billion by the fourth quarter's end, a reduction of $13.4 billion (about 96 billion yuan) from the end of 2022, a trend that has persisted for four consecutive quarters.
Market Reaction and Analysts' Recommendations
Financial blog ZeroHedge has commented on Goldman Sachs' significant reduction, noting the discrepancy between the firm's actions and its analysts' bullish recommendations. Goldman Sachs Chief Securities Strategy Analyst David Kostin advised in a mid-November 2023 report that investors should focus on holding stocks and raised the S&P 500 forecast for 2024 to 4,700 points. Just a month later, Kostin revised his target to a record high of 5,100 points.
The latest earnings report also disclosed that as of December 2023, Goldman Sachs employed 45,300 individuals, a 1% decrease from the third quarter and nearly 7% fewer than the same period in the previous year. The bank conducted substantial layoffs in 2023, with the largest reduction occurring in January, rivaling the scale of layoffs seen during the 2008 financial crisis. Goldman Sachs' strategy of selling off assets while promoting a bullish outlook has sparked vigorous debate on Wall Street.
