Random reads summer 2020

Banking update August-September 2020

  • ABN AMRO exits all its non-European corporate banking activities
  • CaixaBank and Bankia are planning a merger
  • HSBC wants to sell its French retail network
  • Rumors of a merger between Credit Suisse and UBS

The strategy of European banks ever since the Global Financial Crisis has been to focus on profitability1. How do you achieve a higher return on equity? There are two commonly followed options. Either you cut costs, e.g. by merging banks in the same geography and closing down the redundant branches. Or you sell the business, especially when you’re an also-ran outside of your home market.

The education business

Two insightful articles by Adam Keesling (Napkin Math) on education and content creation:

Why MasterClass isn’t really about mastery (tldr: MasterClass doesn’t compete against universities, it sells credibility and inspiration)

Why software is more profitable than content (tldr: “Content products talk to humans, while software products talk to computers. That’s why the value of content decays faster than the value of software.”)

Alex Zhu (TikTok) also discusses the challenges of online content and learning at the beginning of this interview:

His key insights:

  • people want light content, both as consumers and as creators
  • education goes against human nature: most people use their smartphone for communication and entertainment, not to learn

Net Interest

Marc Rubinstein writes about the financial industry in his weekly newsletter Net Interest.

I especially liked his discussion of “front book, back book“. Banks and insurers accumulate a long-term book of assets. These generate a predictable stream of income (interest and premiums). Unfortunately, this “back book” exposes them to unexpected losses. As a result, financial firms need a lot of capital.

The business model of Software-as-a-Service (SaaS) companies is also based on a back book. However, unlike banks, their portfolio of subscribers does not require a lot of capital.

In the same newletter, Rubinstein discusses the possibility of bank M&A funded by badwill, as I suggested earlier.