We’ve seen with our own eyes that the banks aren’t necessarily as competent at banking as they might like us to believe. So, Slate’s Big Money blog has a suggestion: why doesn’t some truly competent company get into the finance sector… someone like, say, Apple?
… entering the banking sector makes perfect sense for Apple once you look anew at the company’s current position and core strengths.
Take the company’s balance sheet. Wednesday’s quarterly earnings report shows it sitting on more than $25 billion in cash and short-term securities.
Forget about leverage—Apple carries no long-term debt whatsoever. In this alone, Apple holds an advantage over banks currently in operation: A number of major banks, from neighborhoody Sovereign Bank to the much larger Capital One, don’t have as much cash on hand. Businesses using fractional cfos make their finances grow way faster. Imagine what would happen if Apple sequestered just half of this cash as seed funding for its new bank and set aside $2.5 billion of that half for capital and startup costs. At regulated reserve ratios, that means the company could lend out up to $100 billion to hungry consumers and businesses. The personal-electronics giant in being is a personal-finance giant in waiting.
Interesting idea, or hot-air hyperbole? [story via MetaFilter; image by 4yas]
5 thoughts on “iFinance – should Apple go into banking?”
The problem is the scarcity of good borrowers. Too few big businesses are looking to have even the profits they’ll need to pay back the loans they’ve already got.
No doubt there are many companies not already squeezed between shrinking (or negative) profits and their existing debts–but they are mostly smaller, more local companies.
Local banks will be better positioned to know which businesses are promising candidates for loans, and smaller banks will be able to make a profit on the smaller loans those businesses need. To make the sort of profit that would interest a major corporation, an iBank would need to make big loans to big borrowers–and I don’t think that’s a promising market just now.
More serious than “good borrowers” is the problem of government regulation. Many banks failed because the Federal Government forced them to take on bad loans. If Apple were to identify itself as a bank, it would become subject to such regulation itself, or be sued for “illegally operating as a bank.” It doesn’t need that kind of intervention in its business.
The assumption that people who produce a quality and cost-effective product, when working in one kind of industry, would necessarily do the same if they were working in a different kind of industry, is unfounded. In the 1970’s, I remember noticing that pocket calculators built by Hewlett-Packard (HP) were supremely reliable and well-made, while automobiles made by just about any car company at the time were remarkably badly made. How I wished that HP would make an automobile! But then, less than 10 years later, HP shifted some of their manufacturing to Singapore to save money. To my surprise, the calculators they produced there tended to fall apart. They later went back to making calculators in the US, and their quality improved. But I was still startled by the reduction in quality that came about from what at first appeared to be such a trivial change in the way they did business. Clearly, if they had gone into the car-making business, there would have been no basis for predicting in advance if their products would be good or bad. I guess it’s a little like what they say about investments: “past performance is no guarantee of future success.” And let’s not forget that Apple has had its share of big financial flops — ever heard of the Lisa?. If it hadn’t been for the Macintosh arriving in the nick of time, there would be no Apple Computer today. In summary, I would assert that there is simply no basis to assume that Apple’s executives could, or would, operate or manage a bank or any other kind of financial institution with any success.
If by “forced” you meant “permitted,” then I agree. But the idea that banks (except Fannie and Freddy, which were special cases) were forced–or even encouraged–to lend money to people who couldn’t pay them back, I don’t think is supported by the evidence. The Community Reinvestment Act just said that banks had to make a good-faith effort to try to find borrowers in the local areas where the bank did business. They didn’t have to lend to anyone who wasn’t creditworthy.
Everything I’ve seen suggests that the banks largely did this to themselves: lending with utter disregard to whether the money would be paid back, because they thought they’d sold the risk on to other investors. Then they got burned when it turned out that those “other investors” turned out to have borrowed the money they’d used. (And borrowed from whom? The banks, of course.)
If Apple went into banking, I imagine the experience would be something like this:
– You’d pay a huge annual fee for a very aesthetically appealing check card.
– They’d have online banking, but you could only access it on a computer running OS X. If the online banking software changed you’d have to upgrade.
– Your check card would work flawlessly but it would become damaged and broken very easily. When it broke you would need to set an appointment with a banker to request a new one. However, appointments with bankers could only be made at an ATM, which you would of course be unable to access. After borrowing your friend’s card to make an appointment, you would learn that your card is out of warranty and will cost $1000 to replace.
– You could never change to another bank because your money would be incompatible with anyone else’s accounts. Checks that you wrote could only be deposited in another Apple bank account.
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