Bank of America Corp – Page 8

Fed stress tests see large banks able to handle recession and slide in commercial real estate prices

[ad_1]

The U.S. Federal Reserve said Wednesday that all 23 banks in this year’s stress tests withstood a hypothetical “severe” global recession and losses of up to $541 billion as well as a 40% decline in commercial real estate prices.

The banks in the 2023 stress tests hold about 20% of the office and downtown commercial real estate loans held by banks and should be able to handle office space weakness that has loomed amid slack demand for space in the wake of the COVID-19 pandemic.

“The projected decline in commercial real estate prices, combined with
the substantial increase in office vacancies, contributes to projected loss rates on office properties that are roughly triple the levels reached during the 2008 financial crisis,” the Fed said in a prepared statement.

Also read: FDIC studying plan to include smaller U.S. banks in Basel III capital requirements after failures in early 2023

Fed vice chair of supervision Michael S. Barr said the exams confirm that the U.S. banking system remains resilient, even in the wake of the failure of Silicon Valley Bank, Signature Bank and First Republic Bank earlier this year.

Barr also alluded to comments he made last week when he said the Fed should consider a wider range of risks that could derail banks in a process he described as reverse stress tests.

“We should remain humble about how risks can arise and continue our
work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses,” Barr said in a prepared statement.

The bank stress tests are closely watched because they help determine what capital banks have left over for stock buybacks and dividends. However, expectations are not particularly high at the current time for any huge payouts to investors given talk by regulators about high capital requirements tied to Basel III international banking laws, as well as a challenging economic environment with interest rates on the rise in an attempt to cool economic activity and tame inflation.

Senior Fed officials said banks will be clear to provide updates on their stock buybacks and dividends after the market close on Friday.

For the first time, the Fed conducted an “exploratory market shock” on the trading books of the U.S.’s eight largest banks including greater inflationary pressures and rising interest rates.

The results showed that the largest banks’ trading books were resilient to the rising rate environment tested. That group included Bank of America Corp., the Bank of New York Mellon, Citigroup Inc., the Goldman Sachs Group Inc., JPMorgan Chase & Co. , Morgan Stanley , State Street Corp, and Wells Fargo & Co.

Senior federal officials said they’re studying a wider application of the exploratory market shock to other banks.

In last year’s tests, the Fed did not place an emphasis on a rapid rise in interest rates partly because expectations were high for a recession with lower interest rates in 2023. Instead, interest rates rose. That market dynamic was a factor in the collapse of Silicon Valley Bank, which sold securities with lower interest rates at a loss to cover an increase in withdrawals, only to spark a run on the bank.

All told, the Fed said the 23 banks in the stress test managed to maintain their capital requirements even with a projected $541 billion in losses. (See breakdown below).

U.S. Federal Reserve chart

Under the most severe stress, the aggregate common equity risk-based capital ratio would decline by 2.3% to a minimum of 10.1%.

Other facets of the hypothetical recession included a “substantial” increase in office vacancies, a 38% reduction in house prices and a 6.4% increase in U.S. unemployment to a high of 10%. The drop in house prices in this year’s stress tests is worse than the decline in the Global Financial Crisis in 2008.

“The results looked pretty good,” said Maclyn Clouse, a professor of finance at the University of Denver’s Daniels College of Business. “The banks were in pretty good shape from a capital standpoint and they’d be able to withstand some shock. It’s good news.”

Barr’s remark on Fed officials being “humble” reflects the fact that regulators largely missed the Global Financial Crisis as well as the sudden demise of Silicon Valley Bank in March.

“They need to be humble,” Clouse said. “We need to be a little more humble about the results and a little more alert about new challenges that normally haven’t been looked at with stress tests.”

This year, the banks that took part in the stress tests including Bank of America Corp.
BAC,
-0.60%,
Bank of New York Mellon Corp.
BK,
-0.64%,
Capitol One Financial Corp.
COF,
+0.52%,
Charles Schwab Corp.
SCHW,
+1.01%,
Citigroup
C,
-0.37%,
Citizens Financial Group Inc.
CFG,
-1.61%
and Goldman Sachs Group Inc.
GS,
+0.07%.

Other exams took place at J.P. Morgan Chase & Co.
JPM,
-0.44%,
M&T Bank Corp.
MTB,
-0.18%,
Morgan Stanley
MS,
-0.52%,
Northern Trust Corp.
NTRS,
-0.46%,
PNC Financial Services Group Inc.
PNC,
-0.36%,
State Street Corp.
STT,
-0.62%,
Truist Financial Corp.
TFC,
-0.07%,
U.S. Bancorp
USB,
-0.71%
and Wells Fargo & Co.
WFC,
-0.71%.

In 2022, the Fed said banks could withstand 10% unemployment and a 55% drop in stock prices as part of the year-ago stress test.

KBW analyst David Konrad said in a June 22 research note he expected no “huge surprises” in addition to capital uncertainty around dividends and buybacks already expected by Wall Street.

Providing guidance on how the Fed will study bank strength, Fed chair of supervision Michael Barr said last week that the Fed needs to consider “reverse stress tests” to look at “different ways an institution can die” instead of simply submitting banks to a specific list of hypothetical hardships.

“We have to work harder at looking at patterns we haven’t seen before,” Barr said at an appearance on June 20.

Also Read: Fed official eyes ‘reverse stress tests’ for banks as results awaited after 2023 bank failures

Also read: FDIC studying plan to include smaller U.S. banks in Basel III capital requirements after failures in early 2023

[ad_2]

Source link

June 28, 2023

HELOCs are back. Cash-strapped borrowers are tapping into a $33 trillion pile of home equity.

[ad_1]

Goodbye pandemic refi cash-outs. Hello HELOCs?

Home-equity lines of credit (HELOCs) and second-lien mortgages have been staging a notable comeback as U.S. homeowners look for liquidity and ways to monetize the pandemic surge in home prices, according to BofA Global.

It used to be that borrowers sitting on an estimated $33 trillion pile of equity built up in their homes could simply refinance and pull out cash, until the Federal Reserve’s rapid rate hikes began squelching the option.

Now, with mortgage rates above 6%, and the Fed penciling in two more rate hikes in 2023, cash-strapped homeowners have been seeking out alternatives to extract cash from their properties.

While cash-out refinances tumbled 83% in the fourth quarter of 2022 from a year before, HELOCs rose 7% and home-equity loans grew 31%, according to the latest TransUnion data.

“Borrower demand remains high, particularly given household budgets have been pressured by rising food and energy costs,” a BofA Global credit strategy team led by Pratik Gupta’s, wrote in a weekly client note.

Risky loans to subprime borrowers and home equity products helped precipitate the 2007-2008 global financial crisis and the era’s wave of devastating home foreclosures.

At the time, households had more than $1.2 trillion of home equity revolving and available credit (see chart), whereas the figure was closer to $900 billion in the first quarter of this year.

Home equity products are making a big comeback as households seek liquidity

BofA Global, New York Fed Consumer Credit Panel/Equifax

The pandemic saw home prices surge, giving a big boost to home equity levels. The Urban Institute pegged home equity in the U.S. at $33 trillion as of May, up from a post-2008 peak of about $15 trillion.

BofA analysts argued this time home equity products look different, with roughly $17 trillion of tappable equity across 117 million U.S. homeowners, and most borrowers having high credit scores and low rates.

“The vast majority of that — $14 trillion — is from the cohort of homeowners who own their homes free & clear,” Gupta’s team wrote.

Another $1.6 trillion of equity could be available from Freddie Mac and Fannie Mae borrowers, according to his team, which pegged an estimated 94% of all outstanding U.S. first-lien home mortgages now below 4% rates.

Major banks own the bulk of home equity balances (see chart), led by Bank of America Corp.
BAC,
+1.23%,
PNC Bank
PNC,
+0.57%,
Wells Fargo,
WFC,
-0.05%,
JPMorgan Chase
JPM,
+0.24%
and Citizens
CFG,
+0.35%,
according to the team, which notes several other major banks appear to have hit pause on their programs.

A smaller portion of HELOCs and second-lien mortgages have been securitized, or packaged up and sold as bond deals, while nonbank lenders have been offering the products as well.

Stocks closed lower Monday, taking a pause from a recent rally, as investors monitored weekend tumult in Russia. The Dow Jones Industrial Average
DJIA,
-0.04%
was less than 0.1% lower, while the S&P 500 index
SPX,
-0.45%
was off 0.5% and the Nasdaq Composite
COMP,
-1.16%
fell 1.2%, according to FactSet.

[ad_2]

Source link

June 26, 2023

Bank of America makes $500 million equity push for minority- and women-led funds

[ad_1]

A Bank of America branch in New York’s Times Square.

Stan Honda/AFP/Getty Images

Bank of America has committed to giving more than $500 million in equity investments to minority- and women-led fund managers to support diverse entrepreneurs, the bank announced Thursday in a press release.

More than 60% of the fund managers who can pull from the equity pool are led by women, more than 65% are led by Black individuals, more than 20% by Hispanics and Latinos and more than 15% are led by Asians, said Tram Nguyen, global head of strategic and sustainable investments at Bank of America.

The program started in 2020 and so far, more than 150 funds have used the equity to invest in upward of 1,000 companies, collectively controlling $7 billion of capital, Bank of America said. This translates to support for 1,500 diverse entrepreneurs and the employment of more than 21,000 people.

“We work across our company to address critical needs in our communities, including the lack of access to capital that diverse business owners face as they start or grow their businesses,” Nguyen said in a news release.

In 2023 so far, ventures led or founded by Black or Asian individuals typically received approximately 0.9% of venture capital funding, while businesses led by Hispanic and Latino individuals received roughly 0.94%, according to data from Crunchbase.

Total VC dollars put into companies last year dropped 36%, affected by the rise in inflation and interest rates, and Black-owned businesses saw a 45% drop, CNBC’s Gabrielle Fonrouge reported in February.

Bank of America is also separately working with the National Football League and National Black Bank Foundation to support Black- and minority-owned banks, CNBC’s Frank Holland reported.

“We’re very focused on supporting our fund managers,” Nguyen said. “We’re building a community, connecting them with our company and its vast network and resources, connecting them with each other and the broader investment community.”

[ad_2]

Source link

June 15, 2023

Gen Z and Millennials are scrimping. Boomers? Living it up | CNN Business

[ad_1]

New York
CNN Business
—

Baby Boomers are living it up, splurging on cruises and restaurants. Younger Americans are struggling just to keep up.

Bank of America internal data shows a “significant gap” in spending has opened recently between older and younger generations.

While Baby Boomers and even Traditionalists (born 1928-1945) are ramping up spending, Gen X, Gen Z and Millennials are cutting back as they grapple with high housing costs and looming student debt payments.

“It’s fairly unusual,” David Tinsley, senior economist at the Bank of America Institute, told CNN in a phone interview.

Overall, household spending dipped 0.2% year-over-year in May, according to the bank’s card data — but the generational breakdown showed a more varied picture.

Spending increased by 5.3% for Traditionalists and 2.2% for Baby Boomers. In contrast, spending fell by about 1.5% for younger generations.

If not for the aggressive spending by Boomers, Tinsley said, overall consumer spending would have been even more negative.

So, what is going on?

Older Americans are ramping up spending as they benefit from a spike in Social Security payments.

Starting in January, Social Security recipients received an 8.7% cost-of-living adjustment, the biggest increase since 1981. That increase — caused directly by high inflation — is boosting the average retirees’ monthly payments by an estimated $146.

Bank of America spending data shows a noticeable bump in spending by households that received the cost-of-living boost.

However, the bank noticed the spending surge by older Americans is happening among high-income households too. And those consumers are less likely to be impacted by the spike in Social Security payments.

“That can’t be the whole story,” Tinsley said of the cost-of-living adjustments.

To explain the drop in spending by younger Americans, Bank of America pointed to high housing costs. In recent years, rental rates spiked, home prices soared and mortgage rates surged.

Younger Americans are also much more likely to move than older ones.

“The people who do move are really facing quite significant cost increases,” said Tinsley.

Bank of America has noted that older consumers are spending on travel, including hotels, airfare and cruises, now that the Covid emergency is over.

Due to Covid fears, older generations held back on travel during the pandemic, but now they are “splurging,” Tinsley said.

Beyond the high cost of living, Bank of America said many younger Americans are also likely bracing for the return of a significant monthly expense: student debt.

The bipartisan debt ceiling deal included a provision that specifically prevented the Biden administration from extending the pause on federal student loan payments.

The student debt freeze, in effect since March 2020 when the Covid pandemic erupted, is expected to conclude by the end of August.

That is particularly painful to younger consumers. Americans are sitting on $1.6 trillion of student debt, according to the New York Federal Reserve, and the vast majority of that student debt is held by those under the age of 49.

For millions of Gen Z and Millennials, the return of student debt payments will mean less money for spending on restaurants and vacations.

Some consumers may be starting to pull back on spending ahead of that change, Tinsley said: “It’s coming down the tracks pretty fast now.”

[ad_2]

[ad_2]

Warren Buffett says American banks could face more turbulence ahead, but deposits are safe

[ad_1]

Berkshire Hathaway CEO Warren Buffett on Saturday assailed regulators, politicians and the media for confusing the public about the safety of U.S. banks and said that conditions could worsen from here.

Buffett, when asked about the recent tumult that led to the collapse of three mid-sized institutions since March, launched into a lengthy diatribe about the matter.

related investing news

Bill Nygren buys this regional bank with strong deposits, says 'inappropriate role' of short selling contributing to fears

“The situation in banking is very similar to what it’s always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”

Berkshire Hathaway has owned banks from early on in Buffett’s nearly six-decade history at the company, and he’s stepped up to inject confidence and capital into the industry on several occasions. In the early 1990s, Buffett served as CEO of Salomon Brothers, helping rehabilitate the Wall Street firm’s tattered reputation. More recently, he injected $5 billion into Goldman Sachs in 2008 and another $5 billion in Bank of America in 2011, helping stabilize both of those firms.

Ready to act

He remains ready, with his company’s formidable cash pile, to act again if the situation calls for it, Buffett said during his annual shareholders’ meeting.

“We want to be there if the banking system temporarily gets stalled in some way,” he said. “It shouldn’t, I don’t think it will, but it could.”

The core problem, as Buffett sees it, is that the public doesn’t understand that their bank deposits are safe, even those that are uninsured. The Berkshire CEO has said regulators and Congress would never allow depositors to lose a single dollar in a U.S. bank, even if they haven’t made that guarantee explicit.

The fear of regular Americans that they could lose their savings, combined with the ease of mobile banking, could lead to more bank runs. Meanwhile, Buffett said that he keeps his personal funds at a local institution, and isn’t worried despite exceeding the threshold for FDIC coverage.

“The messaging has been very poor, it’s been poor by the politicians who sometimes have an interest in having it poor,” he said. “It’s been poor by the agencies, and it’s been poor by the press.”

First Republic

Buffett also turned his ire on bank executives who took undue risks, saying that there should be “punishment” for bad behavior. Some bank executives may have sold company stock because they knew trouble was brewing, he added.

For example, First Republic, which was seized and sold to JPMorgan Chase after a deposit run, sold its customers jumbo mortgages at low rates, which was a “crazy proposition,” he said.

“If you run a bank and screw it up, and you’re still a rich guy… and the world goes on, that’s not a good lesson to teach people,” he said.

Berkshire has been unloading bank shares, including that of JPMorgan Chase and Wells Fargo, since around the start of the 2020 pandemic.

Recent events have only “reconfirmed my belief that the American public doesn’t understand their banking system,” Buffett said.

He reiterated several times that he had no idea how the current situation will unfold.

“That’s the world we live in,” Buffett said. “It means that a lighted match can turn into a conflagration, or be blown out.”

[ad_2]

Source link

May 6, 2023

Buffett explains value investing: ‘What gives you opportunities is other people doing dumb things’

[ad_1]

Follow our live coverage of Warren Buffett at Berkshire Hathaway meeting.

Warren Buffett on Saturday boiled down value investing, the strategy that has helped him amass his wealth, in one sentence.

“What gives you opportunities is other people doing dumb things,” the “Oracle of Omaha” said at Berkshire Hathaway‘s annual shareholder’s meeting.

Value investing typically refers to buying underappreciated stocks or businesses when others are selling them at a discount and then holding them for the long term. This approach has led to some of Buffett’s biggest investment — especially when others were panicking.

During the 2008 financial crisis, the legendary investor bought Bank of America, which is still one of his biggest holdings. He also acquired shares of Goldman Sachs, but has since sold his stake in the banking giant.

Buying when others were selling in fear has in part helped Berkshire return a whopping 3,787,464% from 1965 through the end of last year. That’s way more than the S&P 500’s 24,708% return in that time.

And while Buffett acknowledges that the world is changing, he thinks value investing opportunities abound.

“In the 58 years we’ve been running Berkshire, I would say there’s been a great increase in the number people doing dumb things, and they do big dumb things,” he said. “The reason they do it is because, to some extent, they can get money from people so much easier than when we started.”

“I would love to be born today, go out with not-too-much money and hopefully turn it into a lot of money,” Buffett said.

Charlie Munger, Berkshire Hathaway vice-chairman and Buffett’s long-time right-hand man, has a more pessimistic view on value investing.

“I think value investors are going to have a harder time now that there’re so many of them competing for a diminished bunch of opportunities,” Munger said. “My advice to value investors is to get used to making less” money.

Despite Munger’s more downbeat outlook for value investing, Buffett thinks opportunities will present themselves to value investors given the short-term view of so many people in today’s society.

Follow CNBC’s livestream of Berkshire Hathaway’s 2023 annual meeting here.

[ad_2]

Source link

May 6, 2023

Just 5 stocks make up the lion’s share of Warren Buffett’s equity portfolio. Here’s what they are

[ad_1]

[ad_2]

Source link

May 6, 2023

Millennial homeowners shift toward renovating instead of selling, says BofA’s Liz Suzuki

[ad_1]

Share

Liz Suzuki, Bank of America Securities senior analyst, joins ‘Power Lunch’ to breakdown new numbers surrounding millennial homeowners, renovation projects, and the housing market.

[ad_2]

Source link

May 5, 2023

Apple and fintechs like Robinhood chase yield-hungry depositors as Fed rate hikes continue

[ad_1]

Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.

Alex Flynn | Bloomberg via Getty Images

The technology industry is known for innovation and spawning the next big thing. But at a time of economic uncertainty and rising interest rates, a growing piece of the tech sector is going after one of the most noninnovative products on the planet: yield.

With U.S. Treasury yields climbing late last year to their highest in more than a decade, consumers and investors can finally generate returns just by parking their money in savings accounts.

Banks are responding by offering higher-yielding offerings. American Express, for example, offers consumers a 3.75% annual percentage yield (APY), and First Citizens‘ CIT Bank has a 4.75% APY for customers with at least $5,000 in deposits. Ally Bank, which is online only, is promoting a 4.8% certificate of deposit.

However, some of the highest rates available to savers aren’t coming from traditional financial firms or credit unions, but rather from companies in and around Silicon Valley.

Apple is the most notable new entrant. Last month, the iPhone maker launched its Apple Card savings account with a generous 4.15% APY in partnership with Wall Street giant Goldman Sachs.

Then there’s the whole fintech market, consisting of companies offering consumer financial services with a focus on digital products and a friendly mobile experience instead of physical branches with costly bank tellers and loan officers.

Stock trading app Robinhood has a feature called Robinhood Gold, which offers 4.65% APY. Interest is earned on uninvested cash swept from the client’s brokerage account to partner banks. It’s part of a $5-a-month subscription that also includes lower borrowing costs for margin investing and research for stock investing.

The company lifted its yield from 4.4% on Wednesday after the Federal Reserve approved its 10th rate increase in a little more than a year, raising its benchmark borrowing rate by 0.25 percentage point to a target range of 5%-5.25%.

Fed Chair Jerome Powell speaks during a conference at the Federal Reserve Bank of Chicago on June 4, 2019.

Scott Olson | Getty Images

“At Robinhood, we’re always looking for ways to help our customers make their money work for them,” the company said in a press release announcing its hike.

LendingClub, an online lender, is promoting an account with a 4.25% yield. The company told CNBC that deposit growth was up 13% for the first quarter of 2023 compared with the prior quarter, “as depositors looked to diversify their money out of traditional banks and earn increased savings.” Year over year, savings deposits have increased by 81%.

And Upgrade, which is led by LendingClub founder Renaud Laplanche, offers 4.56% for customers with a minimum balance of $1,000.

“It’s really a trade-off for consumers, between safety or the appearance of safety, and yield,” Laplanche told CNBC. Upgrade, which is based in San Francisco, and most other fintech players keep customer deposits with institutions backed by the Federal Deposit Insurance Corp., so consumer funds are safe up to the $250,000 threshold.

SoFi is the rare example of a fintech with a banking charter, which it acquired last year. It offers a high-yield savings product with a 4.2% APY.

The story isn’t just about rising interest rates.

Across the emerging fintech spectrum, companies like Upgrade are, intentionally or not, taking advantage of a moment of upheaval in traditional finance. On Monday, First Republic became the third American bank to fail since March, following the collapses of Silicon Valley Bank and Signature Bank. All three saw depositors rush for the exits as concerns about a liquidity crunch led to a cycle of doom.

Shares of PacWest and other regional banks have plummeted this week, even after First Republic’s orchestrated sale to JPMorgan Chase was meant to signal stability in the system.

After the collapse of SVB, Laplanche said Upgrade’s banking partners came to the company and asked it to step up the inflow of funds, an apparent effort to stanch the withdrawals at smaller banks. Upgrade farms out the money it attracts to a network of 200 small- and medium-sized banks and credit unions that pay the company for the deposits.

Used to be dead money

For well over a decade, before the recent jump in rates, savings accounts were dead money. Borrowing rates were so low that banks couldn’t profitably offer yield on deposits. Also, stocks were on such a tear that investors were doing just fine in equities and index funds. A subset of those with a stomach for risk went big in crypto.

As the price of bitcoin soared, a number of crypto exchanges and lenders began mimicking the banks’ savings model, offering very high yield (up to 20% annually) for investors to store their crypto. Those exchanges are now bankrupt following the crypto industry’s meltdown last year, and many thousands of clients lost their funds.

There is some potential instability for fintechs, even those outside of the crypto space. Many of them, including Upgrade and Affirm, partner with Cross River Bank, which serves as the regulated bank for companies that don’t have charters, allowing them to offer lending and credit products.

Last week, Cross River was hit with a consent order from the FDIC for what the agency called “unsafe or unsound banking practices.”

Cross River said in a statement that the order was focused on fair lending issues that occurred in 2021, and that it “places no limitations on our extensive existing fintech partnerships or the credit products we presently offer in partnership with them.”

While fintechs broadly are under far less regulatory pressure than crypto companies, the FDIC’s action suggests that regulators are beginning to pay closer attention to the kinds of products that high-yield accounts are designed to complement.

Still, the emerging group of high-yield savings products are much more mainstream than what the crypto platforms were promoting. That’s largely because the deposits come with government-backed insurance protections, which have a long history of safety.

They’re also not designed to be big profit centers. Rather, by offering high yields for consumers who have long housed their money in stagnant accounts, tech and fintech companies are opening the door to potentially new customers.

Apple has a whole suite of financial products, including a credit card and payments app, that pair smoothly with the savings account, which is only available to the 6 million-plus Apple Card holders. Those customers reportedly put in nearly $1 billion in deposits in the first four days the service was on the market.

Apple didn’t respond to a request for comment. CEO Tim Cook said on the company’s earnings call Thursday that, “we are very pleased with the initial response on it. It’s been incredible.”

Apple savings account

Apple

Robinhood, meanwhile, wants more people to use its trading platform, and companies like LendingClub and SoFi are building relationships with potential borrowers.

Laplanche said high-yield savings accounts, while compelling for the consumer, aren’t core to most fintech businesses but serve as an onboarding tool to more lucrative products, like consumer lending or conventional credit cards.

“We started with credit,” Laplanche said. “We think that’s a better strategy.”

SoFi launched its high-yield savings account in February of last year. In its annual SEC filing, the company said that offering checking and high-yield savings accounts provided “more daily interactions with our members.”

Affirm, best known as a buy now, pay later firm, has offered a savings account since 2020 as part of a “full suite” of financial products. Its yield is currently 3.75%.

“Consumers can use our app to manage payments, open a high-yield savings account, and access a personalized marketplace,” the company said in a 2022 SEC filing. A spokesperson for Affirm told CNBC that the saving account is “one of the many solutions in our suite of products that empower consumers with a smarter way to manage their finances.”

Set against the backdrop of a regional banking crisis, savings products from anywhere but a national bank might seem unappealing. But chasing yield does come with at least a little bit of risk.

“Citi or Chase, feels like it’s safe,” to the consumer, Laplanche said. “Apple and Goldman aren’t inherently risky, but it’s not the same as Chase.”

— CNBC’s Darla Mercado contributed to this report.

WATCH: Consumers are spending more for the same items than they were a year ago

[ad_2]

Source link

May 5, 2023

Analysts warn regional bank stocks are in a ‘negative feedback loop’ and detached from fundamentals

[ad_1]

[ad_2]

Source link

May 4, 2023

Wall Street is cutting more jobs as Morgan Stanley plans 3,000 layoffs

[ad_1]

The logo of Morgan Stanley is seen in New York

Shannon Stapleton | Reuters

As Wall Street’s slump in IPOs and mergers deepens this year, top advisory firms including Morgan Stanley, Bank of America and Citigroup have turned to job cuts in recent weeks.

Morgan Stanley plans to eliminate roughly 3,000 positions by the end of June, according to a person with knowledge of the plans.

related investing news

That equates to roughly 5% of the New York-based bank’s workforce when excluding the financial advisors and support staff who will be spared in the cuts, the person said. The layoffs are expected to impact banking and trading staff the most, according to Bloomberg, which reported the moves earlier.

A historic boom in deals ignited by the pandemic was followed by a bust that began last year after the Federal Reserve started raising rates to hit the brakes on an overheating economy. The IPOs, debt issuance and mergers that feed Wall Street have all remain muted this year. For instance, IPO volumes are 74% lower than last year, according to Dealogic data.

For Morgan Stanley, the cuts show that Wall Street is wrangling with expenses as the slump drags on for longer than expected. The bank already cut about 2% of its workforce in December, CNBC reported.

Rising costs, falling revenue

Last month, analysts criticized Morgan Stanley for posting higher first-quarter costs while revenue declined. Expenses in the firm’s investment bank and wealth management division hurt profit margins in particular.

The bank’s moves aren’t isolated. The industry’s job cuts began in September, when Goldman Sachs reinstated a practice of culling those it perceives to be low performers. Nearly all the major Wall Street firms followed, and Goldman itself had to resort to another, deeper round of layoffs in January.

In recent weeks, big bank peers including Citigroup and Bank of America have cut a few hundred jobs each, relatively surgical cuts that should position the banks well when a rebound in deals finally arrives.

Last week, top boutique advisor Lazard said it planned to cut 10% of its workforce this year. The step was necessitated by restrained capital markets activity and wage inflation that pumped up salaries across banking.

“Candidly, things are not feeling as good as they were in December or January,” Chief Executive Ken Jacobs told Bloomberg.

Wall Street layoffs will be selective but broad-based, according to sources, says Hugh Son

[ad_2]

Source link

May 2, 2023

Big banks are bidding for troubled First Republic as FDIC deadline looms | CNN Business

[ad_1]

New York
CNN
—

Federal regulators are holding an auction for ailing regional bank First Republic, a person familiar with the matter tells CNN.

Final bids are due for First Republic Bank at 4 p.m. ET on Sunday, the source said.

The Federal Deposit Insurance Corporation, the independent government agency that insures deposits for bank customers, is running the auction.

Neither First Republic nor the FDIC were immediately available for comment.

Shares of First Republic

(FRC) plunged from $122.50 on March 1 to around $3 a share as of Friday on expectations that the FDIC would step in by end of day and take control of the San Francisco-based bank, its deposits and assets. But that never happened.

The FDIC had already done so with two other similar sized banks just last month — Silicon Valley Bank and Signature Bank — when runs on those banks by their customers left the lenders unable to cover customers’ demands for withdrawals.

The Wall Street Journal previously reported that JPMorgan Chase and PNC Financial are among the big banks bidding on First Republic in a potential deal that would follow an FDIC seizure of the troubled regional bank.

PNC declined to comment. JPMorgan did not respond to requests for comment.

“We are engaged in discussions with multiple parties about our strategic options while continuing to serve our clients,” First Republic said in a statement Friday night.

If there is a buyer for First Republic, the FDIC would likely be stuck with some money-losing assets, as was the case after it found buyers for the viable portions of SVB and Signature after it took control of those banks.

A kind of shotgun marriage, arranged by regulators who didn’t want a significant bank to end up in the hands of the FDIC before it was sold, occurred several times during the financial crisis of 2008 that sparked the Great Recession. Notably, JPMorgan bought Bear Stearns for a fraction of its earlier value in March of 2008, and then in September bought savings and loan Washington Mutual, soon after Bank of America bought Merrill Lynch.

The failure of Washington Mutual in 2008 was the nation’s largest bank failure ever. First Republic, which is bigger than either SVB or Signature Bank, would be the second largest.

Soon after collapses of SVB and Signature in March, First Republic received a $30 billion lifeline in the form of deposits from a collection of the nation’s largest banks, including JPMorgan Chase

(JPM), Bank of America

(BAC), Wells Fargo

(WFC), Citigroup

(C) and Truist

(TFC), which came together after Treasury Secretary Janet Yellen intervened.

The banks agreed to take the risk and work together to keep First Republic flush with the cash in the hopes it would provide confidence in the nation’s suddenly battered banking system. The banks and federal regulators all wanted to reduce the chance that customers of other banks would suddenly start withdrawing their cash.

But while the cash allowed First Republic to make it through the last six weeks, its quarterly financial report Monday evening, with the disclosure of massive withdrawals by the end of March, spurred new concerns about its long-term viability.

The financial report showed depositors had withdrawn about 41% of their money from the bank during the first quarter. Most of the withdrawals were from accounts with more than $250,000 in them, meaning those excess funds were not insured by the FDIC.

Uninsured deposits at the bank fell by $100 billion during the course of the first quarter, a period during which total net deposits fell by $102 billion, not including the infusion of deposits from other banks.

The uninsured deposits stood at 68% of its total deposits as of December 31, but only 27% of its non-bank deposits as of March 31.

In its earnings statement, the bank said insured deposits declined moderately during the quarter and have remained stable from the end of last month through April 21.

Banks never have all the cash on hand to cover all deposits. They instead take in deposits and use the cash to make loans or investments, such as purchasing US Treasuries. So when customers lose confidence in a bank and rush to withdrawal their money, what is known as a “run on the bank,” it can cause even an otherwise profitable bank to fail.

First Republic’s latest earnings report showed it was still profitable in the first quarter — its net income was $269 million, down 33% from a year earlier. But it was the news on the loss of deposits that worried investors and, eventually, regulators.

While some of those who had more than $250,000 in their First Republic accounts were likely wealthy individuals, most were likely businesses that often need that much cash just to cover daily operating costs. A company with 100 employees can easily need more than $250,000 just to cover a biweekly payroll.

First Republic’s annual report said that as of December 31, 63% of its total deposits were from business clients, with the rest from consumers.

First Republic started operations in 1985 with a single San Francisco branch. It is known for catering to wealthy clients in coastal states.

It has 82 branches listed on its website, spread across eight states, in high-income communities such as Beverly Hills, Brentwood, Santa Monica and Napa Valley, California; in addition to San Francisco, Los Angeles and Silicon Valley. Outside of California, branches are in other high-income communities such as Palm Beach, Florida; Greenwich, Connecticut; Bellevue, Washington; and Jackson, Wyoming.

[ad_2]

Source link

April 30, 2023

Big banks including JPMorgan Chase, Bank of America asked for final bids on First Republic

[ad_1]

A First Republic bank branch in Manhattan on April 24, 2023 in New York City.

Spencer Platt | Getty Images

U.S. regulators have asked banks for their best and final takeover offers for First Republic by Sunday afternoon, in a move that authorities hope will calm markets and cap a period of uncertainty for regional lenders.

JPMorgan Chase and PNC are likely bidders for the ailing lender, which would be seized in receivership and immediately sold to the winning bank, according to people with knowledge of the situation. The Wall Street Journal reported those banks’ interest late Friday.

Other companies are likely to step up. Bank of America is among several other institutions that are weighing a potential bid for First Republic, according to people with knowledge of the matter.

This is breaking news. Please check back for updates.

[ad_2]

Source link

April 29, 2023

Tag: Bank of America Corp

Home equity products are making a big comeback as households seek liquidity

related investing news

related investing news