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BNY Mellon CEO Robin Vince joins 'Squawk Box' to discuss the company's quarterly earnings results, state of the banking sector, the firm's flexible return-to-office policy, and more.
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Tag: Bank of New York Mellon Corp.
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Banks seeing a divergence between stock performance and business performance: Gabelli’s Ian Lapey
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Ian Lapey, Gabelli Portfolio Manager, joins ‘Closing Bell Overtime’ to talk U.S. Bancorp earnings results, the financial sector’s performance and more.
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Eight big U.S. bank CEOs to face Senate Banking Committee grilling in December
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Chairman Sherrod Brown (D-OH) questions Treasury Secretary Janet Yellen and Federal Reserve Chairman Powell during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, September 28, 2021.
Kevin Dietsch | Pool | Reuters
Eight CEOs of the largest U.S. banks will face questioning at a Senate Banking Committee hearing in December, according to an announcement obtained by CNBC.
The Dec. 6 session will feature chief executive officers from JPMorgan Chase, Bank of America, Citigroup, Goldman Sachs, Bank of New York Mellon, Morgan Stanley, State Street and Wells Fargo.
The meeting is the third time that Banking Committee Chair Sherrod Brown, D-Ohio, will hold an oversight hearing with the heads of the nation’s biggest banks.
Brown set a combative tone in the hearing announcement, calling out banks for continuing to “make record profits and to reward corporations that raise prices on Americans.”
“My commitment as chair of this committee is to always put the Main Street economy – and the workers who power it – at the center of everything we do,” Brown said.
“Part of that commitment is to hear directly from the biggest banks that hold too much power in the economy,” he said. “It’s our job to hold them accountable to their workers, to their customers, and to the American people.”
Brown and other Banking Committee members have ramped up oversight efforts in 2023, particularly regarding three banks that failed earlier in the year, Silicon Valley Bank, Signature Bank and First Republic.
The failure of First Republic in May was the biggest bank failure in the United States since the 2008 financial crisis. JPMorgan acquired First Republic’s deposits and a substantial majority of its assets.
In June, the committee advanced legislation authorizing the Federal Deposit Insurance Corp. to claw back compensation from senior executives of failed banks.
The bill, known as the RECOUP Act, sailed through committee with a 21-2 vote.
Senate Majority Leader Chuck Schumer, D-N.Y., said he plans to bring the bill to a vote by the full Senate., However, the current debate over a federal funding measure that would avoid a government shutdown has left little time for other bills.
The high-profile hearing could have political implications for Brown, who is set to run for reelection in 2024 from Ohio, a state that since he last was elected has seen voters increasingly swing Republican.
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Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch
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A general view of the New York Stock Exchange (NYSE) on Wall Street in New York City on May 12, 2023.
Angela Weiss | AFP | Getty Images
Moody’s cut the credit ratings of a host of small and mid-sized U.S. banks late Monday and placed several big Wall Street names on negative review.
The firm lowered the ratings of 10 banks by one rung, while major lenders Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust are now under review for a potential downgrade.
Moody’s also changed its outlook to negative for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp.
Among the smaller lenders receiving an official ratings downgrade were M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial.
“U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts Jill Cetina and Ana Arsov said in the accompanying research note.
“Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”
Regional U.S. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.
Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.
The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation.
“We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report.
“Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.”
Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody’s noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.
“Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,” the analysts added.
Though the stress on U.S. banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody’s warned that a worsening in asset quality is on the horizon.
“We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency said.
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Fed stress tests see large banks able to handle recession and slide in commercial real estate prices
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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.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
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Warren Buffett’s Berkshire Hathaway switched stakes in two banks, and the stocks head in opposite directions
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Warren Buffett’s Berkshire Hathaway Inc. made a change in banking targets for investment, sending two banks’ shares in opposite directions Monday afternoon.
Capital One Financial
COF,
+3.22%
shares rallied more than 5% in after-hours trading while Bank of New York Mellon Corp.
BK,
+1.37%
sold off in the extended session Monday after filings with the Securities and Exchange Commission showed Berkshire
BRK.B,
+0.32%
BRK.A,
+0.96%
switched its position. The quarterly filing showed a new stake of 9.9 million shares in Capital One as Berkshire sold off its 25.1 million-share stake in Bank of New York Mellon.At Berkshire’s annual meeting, Buffett weighed in on recent scares for regional banks.
“In terms of owning banks, events will determine their future and you’ve got politicians involved, you’ve got a whole lot of people who don’t really understand how the system works,” he said.
Other changes included an increased stake in HP Inc.
HPQ,
+2.32% ,
which grew by 16% to about 121 million shares. That growth was part of a combination of the holdings of General Re Corp., which Berkshire has owned since 1998 but had previously reported its holdings separately as part of New England Asset Management Inc.“Beginning with the Form 13F to be filed later today, the holdings of Gen Re will be included in Berkshire’s 13F filing,” Berkshire said in a news release earlier Monday. “The NEAM Form 13F filings will no longer include Gen Re’s holdings but they will continue to include NEAM client holdings where NEAM is acting as an investment manager.”
Other holdings affected by that change included Apple Inc.
AAPL,
-0.29% ,
Bank of America Inc.
BAC,
+2.07%
and Chevron Corp.
CVX,
+0.37% ,
Berkshire said in its news release.Other stocks that Berkshire made moves with during the first three months of the year included the former Restoration Hardware — RH
RH,
+1.89%
shares fell 3% after Berkshire disclosed selling off its 2.4 million stake. Berkshire also officially reported selling of its 8.3 million stake in Taiwan Semiconductor Manufacturing Co.
TSM,
+2.67% .[ad_2]
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CNBC Daily Open: China reported an economic boom
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Tourists bustle in front of Huawei’s global flagship store near Nanjing Road Pedestrian street in Shanghai, China, March 21, 2023.
CFOTO | Future Publishing | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
China’s economy boomed in the first three months of the year. In the U.S., regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.
What you need to know today
- China reported its first-quarter gross domestic product popped 4.5% from a year earlier, more than economists’ expectation of 4% and the highest since the first quarter of 2022. Retail sales, a key engine of China’s growth, surged 10.6% in March.
- Markets expect the Federal Reserve to continue hiking rates at its next meeting, but central banks in Asia-Pacific are already hitting the brakes on rate increases — and some might even start cutting rates this year.
- Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.
- PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.
The bottom line
China’s economy is rebounding on multiple fronts, according to data released Tuesday by the country’s National Bureau of Statistics. Last month, gross domestic product shot up, retail sales boomed, industrial output rose and fixed asset investment climbed.
Admittedly, some of those figures were lower than expected. Real estate investment declined, indicating China’s property sector is still a weak point in the country’s economy. Detractors can also point to China’s lower-than-expected 0.7% rise in March’s consumer price index, year on year, as a sign that consumption might not be as robust as retail sales suggest.
Indeed, the tepid reactions of stock markets on the mainland and in Hong Kong reinforce the idea that the red-hot numbers aren’t as significant as they initially seem.
Meanwhile, regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.
First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.
M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.
But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.
Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.
Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
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CNBC Daily Open: The regional banks are OK. Sort of
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UNITED STATES – JUNE 30: Pedestrians pass by a Charles Schwab brokerage, in New York, Friday, June 30, 2006. (Photo by Stephen Hilger/Bloomberg via Getty Images)
Stephen Hilger | Bloomberg | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.
What you need to know today
- Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.
- PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.
The bottom line
Regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.
First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.
M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.
But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.
Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.
Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.
The major U.S. indexes all rose, but only mildly. The S&P 500 added 0.33%, the Dow Jones Industrial Average 0.3% and the Nasdaq Composite rose 0.28%. Investors are still waiting for companies in other industries to report this week — some, like health care and communications, may disappoint investors, according to Sam Stovall, chief investment strategist at CFRA Research.
″It’s sort of a wait and see,” Stovall said, “because what the banks giveth, the rest of the market might taketh away.”
Subscribe here to get this report sent directly to your inbox each morning before markets open.
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First Republic gets $30 billion in deposits from 11 major U.S. banks, but stock resumes slide as it suspends dividend
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Bank of America BAC, Citigroup C, JPMorgan Chase JPM and Wells Fargo WFC said Thursday that they are each making $5 billion in uninsured deposits into First Republic Bank FRC as part of a $30 billion backstop by 11 banks against the ravaged banking landscape of the past week.
However, First Republic stock fell 14.7% in after-hours trading after the bank said it would suspend its dividend to conserve cash. The bank last paid a quarterly dividend of 27 cents a share on Feb. 9 to shareholders of record as of Jan. 26.
It…
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