Hundreds of small and regional banks across the U.S. are feeling stressed.
“You could see some banks either fail or at least, you know, dip below their minimum capital requirements,” Christopher Wolfe, managing director and head of North American banks at Fitch Ratings, told CNBC.
The majority of those banks are smaller lenders with less than $10 billion in assets.
“Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, co-founder and partner at Klaros Group, told CNBC. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt by that stress.”
Graham noted that communities would likely be affected in ways that are more subtle than closures or failures, but by the banks choosing not to invest in such things as new branches, technological innovations or new staff.
For individuals, the consequences of small bank failures are more indirect.
“Directly, it’s no consequence if they’re below the insured deposit limits, which are quite high now [at] $250,000,” Sheila Bair, former chair of the U.S. Federal Deposit Insurance Corp., told CNBC.
If a failing bank is insured by the FDIC, all depositors will be paid “up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.”
Watch the videoto learn more about the risk of commercial real estate, the role of interest rates on unrealized losses and what it may take to relieve stress on banks — from regulation to mergers and acquisitions.
Of about 4,000 U.S. banks analyzed by the Klaros Group, 282 banks face stress from commercial real estate exposure and higher interest rates. The majority of those banks are categorized as small banks with less than $10 billion in assets. “Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed,” Brian Graham, Klaros co-founder and partner at Klaros. “That means there’ll be fewer bank failures. But it doesn’t mean that communities and customers don’t get hurt.”
A New York Community Bank stands in Brooklyn, New York City, on Feb. 8, 2024.
Spencer Platt | Getty Images
New York Community Bank on Wednesday posted a quarterly loss of $335 million on a rising tide of soured commercial loans and higher expenses, but the lender’s stock surged on its new performance targets.
The first-quarter loss, equal to 45 cents per share, compared to net income of $2.0 billion, or $2.87 per share a year earlier. When adjusted for charges included merger-related items, the loss was $182 million, or 25 cents per share, deeper than the 15 cents per share loss estimate from LSEG.
“Since taking on the CEO role, my focus has been on transforming New York Community Bank into a high-performing, well-diversified regional bank,” CEO Joseph Otting said in the release. “While this year will be a transitional year for the company, we have a clear path to profitability over the following two years.”
The bank will have higher profitability and capital levels by the end of 2026, Otting said. That includes a return on average earning assets of 1% and a targeted common equity tier 1 capital level of 11% to 12%.
Otting took over at the beleaguered regional bank at the start of April after an investor group led by former Treasury Secretary Steven Mnuchin injected more than $1 billion into the lender.
Shares of the bank jumped 15% in premarket trading.
This story is developing. Please check back for updates.
CNBC’s Jim Cramer on Tuesday praised Goldman Sachs for its ability to course-correct after making mistakes, citing a new report about a possible exit of a challenged business. Goldman Sachs is in discussions to sell its credit card partnership with General Motors to Barclays, according to The Wall Street Journal. A move in this direction would be part of the bank’s multiyear effort to step away from consumer banking. Last year, the Journal reported Apple and Goldman were winding down their credit card relationship. GS YTD mountain GS year to date performance. “I continue to like the stock of Goldman Sachs because … they make mistakes and then they change,” Cramer said on ” Squawk on the Street .” Shares of Goldman, where Cramer worked early in his Wall Street career, were modestly lower Tuesday. “If Goldman comes down [more], you buy the stock because when you get out of these things that are not your core competence, your stock’s going to go higher,” he said. Cramer’s Charitable Trust, the portfolio used by the CNBC Investing Club, doesn’t own Goldman but does own Morgan Stanley and Wells Fargo . The Trust also has a position in Apple.
The HSBC Holding logo is being displayed on a smartphone with HSBC visible in the background in this photo illustration taken in Brussels, Belgium, on February 20, 2024.
Jonathan Raa | Nurphoto | Getty Images
HSBC beat market expectations in its first quarter earnings report on Tuesday, and announced the surprise departure of Group Chief Executive Officer Noel Quinn.
Revenue came in at $20.8 billion, up 3% from the same period a year ago and compared with the median LSEG forecast for about $16.94 billion.
Pretax profit in the January to March period came in at $12.65 billion, falling about 2% from a year ago when profit before tax came in at $12.89 billion. Still, that figure beat the $12.61 billion estimates by analysts’ forecasts compiled by the bank.
Profit after tax income decreased to $10.84 billion — lower than the $11.03 billion seen in the first quarter of 2023.
HSBC, Europe’s largest bank by assets, has approved a first interim dividend of 10 cents per share, as well as a special dividend of 21 cents per share, following the completion of the sale of its banking business in Canada.
The company also announced the retirement of Quinn, who has been in that position for nearly five years.
“The Board would like to pay tribute to Noel’s leadership of the Company. Noel has had a long and distinguished 37-year career at the Bank and we are very grateful for his significant contribution to the Group over many years,” said Group Chairman Mark Tucker.
“During his tenure, HSBC has delivered record profits and the strongest returns in over a decade,” said Aileen Taylor, group company secretary and chief governance officer in HSBC.
Quinn will remain as Group CEO as the bank begins the process of searching for his successor. HSBC said he has agreed to remain available through to the end of his 12-month notice period — which ends on April 30, 2025 — to support the transition.
Here are the other highlights of the bank’s first quarter financial report card:
Net interest margin, a measure of lending profitability, decreased to 1.63% — compared with 1.69% a year ago.
Common equity tier 1 ratio — which measures the bank’s capital in relation to its assets — was 15.2%, compared with 14.8% in the fourth quarter of 2023.
Basic earnings per share came in at $0.54, slightly higher than $0.52 in the same period a year ago.
HSBC also reiterated its outlook for 2024, saying it remains unchanged from the guidance in February.
The bank continues to target a return on average tangible equity “in the mid-teens” for 2024, with banking net interest income of at least $41 billion, subject to global interest rate conditions.
HSBC said its CET1 capital ratio is expected to be within its medium-term target range of 14% to 14.5%, while its dividend payout ratio is targeted to be 50% for 2024, excluding material notable items and related impacts.
Following the results, shares of HSBC in Hong Kong gained 1.56%, on pace for its seventh straight day of gains.
Correction: This story has been updated to accurately reflect that HSBC’s first quarter revenue for 2024 was 3% higher than a year ago. That figure was misstated due to an editing error.
David Smith of Autonomous Research discusses why he thinks Republic First Bank is not a “canary in the coal mine” and how a higher-for-longer interest rate environment might affect the regional bank sector.
Signage shines through a window reflecting Barclays head office in Canary Wharf, London, U.K.
Bloomberg | Getty Images
LONDON — Barclays on Thursday reported first-quarter net income attributable to shareholders of £1.55 billion ($1.93 billion), beating expectations and returning the British lender to profit amid a major strategic overhaul.
Analysts polled by Reuters had expected net profit attributable to shareholders of £1.29 billion for the quarter, according to LSEG data.
Pre-tax profits, however, were down 12% to £2.28 billion from $2.6 billion a year earlier, as the bank braces to implement its extensive revamp plans.
Here are some other highlights:
First-quarter group revenue was £6.95 billion, down 4% from the same period last year.
Credit impairment charges were £513 million, compared with £524 million in the first quarter of 2023.
Common equity tier one (CET1) capital ratio, a measure of bank’s financial strength was 13.5%, down from 13.8% in the previous quarter.
Full-year return on tangible equity (RoTE) was 12.3%.
Quarterly total operating expenses were up 2% year-on-year at £4.2 billion.
Barclays reported a net loss of £111 million in the fourth quarter of 2023 due to an operational shake-up designed to reduce costs and improve efficiencies.
CEO C.S. Venkatakrishnan said the bank’s first-quarter results showed it was committed to implementing its overhaul plans, including via further investment in its U.K. consumer business and through its acquisition of Tesco Bank, which expected to complete in the fourth quarter of this year.
“We are focused on disciplined execution of the plan that we presented at our Investor Update on 20th February,” he said in a statement.
The revamp plans included a £900 million hit due to structural cost-cutting measures, which the bank said were expected to lead to gross cost savings of around £500 million in 2024, with an expected payback period of less than two years.
The overhaul saw the reorganization of the business into five operating divisions, separating the corporate and investment bank to form: Barclays U.K., Barclays U.K. Corporate Bank, Barclays Private Bank and Wealth Management, Barclays Investment Bank and Barclays U.S. Consumer Bank.
The bank also pledged to return £10 billion to shareholders between 2024 and 2026 through dividends and share buybacks.
Deutsche Bank shares were 6% higher on Thursday afternoon after the German lender reported a 10% rise in first-quarter profit, beating expectations amid an ongoing recovery in its investment banking unit.
Net profit attributable to shareholders was 1.275 billion euros ($1.365 billion) for the period, ahead of an aggregate analyst forecast of 1.23 billion euros for the period, according to LSEG data.
Deutsche Bank said this was its highest first-quarter profit since 2013. It also marks the bank’s 15th straight quarterly profit.
Group revenue rose 1% year-on-year to 7.8 billion euros, which the bank attributed to growth in commissions and fee income, along with strength in fixed income and currencies. The revenue print also came in ahead of an analyst forecast of 7.73 billion euros, according to LSEG.
Revenues at its investment bank increased 13% to 3 billion euros, following a 9% slump through full-year 2023 which had dragged down overall profit. The performance restores the division as Deutsche Bank’s highest-earning unit on growth in financing and credit trading revenue.
Other first-quarter highlights included:
Net inflows of 19 billion euros across the Private Bank and Asset Management divisions.
Credit loss provision was 439 million euros, down from 488 million in the fourth quarter of 2023.
Common equity tier one (CET1) capital ratio — a measure of bank solvency — was 13.4%, compared to 13.6% at the same time last year.
“There’s momentum in the businesses, actually across all four businesses, and we do think it’s sustainable,” Deutsche Bank Chief Financial Officer James von Moltke told CNBC’s Annette Weisbach on Thursday.
“We’re delivering on our commitments on costs and capital returns in the quarter.”
Germany’s biggest lender reported net profit of 1.3 billion euros in the prior quarter and of 1.16 billion euros in the first quarter last year.
In 2023, the bank announced it would cut 3,500 jobs over the coming years, as it targets 2.5 billion euros in operational efficiencies to boost profitability and increase shareholder returns.
JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the U.S. Senate Banking, Housing and Urban Affairs Committee oversight hearing on Wall Street firms, on Capitol Hill in Washington, D.C., on Dec. 6, 2023.
Evelyn Hockstein | Reuters
A Russian court sided with state-run lender VTB Bank in its efforts to recoup $439.5 million from JPMorgan Chase that the American lender froze in U.S. accounts after the Ukraine invasion.
The court ordered the seizure of funds in JPMorgan’s Russian accounts and “movable and immovable property,” including the bank’s stake in a Russian subsidiary, according to a court order published Wednesday.
The order came after VTB filed a suit last week in a St. Petersburg arbitration court, seeking to be made whole for funds frozen in the U.S., and asking for relief because JPMorgan has said it plans to exit Russia.
The next hearing in the Russian case is July 17.
JPMorgan declined to comment. VTB did not immediately respond to CNBC’s request for comment.
The order was the latest example of American banks getting caught between the demands of Western sanctions regimes and overseas interests. JPMorgan is the biggest U.S. bank by assets and run by veteran CEO Jamie Dimon.
Two years after Russia invaded Ukraine, the Biden administration has mounted an unprecedented set of sanctions, oil price caps and trade restrictions designed to weaken Moscow’s military machine.
On Wednesday, President Joe Biden signed into law a sweeping foreign aid bill that includes new powers for U.S. officials to locate and seize Russian assets in the U.S. It also boosted an ongoing American effort to convince European allies to release Russian state assets to assist Ukraine.
In its own lawsuit against VTB last week in the Southern District of New York, JPMorgan sought to block VTB’s effort, noting that U.S. law prohibits the bank from releasing VTB’s $439.5 million.
This leaves JPMorgan exposed to a nearly half-billion-dollar loss, for abiding by U.S. sanctions.
The American bank, seeking to block VTB’s effort, said the Russian company broke its contractual promise to seek relief in American courts, instead finding a friendlier venue in Russia.
JPMorgan said Russian courts have enabled similar efforts by Russian lenders against American or European banks at least a half dozen other times.
JPMorgan said it faced “certain and irreparable harm” from VTB’s efforts.
Mike Mayo, Wells Fargo senior bank analyst, joins ‘Squawk Box’ to discuss the state of the banking sector, why Citigroup is his top bank stock pick, impact of Citi’s restructuring, and more.
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates. The S & P 500 and Dow Jones Industrial Average dropped more than 3%, respectively, from the close on the March 27 meeting day through Tuesday’s session. The tech-heavy Nasdaq Composite experienced a more-than-4% loss during the period. The losses would have been steeper if not for the strong start to this week. On Monday, the S & P 500 and Nasdaq snapped six-day losing streaks and followed that up with additional gains Tuesday. The sell-off had dragged the market into oversold territory, according to the S & P 500 Short Range Oscillator. That prompted the Club put its arsenal of cash to work , selectively purchasing shares of high-quality companies at attractive levels. After Tuesday’s gains, the market is no longer oversold, according to the S & P Oscillator. Here are our five top-performing stocks since the March Monthly Meeting. They span four sectors, ranging from financials to tech. WFC YTD mountain Wells Fargo (WFC) year-to-date performance Wells Fargo led the way, with shares jumping 5.8% over the period. The stock received a nice boost following the bank’s first-quarter earnings release — albeit on a delayed reaction. Wells Fargo beat on the top-and-bottom lines and disclosed a sizeable increase in stock buybacks during the period compared with the fourth quarter. “Talk about a vote of confidence,” Jim Cramer said after the results, referring to the boost in buybacks. The Club also was upbeat on management’s remarks about fee-based incomes growing as a percentage of Wells Fargo’s total revenue. Jim argued that fees reduce volatility and provide a great form of annuity for the bank. GOOGL YTD mountain Alphabet (GOOGL) year-to-date performance Alphabet stock rose 4.9% since the March Monthly Meeting, placing the Google parent in second place on the gainers list. Investor sentiment improved leading up to a string of generative artificial intelligence-related announcements during the company’s cloud-computing summit , Google Cloud Next. Most notably, Alphabet on April 9 announced a new Arm -based server chip and several generative AI service offerings. The event gave the Club more assurance of the company’s ability to compete in the heated AI arms race among Big Tech players. Shares hit an all-time high of $159.41 apiece on April 11, the final day of Google Cloud Next. The stock gave back some of those gains in the sessions that followed, but it is still less than 1% below its record peak. It closed Tuesday at $158.86 per share. PANW YTD mountain Palo Alto Networks (PANW) year-to-date performance Palo Alto Networks occupies the No. 3 spot, with shares advancing 4% since the March 27 close. The gains are welcome for the stock, which continues to trade well below where it did before a brutal post-earnings sell-off in late February. Although we don’t see one individual catalyst for the recent upswing, the Club holding continues to benefit from signs of increased demand for its cybersecurity offerings as the threat environment remains elevated. On March 30, for example, AT & T said that the telecommunications company was looking into a leak that resulted in millions of customers’ data getting published on the dark web. “Buy some Palo Alto on this,” Jim said after the high-profile cybersecurity incident. “We like that [stock.]” During the Club’s March Monthly Meeting, Jim told members that he’s tempted to add to our position if the stock falls under $280 per share — and we did just that April 8, picking up 25 shares around $268 each . EL YTD mountain Estee Lauder (EL) year-to-date performance Estee Lauder stock added 2.7% since the March Monthly Meeting, occupying the fourth spot on our list. Shares of the embattled cosmetics retailer have benefited from a slew of bullish Wall Street calls. On March 28, Bank of America upgraded the stock to a buy rating from hold, arguing Estee Lauder’s earnings have bottomed. The firm also raised its price target to $170 per share from $160. A few days later, Citigroup boosted the stock’s rating to buy from hold, adding that the company’s top line also is nearing an inflection point. On Thursday, we issued an upgrade of our own and added to our position that day , with the stock having essentially given up most of its post-earnings gains earlier in 2024. Estee Lauder remains a high-risk and volatile situation, but we’re hopeful that CEO Fabrizio Freda has finally righted the ship. Freda said during Estee Lauder’s most-recent earnings report that the company would return to profitability in the second half of the fiscal 2024 year. DHR YTD mountain Danaher (DHR) year-to-date performance Danaher rounds out the Club’s top performer’s list at No. 5 — and its 7.3% surge after earnings Tuesday is the reason for its inclusion. Overall, Danaher rose 1.7% since the March gathering The life sciences and diagnostics company posted earnings beats across its three main businesses. The results indicated the turnaround in the biotech industry has arrived, which should continue to support orders for Danaher’s offerings. “I have waited and waited and waited for this company to have the inflection, and this is the inflection,” Jim said Tuesday. (Jim Cramer’s Charitable Trust is long GOOGL, WFC, PANW, EL, DHR. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Traders work on the floor of the New York Stock Exchange (NYSE) on April 10, 2024 in New York City. As new inflation data released today showed a continued rise, stocks fell across the board with the Dow falling over 400 points.
Spencer Platt | Getty Images
Stocks hit a rough patch after the Club’s March Monthly Meeting as Wall Street grappled with increasing odds of higher-for-longer interest rates.
UBS Group Chairman Colm Kelleher on Wednesday said that the Swiss bank is “not too big to fail,” as he criticized Swiss government proposals to strengthen its capital requirements.
Kelleher was delivering a speech during the UBS Annual General Meeting — the first such gathering held since the bank completed the takeover of its former rival Credit Suisse last summer.
“UBS is not too big to fail. UBS is one of the best capitalized banks in Europe, with a sustainable business model and a corresponding low-risk balance sheet,” Kelleher said.
He added that the bank was “seriously concerned” about current discussions around additional capital requirements, which he argued would curb Switzerland’s competitiveness as a financial center and increase European regulatory fragmentation.
Kelleher said the example of Credit Suisse, which collapsed in March 2023 after years of scandals and risk management failures, showed there “can be no regulatory solution for a broken business model.”
“It was not too low capital requirements that forced Credit Suisse into the historic weekend rescue,” Kelleher told the AGM.
He noted that capital requirements for “global systemically important banks” had become much stronger since the 2007-08 financial crisis, saying that effective loss-absorbing capacity worldwide was now around 20 times stronger, with UBS’s own at over $200 billion.
The Swiss government earlier this month made a range of recommendations aimed at protecting the wider economy from potential instability at UBS and three other major banks.
While it did not specify exactly what such stricter capital requirements would entail, the Swiss administration said that they should be “tightened in a targeted way” and singled out UBS as requiring a “substantial” increase.
The proposals target banks judged “too big to fail” — a term that rose in usage following the financial crisis to describe institutions that were too systemically important to national economies for governments to allow them to collapse. This de facto state backstop was widely criticized for enabling risk-taking behavior and mismanagement.
Customers shop in a Walmart Supercenter on February 20, 2024 in Hallandale Beach, Florida.
Joe Raedle | Getty Images News | Getty Images
Walmart’s majority-owned fintech startup One has begun offering buy now, pay later loans for big-ticket items at some of the retailer’s more than 4,600 U.S. stores, CNBC has learned.
The move puts One in direct competition with Affirm, the BNPL leader and exclusive provider of installment loans for Walmart customers since 2019. It’s a relationship that the Bentonville, Arkansas, retailer expanded recently, introducing Affirm as a payment option at Walmart self-checkout kiosks.
It also likely signals that a battle is brewing in the store aisles and ecommerce portals of America’s largest retailer. At stake is the role of a wide spectrum of players, from fintech firms to card companies and established banks.
One’s push into lending is the clearest sign yet of its ambition to become a financial superapp, a mobile one-stop shop for saving, spending and borrowing money.
Since it burst onto the scene in 2021, luring Goldman Sachs veteran Omer Ismail as CEO, the fintech startup has intrigued and threatened a financial landscape dominated by banks — and poached talent from more established lenders and payments firms.
But the company, based out of a cramped Manhattan WeWork space, has operated mostly in stealth mode while developing its early products, including a debit account released in 2022.
Now, One is going head-to-head with some of Walmart’s existing partners like Affirm who helped the retail giant generate $648 billion in revenue last year.
Walmart’s Fintech startup One is now offering BNPL loans in Secaucus, New Jersey.
Hugh Son | CNBC
On a recent visit by CNBC to a New Jersey Walmart location, ads for both One and Affirm vied for attention among the Apple products and Android smartphones in the store’s electronics section.
Offerings from both One and Affirm were available at checkout, and loans from either provider were available for purchases starting at around $100 and costing as much as several thousand dollars at an annual interest rate of between 10% to 36%, according to their respective websites.
Electronics, jewelry, power tools and automotive accessories are eligible for the loans, while groceries, alcohol and weapons are not.
Buy now, pay later has gained popularity with consumers for everyday items as well as larger purchases. From January through March of this year, BNPL drove $19.2 billion in online spending, according to Adobe Analytics. That’s a 12% year-over-year increase.
Walmart and One declined to comment for this article.
One’s expanding role at Walmart raises the possibility that the company could force Affirm, Capital One and other third parties out of some of the most coveted partnerships in American retail, according to industry experts.
“I have to imagine the goal is to have all this stuff, whether it’s a credit card, buy now, pay later loans or remittances, to have it all unified in an app under a single brand, delivered online and through Walmart’s physical footprint,” said Jason Mikula, a consultant formerly employed at Goldman’s consumer division.
Affirm declined to comment about its Walmart partnership. Shares of Affirm climbed 2% Tuesday, rebounding after falling more than 8% in premarket activity.
For Walmart, One is part of its broader effort to develop new revenue sources beyond its retail stores in areas including finance and health care, following rival Amazon’s playbook with cloud computing and streaming, among other segments. Walmart’s newer businesses have higher margins than retail and are a part of its plan to grow profits faster than sales.
In February, Walmart said it was buying TV maker Vizio for $2.3 billion to boost its advertising business, another growth area for the retailer.
When it comes to finance, One is just Walmart’s latest attempt to break into the banking business. Starting in the 1990s, Walmart made repeated efforts to enter the industry through direct ownership of a banking arm, each time getting blocked by lawmakers and industry groups concerned that a “Bank of Walmart” would crush small lenders and squeeze big ones.
To sidestep those concerns, Walmart adopted a more arms-length approach this time around. For One, the retailer created a joint venture with investment firm firm Ribbit Capital — known for backing fintech firms including Robinhood, Credit Karma and Affirm — and staffed the business with executives from across finance.
Walmart has not disclosed the size of its investment in One.
The startup has said that it makes decisions independent of Walmart, though its board includes Walmart U.S. CEO, John Furner, and its finance chief, John David Rainey.
One doesn’t have a banking license, but partners with Coastal Community Bank for the debit card and installment loans.
After its failed early attempts in banking, Walmart pursued a partnership strategy, teaming up with a constellation of providers, including Capital One, Synchrony, MoneyGram, Green Dot, and more recently, Affirm. Leaning on partners, the retailer opened thousands of physical MoneyCenter locations within its stores to offer check cashing, sending and receiving payments, and tax services.
But Walmart and One executives have made no secret of their ambition to become a major player in financial services by leapfrogging existing players with a clean-slate effort.
One’s no-fee approach is especially relevant to low- and middle-income Americans who are “underserved financially,” Rainey, a former PayPal executive, noted during a December conference.
“We see a lot of that customer demographic, so I think it gives us the ability to participate in this space in maybe a way that others don’t,” Rainey said. “We can digitize a lot of the services that we do physically today. One is the platform for that.”
One could generate roughly $1.6 billion in annual revenue from debit cards and lending in the near term, and more than $4 billion if it expands into investing and other areas, according to Morgan Stanley.
Walmart can use its scale to grow One in other ways. It is the largest private employer in the U.S. with about 1.6 million employees, and it already offers its workers early access to wages if they sign up for a corporate version of One.
There are signs that One is making a deeper push into lending beyond installment loans.
Walmart recently prevailed in a legal dispute with Capital One, allowing the retailer to end its credit-card partnership years ahead of schedule. Walmart sued Capital One last year, alleging that its exclusive partnership with the card issuer was void after it failed to live up to contractual obligations around customer service, assertions that Capital One denied.
The lawsuit led to speculation that Walmart intends to have One take over management of the retailer’s co-branded and store cards. In fact, in legal filings Capital One itself alleged that Walmart’s rationale was less about servicing complaints and more about moving transactions to a company it owns.
“Upon information and belief, Walmart intends to offer its branded credit cards through One in the future,” Capital One said last year in response to Walmart’s suit. “With One, Walmart is positioning itself to compete directly with Capital One to provide credit and payment products to Walmart customers.”
A Capital One Walmart credit card sign is seen at a store in Mountain View, California, United States on Tuesday, November 19, 2019.
Yichuan Cao | Nurphoto | Getty Images
Capital One said last month that it could appeal the decision. The company declined to comment further.
Meanwhile, Walmart said last year when its lawsuit became public that it would soon announce a new credit card option with “meaningful benefits and rewards.”
One has obtained lending licenses that allow it to operate in nearly every U.S. state, according to filings and its website. The company’s app tells users that credit building and credit score monitoring services are coming soon.
And while One’s expansion threatens to supersede Walmart’s existing financial partners, Walmart’s efforts could also be seen as defensive.
Fintech players including Block’s Cash App, PayPal and Chime dominate account growth among people who switch bank accounts and have made inroads with Walmart’s core demographic. The three services made up 60% of digital player signups last year, according to data and consultancy firm Curinos.
But One has the advantage of being majority owned by a company whose customers make more than 200 million visits a week.
It can offer them enticements including 3% cashback on Walmart purchases and a savings account that pays 5% interest annually, far higher than most banks, according to customer emails from One.
Those terms keep customers spending and saving within the Walmart ecosystem and helps the retailer better understand them, Morgan Stanley analysts said in a 2022 research note.
“One has access to Walmart’s sizable and sticky customer base, the largest in retail,” the analysts wrote. “This captive and underserved customer base gives One a leg up vs. other fintechs.”
There are still some attractive yields to be found on certificates of deposits, including from some of the biggest banks in the U.S. For instance, JPMorgan right now is paying out an annual percentage yield of 5.4% on a one-year CD, via Fidelity Investments. Goldman Sachs , Morgan Stanley and Bank of America all have one-year offerings with yields of at least 5%, according to Fidelity’s website . They are what is known as brokered CDs, which are purchased through a brokerage firm like Fidelity, Schwab or Vanguard . While buyers can get bank CDs directly from the institution, they get a wide range of issuer options to choose from when buying through a brokerage firm. That means there may potentially be an opportunity to snag some additional yield. “From our experience, the brokered CD market is more competitive,” said Richard Carter, vice president of fixed income products and services at Fidelity. The firm has some 180 different brokered CDs available at different maturities, he said. Like traditional CDs, brokered CDs are offered in different maturities. They are also insured by the Federal Deposit Insurance Corp. up to $250,000 per depositor , per bank and per ownership category. Like their smaller counterparts, big banks may also offer CDs to raise deposits pretty quickly and may target particular parts of the yield curve, Carter said. However, buyers should be aware of some key differences between brokered CDs and their traditional counterparts. For one, brokered CDs may be callable — meaning the issuing intuition can call the CD before its maturity date. For instance, JPMorgan’s one-year CD, with its 5.4% yield, can be called as early as Oct. 30, according to Fidelity’s website. While you’ll get your initial deposit back, there’s a chance you could earn that interest for a shorter period of time than expected. In the one-year category, Morgan Stanley Private Bank and Bank of America are not callable. Goldman Sachs has two new issue CDs offered — one with a 5.15% rate that is callable as early as July 30 and one with a 5% rate that is not callable. “Where it causes a real problem is on a longer-term CD,” explained Greg McBride, chief financial analyst at Bankrate.com. “You think you locked into a five-year CD and 12 or 18 months later it gets called. You get your money back and have to reinvest at a time when interest rates are lower.” It’s also important to understand your time frame before you buy a CD, whether from a bank or a brokerage firm. With bank CDs, you’ll pay a penalty if you want your money back before maturity. That penalty is stated at the outset when you buy the CD. With a brokered CD, you’ll have to sell it on the secondary market — and you may lose some of your principal. “What you get depends on what another investor is willing to pay for it,” McBride said. “If rates move against you, you can lose big, especially on a longer-term CD.” In addition, you may have to pay a transaction fee. In Fidelity’s case, it is $1 per $1,000 CD to sell your CD on the secondary market. A brokered CD also doesn’t necessarily mean a higher yield, McBride said. He suggests looking at top-yielding bank CDs, which he said tend to be pretty comparable. Those choosing brokered CDs may find it convenient if they already have investments at a specific brokerage firm, so all their accounts are in one place. In addition, for those who who want to invest more than the FDIC limit can buy CDs from multiple issuers. You can also easily build a CD ladder, which staggers maturities, said Carter. “In this world of uncertainty, another way of hedging risk is a ladder,” he said. “Some of the money is out into the future — if rates were to fall you have that locked in,” he added. “If rates were to rise, you have the shorter maturities on the ladder, which gives you the chance — if you want — to reinvest that principal.” Depending on your time frame, you may consider a one-year ladder with CD maturities three months apart, a two-year ladder with CD maturities six months apart, or a five-year ladder, with maturities one year apart, he said.
Nicola Willis, finance minister of New Zealand, discusses the country’s inflation forecast and what the government and central bank are doing to get inflation back into the target range.
Kipp DeVeer, head of Ares Credit Group, joins ‘Closing Bell Overtime’ to talk working with banks, commercial real estate exposure, his take on Fed rate cuts and more.
Every weekday the CNBC Investing Club with Jim Cramer holds a “Morning Meeting” livestream at 10:20 a.m. ET. Here’s a recap of Wednesday’s key moments. U.S. stocks edged lower Wednesday following a three-session losing streak for the S & P 500 . Investor concerns that the Federal Reserve will leave interest rates higher for longer and escalating tensions in the Middle East have increased volatility. Jim Cramer said Wednesday to focus on earnings rather than speculating on the central bank’s next policy move. He stressed that company financials give investors better indications of a stock’s future performance. The S & P 500 Short Range Oscillator is signaling a solidly oversold stock market. When that happens, the Club looks to buy shares of high-quality names at a discount. We put cash to work Wednesday, adding to our position in Abbott Laboratories amid a post-earnings sell-off. This week, the Club also purchased shares of electronics retailer Best Buy on Monday and Tuesday. We added shares of beer maker Constellation Brands and oil and natural gas producer Coterra Energy on Tuesday. Both of our financial names released solid earnings. Morgan Stanley shot up 1.5% on Wednesday. The stock added to prior session gains on largely better-than-expected quarterly results , featuring a big rebound in investment banking, Wells Fargo shares have pretty been flat since its upbeat earnings release last Friday. Still, we like that the bank’s fee-based revenues were strong, and that management seems to be pushing into these kinds of offerings. “This will be the ultimate fee-based bank,” Jim said. (Jim Cramer’s Charitable Trust is long WFC, MS, ABT, BBY, CTRA, STZ. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Investors will parse through regional bank results this week to deliberate how to trade a sector that has been weighed down by the prospect of higher-for-longer interest rates. Regional bank stocks have slid in anticipation of their results this week, with the SPDR S & P Regional Banking ETF (KRE) sliding by more than 7% this month. A slew of results are on deck this week, such as from U.S. Bancorp and KeyCorp , among others. For investors, what’s key this earnings season is the impact elevated interest rates may have on regional banks’ net interest income, as well as commentary around exposure to commercial real estate after New York Community Bank’s troubles this year. Net interest income is the difference between the revenue generated from loans and the interest paid on deposits. “What we’ve seen is deposit pressures escalate more than previously anticipated,” said Alexander Yokum, an analyst at CFRA Research, who has a neutral view on regional banks. “A lot of these regional banks, they have less deposits, so if they lose deposits, it can really impact their operating results,” Yokum said. “So, higher for longer, I think for a lot of regional banks, would be negative.” Thus far, reactions to results from the overall banking sector have been mixed. JPMorgan Chase shares dropped after the bank issued disappointing guidance on 2024 interest income, while Goldman Sachs shares climbed after the firm topped first-quarter estimates. M & T Bank shares rose this week post-earnings, while PNC shares on Tuesday dropped after its results. But some on Wall Street said they remain upbeat. Earlier this month, Goldman Sachs’ Ryan M. Nash said results are likely to be mixed, but that they “should mark the bottom (or close to it for most).” He continued, “The move from 4-6 cuts down to 2-3 shouldn’t have a meaningful impact on NII guides.” Bank of America’s Ebrahim H. Poonawala said this month he expects first-quarter earnings results to demonstrate resiliency, adding “regional banks with strong deposit franchises should be well-suited to compete in a structurally higher rate backdrop.” For investors, CFRA’s Yokum maintained that it’s important to remain a stock picker in the sector, adding they should choose firms that are well-capitalized with robust reserves. He also likes banks that are reducing their commercial real estate exposure. “For banks, I think it’s pretty important to be company-specific,” Yokum said. “I would really only pick the ones that you know, I feel like are strong from multiple categories.” Here’s what Wall Street analysts expect from regional banks this season. U.S. Bancorp U.S. Bancorp , which is set to report earnings on Wednesday, is rated as buy by a majority of analysts covering the stock, according to LSEG data. But some analysts worry about the setup for the stock going forward. “USB’s capital overhang has largely been alleviated with the Fed releasing USB from requirements to comply with Category II requirements by year-end 2024,” Citi’s Keith Horowitz wrote in an April note. “However, we continue to see downside to consensus estimates and USB trades at a relative premium on our implied cost of equity metric as the stock is viewed as high-quality and defensive, so we see better risk/reward elsewhere.” Horowitz has a neutral rating on U.S. Bank, as well as a price target of $45. The stock is down by more than 5% this year. Huntington Bancshares Huntington Bancshares is expected to release earnings on Friday. Shares of the Ohio-based firm have gained more than 2% this year, lagging the broader market. Analysts on average have a buy rating on the stock. Bank of America upgraded Huntington Bancshares to buy recently, saying the consensus view on Wall Street fails to appreciate the growth momentum in the bank. “We view HBAN as well positioned to navigate multiple macro-economic outcomes,” the firm’s Poonawala wrote in an April note. “Moreover, franchise investments and footprint should drive superior growth relative to most super-regional bank peers.” KeyCorp, Comerica KeyCorp and Comerica are both set to report earnings this week. Shares of Comerica and KeyCorp are down this year by 10% and 1%, respectively. Additionally, Comerica has a hold rating, according to CNBC’s analyst consensus tool. “Considering that their long-term rates are rising again, these are two banks that we think could have a tough couple of quarters here,” CFRA’s Yokum said. “They both do have pretty significant unrealized losses, and their net interest margins have gotten hit pretty hard.” “And they’ve seen pretty substantial non-interest bearing deposit outflows as well,” Yokum added. Other regional banks reporting this week include Fifth Third Bancorp .
European Central Bank President Christine Lagarde on Tuesday said the central bank remains on course to cut interest rates in the near term, subject to any major shocks.
Lagarde said the ECB would monitor oil prices “very closely” amid elevated fears of a spillover conflict in the Middle East. However, since Iran’s unprecedented air attack on Israel over the weekend, she said the oil price reaction had been “relatively moderate.”
Her comments come shortly after the central bank gave its clearest indication to date that it could start cutting interest rates during its June meeting.
“We are observing a disinflationary process that is moving according to our expectations,” Lagarde told CNBC’s Sara Eisen on the sidelines of the IMF Spring Meetings.
“We just need to build a bit more confidence in this disinflationary process but if it moves according to our expectations, if we don’t have a major shock in development, we are heading towards a moment where we have to moderate the restrictive monetary policy,” Lagarde said.
“As I said, subject to no development of additional shock, it will be time to moderate the restrictive monetary policy in reasonably short order,” she added.
The ECB on Thursday held interest rates steady at a record high for the fifth consecutive meeting, but signaled that cooling inflation means it could begin trimming soon.
In a shift from previous language, the ECB said “it would be appropriate” to lower its 4% deposit rate if underlying price pressures and the impact of previous rate hikes were to boost confidence that inflation is falling back toward its 2% target “in a sustained manner.”
The central bank had previously made no direct reference to loosening monetary policy in its prior communiques.
Asked whether a June rate cut might be followed by subsequent reductions, Lagarde replied, “I have been extremely clear on that and I have said deliberately we are not pre-committing to any rate path.”
“There is huge uncertainty out there. … We have to be attentive to those developments, we have to look at the data, we have to draw conclusions from those data.”
Lagarde declined to comment when asked whether three ECB rate cuts this year was a reasonable expectation for market participants.
Policymakers and economists have zeroed in on June as the month when rates could start to be reduced, after the ECB trimmed its medium-term inflation forecast. Price rises in the euro zone have since cooled more than expected in March.
Asked about the central bank’s confidence in inflation continuing to fall in the wake of rising commodity prices, particularly should oil prices spike amid geopolitical tensions, Lagarde replied, “All commodity prices have an impact, and we have to be extremely attentive to those movements.”
“Clearly on energy and on food, it has a direct and rapid impact,” she added.
Earlier on Tuesday, ECB policymaker Olli Rehn said that the prospects for a June rate cut hinge upon inflation falling as expected, noting that the biggest risks to the ECB’s monetary policy stem from Iran-Israel tensions and the ongoing Russia-Ukraine war.
“As summer approaches we can start reducing the level of restriction in monetary policy, provided that inflation continues to fall as projected,” Rehn, who serves as the governor of the Bank of Finland, said in a statement.
“The biggest risks stem from geopolitics, both the deteriorating situation in Ukraine and the possible escalation of the Middle East conflict, with all their ramifications,” he added.
Israeli forces have pledged to respond to Iran’s large-scale air attack on Israel on Saturday. World leaders have called for the “utmost degree of restraint” in the aftermath of the weekend attack, amid fears of an escalation of the conflict in the Middle East.
Speculation that the ECB could soon start cutting rates comes even as investors have slashed their bets on Federal Reserve rate reductions. Traders now ascribe a 20% likelihood of a Fed rate cut in June, after yet another inflation print showed consumer prices remain sticky.
