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  • Commerzbank board member warns of significant job losses with a hostile UniCredit takeover

    Commerzbank board member warns of significant job losses with a hostile UniCredit takeover

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    15 February 2024, Hesse, Frankfurt/M.: The lettering “Commerzbank” can be seen on the Commerzbank Tower in the center of the banking city. Boosted by the turnaround in interest rates, Commerzbank is aiming for another profit increase after a record year. Photo: Helmut Fricke/dpa (Photo by Helmut Fricke/picture alliance via Getty Images)

    Picture Alliance | Picture Alliance | Getty Images

    Two-thirds of the jobs at Commerzbank could disappear if UniCredit successfully carries out a hostile takeover of the German lender, a Commerzbank supervisory board member warned on Tuesday.

    Stefan Wittmann, who is also a senior official at German trade union Verdi, told CNBC’s Annette Weisbach that “we certainly hope we can avoid” a hostile takeover by the Italian bank. Witmann said Commerzbank’s board had called on the German government to carry out an internal review of the possible takeover, which he hopes will give the bank a six-month period to take stock of the situation.

    “But if it [a hostile takeover] is unavoidable, we think that two-thirds of jobs will disappear, that there will be another significant cut in the branches,” he said, according to a translation.

    “We will see in particular that UniCredit does not want all Commerzbank customers at all, but that it focuses on the supposedly best customers, namely the wealthy customers,” he added.

    Berlin, which was the largest shareholder of Commerzbank after it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis, is likely to play a key role in any potential merger between the banks.

    “We are actually concerned with our economic and industrial responsibility. As far as the workforce is concerned, which trade unions are of course particularly focused on, they would always lose out in the merger, regardless of the point in time,” Wittmann said. The bank has yet to respond to a request for comment on Wittmann’s statements.

    UniCredit announced Monday it had increased its stake in the German lender to around 21% and submitted a request to boost that holding to up to 29.9%, signaling a takeover bid might be in the cards. Earlier this month, the Italian bank took a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the German government.

    UniCredit believes substantial value can be unlocked within Commerzbank, Germany’s second-largest lender, but it said that further action is required for that value to be “crystalized.”

    German Chancellor Olaf Scholz criticized UniCredit’s move on Monday, saying, “unfriendly attacks, hostile takeovers are not a good thing for banks and that is why the German government has clearly positioned itself in this direction,” Reuters reported.

    ‘Very tense’

    Commerzbank’s supervisory board is due to meet this week to discuss UniCredit’s stake, people familiar with the matter who asked to remain anonymous previously told CNBC.

    Wittmann said the mood is currently “very tense” within the company, adding that the bank was surprised by UniCredit’s announcement on Monday, which he described as a “180 degree-turn within 48 hours.”

    “[UniCredit CEO Andrea Orcel] last spoke on Friday that he wanted a friendly takeover in agreement with all stakeholders and politicians. And yesterday we were surprised by his hostile takeover attempt. That doesn’t add up,” Wittmann said.

    The supervisory board member explained that the two main reasons to regard a potential merger in a critical light are the lack of a banking union in Europe, and the fact that UniCredit has “absorbed itself with Italian government bonds in recent years.”

    He questioned what might happen should geopolitical tensions or “upheavals” impact UniCredit’s availability of capital to finance Commerzbank’s industry.

    In response to the 2008 financial crisis, the European Commission announced plans to create a banking union to improve the regulation and supervision of banks across the region.

    15 February 2024, Hesse, Frankfurt/M.: The lettering "Commerzbank" can be seen on the Commerzbank Tower in the center of the banking city. Boosted by the turnaround in interest rates, Commerzbank is aiming for another profit increase after a record year. Photo: Helmut Fricke/dpa (Photo by Helmut Fricke/picture alliance via Getty Images)

    Commerzbank board member warns of significant job losses with a hostile UniCredit takeover

    Economist and former European Central Bank Governor Mario Draghi flagged in a recent report that banks in Europe face regulatory hurdles which “constrain their capacity to lend,” also citing the “incomplete” banking union as one factor that impacts competitiveness for the region’s banks.

    “We have always spoken out, including as employee representatives on the Supervisory Board, that there can and should be mergers at [a] European level, but only when the banking union is in place. And that is just our second point of criticism, that we say: create the rules of the game and the guardrails first, and then do it sensibly when it is clear which playing field we are on,” Wittmann said.

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  • Wall Street hovers near record highs. Here’s why we want to see choppiness

    Wall Street hovers near record highs. Here’s why we want to see choppiness

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  • UniCredit boosts its stake in Commerzbank, applies to own up to 29.9% of the German bank

    UniCredit boosts its stake in Commerzbank, applies to own up to 29.9% of the German bank

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    Commerzbank headquarters in the financial district of Frankfurt, Germany, on Sept. 12, 2024.

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    UniCredit announced on Monday it had increased its stake in German lender Commerzbank to around 21% and submitted a request to boost the holding to up to 29.9%.

    The Italian bank acquired the additional Commerzbank shares through financial instruments, it said in a Monday statement. Earlier this month, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the German government.

    “UniCredit believes that there is substantial value that can be unlocked within Commerzbank, either stand-alone or within UniCredit, for the benefit of Germany and the bank’s wider stakeholders. However, as was the case for UniCredit, such potential requires action for it to be crystalized,” the bank said on Monday.

    It added that it has hedged the majority of its exposure to Commerzbank in order to provide UniCredit with “full flexibility and optionality to either retain its shareholding, sell its participation with a floored downside, or increase the stake further.”

    Its next move will depend on engagement with Commerzbank’s management and supervisory boards as well as its “wider stakeholders in Germany,” the bank said.

    Berlin has been a major shareholder of Commerzbank since it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis.

    German government officials met last Friday to discuss the state’s shareholding in Commerzbank. They concluded that the bank is a “stable and profitable institute” and its “strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding,” the agency said in a Google-translated statement.

    Shares of Commerzbank fell sharply in early trade Monday on this news, but pared losses after UniCredit announced it had increased its position and applied to acquire more.

    Commerzbank shares were down 0.4% by 11:50 a.m. London time, while UniCredit shares fell 2.3%.

    The state is likely to play a key role in any potential takeover of the German bank. Last week, UniCredit CEO Andrea Orcel told local media “it would be an aggressive move” for his firm to launch an unsolicited tender offer to buy out other investors in Commerzbank, Reuters reported.

    Orcel also cited the German government’s “trust” in the Italian bank as the reason why it was able to buy 4.5% of the state’s stake in Commerzbank.

    On Monday UniCredit noted that it has been present in Germany for nearly 20 years and stressed the importance of a “strong banking union” in Europe as being key for the bloc’s economic success.

    Analysts are hoping that a move from UniCredit will encourage more cross-border consolidation in Europe’s banking sector which is often seem as more fragmented in comparison to the U.S.

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  • The next banking crisis could be spurred by climate change

    The next banking crisis could be spurred by climate change

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    America’s smallest banks face potentially destructive losses from climate-related weather disasters, according to a first-of-its-kind report from a climate change nonprofit. And they’re not even aware of the risk.

    Property damage from floods, wind, storm surges, hail, or wildfires threatens a collective $2.4 billion across nearly 200 national banks, averaging 1.5% of these banks’ total portfolio value, according to First Street. Most of this risk is concentrated amid small regional or community banks. In fact, nearly one in three regional banks face significant climate risk. But large institutions aren’t immune, with one in four facing such risks too, the report found.

    “Risk exposure varies, but no matter the size of the institution, all banks had some level of climate risk within their lending footprint,” Jeremy Porter, First Street’s head of climate implications, told Fortune. “The most vulnerable were regional, small, and community banks with highly concentrated portfolios in areas prone to flooding, wildfires, or hurricanes. However, even some of the larger banks faced significant enough risk to merit further scrutiny.” 

    First Street conducted its analysis by looking at extreme weather risks in banks’ physical locations and using it as a proxy for the commercial and residential properties on which banks have issued loans. 

    Nearly one-third of the nation’s banks are exposed to climate-related risks that could reduce the value of their holdings by 1%, a threshold the Securities and Exchange Commission has defined as material. 

    “If you have any line item, as a publicly traded company, with the potential to lose 1% of value… you have to report it,” First Street CEO Matthew Eby said. “On average, every single one of these small banks and community banks hold so much risk, they [would] all have to report it.” 

    Why banks don’t know 

    The SEC’s 1% rule is currently on hold while it faces legal challenges—but regardless, it and other financial reporting requirements exempt small banks. Experts say many of these institutions likely don’t know just how risky their portfolios are. And the ballooning costs of weather-related disasters, which are expected to rise dramatically as climate change worsens, show why it’s critical to understand such risks. Since the 1980s, floods, wildfires, hurricanes, and other weather disasters have caused an ever-rising amount of financial damage, much of it in areas previously immune to weather disasters. 

    Hurricane Debby, which pummeled Florida and the Carolinas last month before moving up the East Coast, caused an estimated $1.4 billion of property losses in the U.S. and over $2 billion in Canada, according to estimates. (It was the costliest event in the history of Quebec, Reinsurance News noted.) But an analysis by First Street found that nearly 8 in 10 of the damage was outside of historical FEMA flood zones, meaning the affected properties were unlikely to have flood insurance, and their owners less able to weather a catastrophic financial loss.

    Repeated across hundreds or thousands of properties, such financial losses could spell disaster for small banks that have outstanding loans concentrated in a specific area. One bank flagged as high-risk by First Street has most of its branches across coastal New England, a region that has seen devastating back-to-back floods for the past two years and where climate change is expected to exacerbate extreme weather.

    “If you lost, after insurance, 14 or 15% of your residential real estate portfolio or commercial real estate portfolio, there’s no way you have the reserves to withstand that, so you’re talking about potential bank failure,” Eby said.

    He added, “financial institutions are really the big concern, because if they fail in financial crises, that impacts everyone else, as opposed to just a company failing by itself.”  

    Unknown unknowns

    While climate risk is a growing concern for banks of all sizes, the smallest institutions are least able to establish and price that risk, said Clifford Rossi, a former Citigroup risk officer who now directs the Smith Enterprise Risk Consortium at the University of Maryland. 

    “So many other things are affecting small banks—they’re dealing with competitive pressure from the big guys that affect economies of scale, they’re fixated on how they’re managing their assets, interest rates are declining… those things are top of mind,” he said. 

    Rossi questioned First Street’s methodology and cautioned against putting numerical estimates on bank losses based on branch locations, saying they could provide wildly varying figures. 

    “There’s certainly a degree of risk in those portfolios, but we don’t know how much,” he said. 

    Every bank should do a loan-level analysis of their portfolio by putting data on addresses, longitude, latitude, and commercial real estate into a climate model to assess the physical risk, he added.

    When it comes to estimates, he warned, “We need to be careful about saying the sky is falling when we still don’t have the best analysis in town.”

    But that kind of analysis is time-consuming and difficult, even for the largest institutions. The Federal Reserve this spring published the results of a test to determine how aware America’s six largest banks—Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo—were of their climate risks. 

    The answer: Not very.

    According to the banks, they didn’t have reliable information on the types of buildings they held, their insurance coverage, weather exposure, or climate-modeling data. 

    The new analysis “underscores the need for all banks, financial institutions, and asset owners to proactively incorporate climate risk into their broader risk management frameworks,” First Street’s Porter said.  

    “Climate risk is present in these portfolios—and it’s measurable. The Federal Reserve, the SEC, and other regulatory bodies are already acknowledging this risk through stress tests, and it’s only a matter of time before mandatory reporting becomes standard practice.”

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    Irina Ivanova

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  • American Airlines in talks to pick Citigroup over rival bank Barclays for crucial credit card deal, sources say

    American Airlines in talks to pick Citigroup over rival bank Barclays for crucial credit card deal, sources say

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    An American Airlines’ Embraer E175LR (front), an American Airlines’ Boeing 737 (C) and an American Airlines’ Boeing 737 are seen parked at LaGuardia Airport in Queens, New York on May 24, 2024. 

    Charly Triballeau | AFP | Getty Images

    American Airlines is in talks to make Citigroup its exclusive credit card partner, dropping rival issuer Barclays from a partnership that dates back to the airline’s 2013 takeover of US Airways, said people with knowledge of the negotiations.

    American has been working with banks and card networks on a new long-term deal for months with the aim of consolidating its business with a single issuer to boost the revenue haul from its loyalty program, according to the people.

    Talks are ongoing, and the timing of an agreement, which would be subject to regulatory approval, is unknown, said the people, who declined to be identified speaking about a confidential process.

    Banks’ co-brand deals with airlines, retailers and hotel chains are some of the most hotly contested negotiations in the industry. While they give the issuing bank a captive audience of millions of loyal customers who spend billions of dollars a year, the details of the arrangements can make a huge difference in how profitable it is for either party.

    Big brands have been driving harder bargains in recent years, demanding a bigger slice of revenue from interest and fees, for example. Meanwhile, banks have been pushing back or exiting the space entirely, saying that rising card losses, scrutiny from the Consumer Financial Protection Bureau and higher capital costs make for tight margins.

    Airlines rely on card programs to help them stay afloat, earning billions of dollars a year from banks in exchange for miles that customers earn when they use their cards. Those partnerships were crucial during the pandemic, when travel demand dried up but consumers kept spending and earning miles on their cards. Carriers have said growth in card spending has far exceeded that of passenger revenue in recent years.

    While it says it has the largest loyalty program, American was out-earned by Delta there, which made nearly $7 billion in payments from its American Express card partnership last year, compared with $5.2 billion for American.

    “We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to improve the products and services we provide our mutual customers and bring even more value to the AAdvantage program,” American said in a statement.

    Delays, regulatory risk

    It’s still possible that objections from U.S. regulators, including the Department of Transportation, could further delay or even scuttle a contract between American Airlines and Citigroup, leaving the current arrangement that includes Barclays intact, according to one of the people familiar with the process.

    If the deal between American and Citigroup is consummated, it would end an unusual partnership in the credit card world.

    Most brands settle with a single issuer, but when American merged with US Airways in 2013, it kept longtime issuer Citigroup on board and added US Airways’ card partner Barclays.

    American renewed both relationships in 2016, giving each bank specific channels to market their cards. Citi was allowed to pitch its cards online, via direct mail and airport lounges, while Barclays was relegated to on-flight solicitations.

    ‘Actively working’

    When the relationship came up for renewal again in the past year, Citigroup had good footing to prevail over the smaller Barclays.

    Run by CEO Jane Fraser since 2021, Citigroup has the more profitable side of the AA business; their customers tend to spend far more and have lower default rates than Barclays customers, one of the people said.

    Any renewal contract is likely to be seven to 10 years in length, which would give Citigroup time to recoup the costs of porting over Barclays customers and other investments it would need to make, this person said. Banks tend to earn most of the money from these arrangements in the back half of the deals.

    With this and other large partnerships, Fraser has been pushing Citigroup to aim bigger in a bid to improve the profitability of the card business, said the people familiar.  

    “We are always actively working with our partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth,” a Citigroup spokesperson told CNBC.

    Meanwhile, Barclays executives told investors earlier this year that they aimed to diversify their co-branded card portfolio away from airlines, for instance, through added partnerships with retailers and tech companies.

    Barclays declined to comment for this article.

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  • We’re trimming a bank stock on a post-Fed pop and still considering swapping it for another

    We’re trimming a bank stock on a post-Fed pop and still considering swapping it for another

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  • What buying Commerzbank would mean for UniCredit — and the banking sector

    What buying Commerzbank would mean for UniCredit — and the banking sector

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    The Commerzbank building (second from right) in Frankfurt am Main, western Germany, on Sept. 25, 2023.

    Kirill Kudryavtsev | Afp | Getty Images

    UniCredit‘s move to take a stake in German lender Commerzbank is raising questions on whether a long awaited cross-border merger could spur more acquisitions and shake up the European banking sector.

    Last week, UniCredit announced it had taken a 9% stake in Commerzbank, confirming that half of this shareholding was acquired from the government. Berlin has been a major shareholder of Commerzbank since it injected 18.2 billion euros ($20.2 billion) to rescue the lender during the 2008 financial crisis.

    UniCredit also expressed an interest in a merger of the two, with the Italian bank’s CEO Andrea Orcel telling Bloomberg TV that “all options are on the table,” citing the possibility that it either takes no further action or buys in the open market. Commerzbank has given a more lukewarm response to the merger proposals.

    Orcel said the Italian bank was able to buy 4.5% of the state’s stake in Commerzbank because the government trusts UniCredit, Reuters reported Thursday citing local media. When asked if UniCredit would launch an unsolicited tender offer to buy out other investors in Commerzbank, the CEO told the Italian paper: “No, it would be an aggressive move.”

    But analysts have welcomed the move by UniCredit, particularly because a tie-up might spur similar activity in Europe’s banking sector — which is often seen as more fragmented than in the U.S., with regulatory hurdles and legacy issues providing obstacles to mega deals.

    Right fit for UniCredit?

    So far, the market has responded positively to UniCredit’s move. Commerzbank shares jumped 20% on the day UniCredit’s stake was announced. Shares of the German lender are up around 48% so far this year and added another 3% on Wednesday.

    Investors appreciate the geographical overlap between the two banks, the consistency in financials and an assumption that the transaction is “collaborative” in nature, UBS analysts, led by Ignacio Cerezo, said in a research note last week. According to UBS, the ball is now in Commerzbank’s court.

    Analysts at Berenberg said in a note last week that a potential merger deal, “should, in theory, have a limited effect on UniCredit’s capital distribution plans.” They said that while there is “strategic merit” in a deal, the immediate financial benefits might be modest for UniCredit, with potential risks from the cross-border deal diminishing some of the benefit.

    UniCredit's Orcel is targeting Commerzbank at the 'best moment,' analyst says

    David Benamou, chief investment officer at Axiom Alternative Investments, hailed Orcel’s decision to take a stake in Commerzbank as a “fantastic move” that makes sense because of the increase in German market share it would grant UniCredit.

    As Commerzbank “missed on costs in Q2 [the second quarter], currently it’s at a very low valuation, so the moment [Orcel] stepped in, is probably one of the best moments he could have,” Benamou told CNBC’s “Squawk Box Europe” last week.

    When asked how imminent a takeover was in the short term, Benamou suggested it was possible, saying, “they will probably come to it.”

    According to Arnaud Journois, senior vice president of European Financial Institution Ratings at Morningstar DBRS, UniCredit is already on its way to becoming a leading bank in Europe.

    He told CNBC’s “Street Signs Europe” Wednesday that there was a “double logic” behind UniCredit’s move as it enables the Italian lender to access both the German and Polish markets where Commerzbank currently operates.

    “UniCredit has been very active in the past two years, doing a few targeted acquisitions … So this is the next logical step,” Journois said.

    UniCredit continues to surprise markets with some stellar quarterly profit beats. It earned 8.6 billion euros last year (up 54% year-on-year), also pleasing investors via share buybacks and dividends.

    What does it mean for the sector?

    Analysts are hoping that a move by UniCredit will encourage more cross-border consolidation. European officials have been making more and more comments about the need for bigger banks. French President Emmanuel Macron, for example, said in May in an interview with Bloomberg that Europe’s banking sector needs greater consolidation.

    “European countries might be partners, but they are still competing sometimes. So, I know that from an EU standpoint — policymaker standpoint — there is appetite for more consolidation to happen. However, we think that there are a few hurdles that make that difficult, especially on the regulatory side,” Journois told CNBC.

    A cross-border styled merger between UniCredit and Commerzbank would be more preferential than a domestic merger between Deutsche Bank and Commerzbank, according to Reint Gropp, president of the Hall Institute for Economic Research.

    “The German banking structure is long overdue for a consolidation process. Essentially, Germany still has almost half of all banks in the euro zone, that’s significantly more than its share in GDP. So any consolidation process would be welcome now,” Gropp told CNBC’s “Street Signs Europe” on Wednesday.

    He noted that Commerzbank has always been a “big candidate for a takeover” in the German banking sector because most of the other banks in the country are savings banks which cannot be taken over by private institutions, or cooperative banks which are also difficult takeover targets.

    Will Deutsche Bank swoop?

    Deutsche Bank, which was still seen as the prime contender to take over Commerzbank following an abrupt collapse of initial talks in 2019, is said to be mounting its own defense strategy in the wake of UniCredit’s stake.

    Filippo Alloatti, head of financials at Federated Hermes, said Deutsche Bank is unlikely to present a strong rival offer for Commerzbank.

    With a CET1 ratio of 13.5% compared to its target of 13%, Deutsche Bank is rather “limited.” CET ratios are used to gauge the financial strength of a lender. The German bank also has less excess capital than UniCredit and therefore “cannot really afford” a takeover, Alloatti said.

    ECB has no grounds to block UniCredit's higher Commerzbank stake: Federated Hermes

    However, Deutsche Bank could put on a “brave face,” Alloatti suggested, and consider another target such as ABN Amro. The Dutch bank, which was also bailed out during the 2008 financial crisis by the state, has been the subject of acquisition speculation.

    “We’ve been waiting for this,” Alloatti said, speaking about the potential for further consolidation in the sector. “If they [UniCredit] are successful, then of course, other management teams will study this case,” he said, noting that there was also scope in Italy for domestic consolidation.

    Gropp acknowledged that UniCredit’s CEO had made a “very bold move” that caught both the German government and Commerzbank by surprise.

    “But maybe we need a bold move to effect any changes at all in the European banking system, which is long overdue,” he said.

    What’s next?

    In comments reported by Reuters, Commerzbank’s Chief Executive Manfred Knof told reporters on Monday that he would look at any proposals from UniCredit in line with the bank’s obligations to its stakeholders.

    Knof informed the bank’s supervisory board last week that he would not seek an extension of his contract which runs until the end of 2025. German newspaper Handelsblatt reported that the board might be considering an earlier change of leadership.

    The supervisory board at Commerzbank will meet next week to discuss UniCredit’s stake, people familiar with the matter who preferred to remain anonymous told CNBC. There are no plans to replace Knof as soon as that meeting, the sources added.

    – CNBC’s Annette Weisbach, Silvia Amaro and Ruxandra Iordache contributed to this report.

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  • Pimco discusses the impact of Fed rate cut on private credit markets

    Pimco discusses the impact of Fed rate cut on private credit markets

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    Christian Stracke, President & Global Head of Credit Research Group at Pimco, says that rate cuts are beneficial for a lot of stressed credit issuers.

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  • The Federal Reserve just cut interest rates by a half point. Here’s what that means for your wallet

    The Federal Reserve just cut interest rates by a half point. Here’s what that means for your wallet

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    People shop at a grocery store on August 14, 2024 in New York City. 

    Spencer Platt | Getty Images

    The Federal Reserve announced Wednesday it will lower its benchmark rate by a half percentage point, or 50 basis points, paving the way for relief from the high borrowing costs that have hit consumers particularly hard. 

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    Wednesday’s cut sets the federal funds rate at a range of 4.75%-5%.

    A series of interest rate hikes starting in March 2022 took the central bank’s benchmark to its highest in more than 22 years, which caused most consumer borrowing costs to skyrocket — and put many households under pressure.

    Now, with inflation backing down, “there are reasons to be optimistic,” said Greg McBride, chief financial analyst at Bankrate.com.

    However, “one rate cut isn’t a panacea for borrowers grappling with high financing costs and has a minimal impact on the overall household budget,” he said. “What will be more significant is the cumulative effect of a series of interest rate cuts over time.”

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    “There are always winners and losers when there is a change in interest rates,” said Stephen Foerster, professor of finance at Ivey Business School in London, Ontario. “In general, lower rates favor borrowers and hurt lenders and savers.”

    “It really depends on whether you are a borrower or saver or whether you currently have locked-in borrowing or savings rates,” he said.

    From credit cards and mortgage rates to auto loans and savings accounts, here’s a look at how a Fed rate cut could affect your finances in the months ahead.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. Because of the central bank’s rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — near an all-time high.

    Going forward, annual percentage rates will start to come down, but even then, they will only ease off extremely high levels. With only a few cuts on deck for 2024, APRs would still be around 19% in the months ahead, according to McBride.

    “Interest rates took the elevator going up, but they’ll be taking the stairs coming down,” he said.

    That makes paying down high-cost credit card debt a top priority since “interest rates won’t fall fast enough to bail you out of a tight situation,” McBride said. “Zero percent balance transfer offers remain a great way to turbocharge your credit card debt repayment efforts.”

    Mortgage rates

    Although 15- and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power in the last two years, partly because of inflation and the Fed’s policy moves.

    But rates are already significantly lower than where they were just a few months ago. Now, the average rate for a 30-year, fixed-rate mortgage is around 6.3%, according to Bankrate.

    Jacob Channel, senior economist at LendingTree, expects mortgage rates will stay somewhere in the 6% to 6.5% range over the coming weeks, with a chance that they’ll even dip below 6%. But it’s unlikely they will return to their pandemic-era lows, he said.

    “Though they are falling, mortgage rates nonetheless remain relatively high compared to where they stood through most of the last decade,” he said. “What’s more, home prices remain at or near record highs in many areas.” Despite the Fed’s move, “there are a lot of people who won’t be able to buy until the market becomes cheaper,” Channel said.

    Auto loans

    Even though auto loans are fixed, higher vehicle prices and high borrowing costs have stretched car buyers “to their financial limits,” according to Jessica Caldwell, Edmunds’ head of insights.

    The average rate on a five-year new car loan is now more than 7%, up from 4% when the Fed started raising rates, according to Edmunds. However, rate cuts from the Fed will take some of the edge off the rising cost of financing a car — likely bringing rates below 7% — helped in part by competition between lenders and more incentives in the market.

    “Many Americans have been holding off on making vehicle purchases in the hopes that prices and interest rates would come down, or that incentives would make a return,” Caldwell said. “A Fed rate cut wouldn’t necessarily drive all those consumers back into showrooms right away, but it would certainly help nudge holdout car buyers back into more of a spending mood.”

    Student loans

    Federal student loan rates are also fixed, so most borrowers won’t be immediately affected by a rate cut. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Treasury bill or other rates, which means once the Fed starts cutting interest rates, the rates on those private student loans will come down over a one- or three-month period, depending on the benchmark, according to higher education expert Mark Kantrowitz. 

    Eventually, borrowers with existing variable-rate private student loans may be able to refinance into a less expensive fixed-rate loan, he said. But refinancing a federal loan into a private student loan will forgo the safety nets that come with federal loans, such as deferments, forbearances, income-driven repayment and loan forgiveness and discharge options.

    Additionally, extending the term of the loan means you ultimately will pay more interest on the balance.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result of Fed rate hikes, top-yielding online savings account rates have made significant moves and are now paying more than 5% — the most savers have been able to earn in nearly two decades — up from around 1% in 2022, according to Bankrate.

    If you haven’t opened a high-yield savings account or locked in a certificate of deposit yet, you’ve likely already missed the rate peak, according to Matt Schulz, LendingTree’s credit analyst. However, “yields aren’t going to fall off a cliff immediately after the Fed cuts rates,” he said.

    Although those rates have likely maxed out, it is still worth your time to make either of those moves now before rates fall even further, he advised.

    One-year CDs are now averaging 1.78% but top-yielding CD rates pay more than 5%, according to Bankrate, as good as or better than a high-yield savings account.

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  • Here’s what Morgan Stanley, Wells Fargo stand to gain from lower interest rates

    Here’s what Morgan Stanley, Wells Fargo stand to gain from lower interest rates

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    Federal Reserve Bank Chair Jerome Powell announces that interest rates will remain unchanged during a news conference at the bank’s William McChesney Martin building on May 01, 2024 in Washington, DC. 

    Chip Somodevilla | Getty Images

    Big Wall Street banks and interest rates have a complicated relationship.

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  • JPMorgan creates new role overseeing junior bankers as Wall Street wrestles with workload concerns

    JPMorgan creates new role overseeing junior bankers as Wall Street wrestles with workload concerns

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    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

    JPMorgan Chase has created a new global role overseeing all junior bankers in an effort to better manage their workload after the death of a Bank of America associate in May forced Wall Street to examine how it treats its youngest employees.

    The firm named Ryland McClendon its global investment banking associate and analyst leader in a memo sent this month, CNBC has learned.

    Associates and analysts are on the two lowest rungs in Wall Street’s hierarchy for investment banking and trading; recent college graduates flock to the roles for the high pay and opportunities they can provide.

    The memo specifically stated that McClendon, a 14-year JPMorgan veteran and former banker who was previously head of talent and career development, would support the “well-being and success” of junior bankers.

    The move shows how JPMorgan, the biggest American investment bank by revenue, is responding to the latest untimely death on Wall Street. In May, Bank of America’s Leo Lukenas III died after reportedly working 100-hour weeks on a bank merger. Later that month, JPMorgan CEO Jamie Dimon said his bank was examining what it could learn from the tragedy.

    Then, starting in August, JPMorgan’s senior managers instructed their investment banking teams that junior bankers should typically work no more than 80 hours, part of a renewed focus to track their workload, according to a person with knowledge of the situation.

    Exceptions can be made for live deals, said the person, who declined to be identified speaking about the internal policy.

    Dimon’s warning

    Dimon railed against some of Wall Street’s ingrained practices at a financial conference held Tuesday at Georgetown University. Some of the hours worked by junior bankers are just a function of inefficiency or tradition, rather than need, he indicated.

    “A lot of investment bankers, they’ve been traveling all week, they come home and they give you four assignments, and you’ve got to work all weekend,” Dimon said. “It’s just not right.”

    Senior bankers would be held accountable if their analysts and associates routinely tripped over the policy, he said.

     “You’re violating it,” Dimon warned. “You’ve got to stop, and it will be in your bonus, so that people know we actually mean it.”

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  • An ‘AI apocalypse’ is coming to investing. How financial advisors can prepare

    An ‘AI apocalypse’ is coming to investing. How financial advisors can prepare

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  • Apple is in talks with JPMorgan for bank to take over card from Goldman Sachs

    Apple is in talks with JPMorgan for bank to take over card from Goldman Sachs

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    Apple CEO Tim Cook introduces the Apple Card during a launch event at Apple headquarters in Cupertino, California, on March 25, 2019.

    Noah Berger | AFP | Getty Images

    Apple is in discussions with JPMorgan Chase for the bank to take over the tech giant’s flagship credit card program from Goldman Sachs, a person with knowledge of the negotiations said.

    The discussions are still early and key elements of a deal — such as price and whether JPMorgan would continue certain features of the Apple Card — are yet to be decided, said the person, who requested anonymity to discuss the nature of the potential deal. The talks could fall apart over these or other matters in the coming months, this person said.

    But the move shows the extent to which Apple’s choices were limited when Goldman Sachs decided to pivot from its ill-fated retail banking strategy. There are only a few card issuers in the U.S. with the scale and appetite to take over the Apple Card program, which had saddled Goldman with losses and regulatory scrutiny.

    JPMorgan is the country’s biggest credit card issuer by purchase volume, according to the Nilson Report, an industry newsletter.

    The bank is seeking to pay less than face value for the roughly $17 billion in loans on the Apple Card because of elevated losses on the cards, the person familiar with the matter said. Sources close to Goldman argued that higher-than-average delinquencies and defaults on the Apple Card portfolio were mostly because the users were new accounts. Those losses were supposed to ease over time.

    But questions around credit quality have made the portfolio less attractive to issuers at a time when there are concerns the U.S. economy could be headed for a slowdown.

    JPMorgan is also seeking to do away with a key Apple Card feature known as calendar-based billing, which means that all customers get statements at the start of the month rather than staggered throughout the period, the person familiar with the matter said. The feature, while appealing to customers, means service personnel are flooded with calls at the same time every month.

    Apple and JPMorgan declined to comment on the negotiations, which were reported earlier by The Wall Street Journal.

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  • FDIC unveils rule forcing banks to keep fintech customer data in aftermath of Synapse debacle

    FDIC unveils rule forcing banks to keep fintech customer data in aftermath of Synapse debacle

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    Tsingha25 | Istock | Getty Images

    The Federal Deposit Insurance Corp. on Tuesday proposed a new rule forcing banks to keep detailed records for customers of fintech apps after the failure of tech firm Synapse resulted in thousands of Americans being locked out of their accounts.

    The rule, aimed at accounts opened by fintech firms that partner with banks, would make the institution maintain records of who owns it and the daily balances attributed to the owner, according to an FDIC memo.

    Fintech apps often lean on a practice where many customers’ funds are pooled into a single large account at a bank, which relies on either the fintech or a third party to maintain ledgers of transactions and ownership.

    That situation exposed customers to the risk that the nonbanks involved would keep shoddy or incomplete records, making it hard to determine who to pay out in the event of a failure. That’s what happened in the Synapse collapse, which impacted more than 100,000 users of fintech apps including Yotta and Juno. Customers with funds in these “for benefit of” accounts have been unable to access their money since May.

    “In many cases, it was advertised that the funds were FDIC-insured, and consumers may have believed that their funds would remain safe and accessible due to representations made regarding placement of those funds in” FDIC-member banks, the regulator said in its memo.

    Keeping better records would allow the FDIC to quickly pay depositors in the event of a bank failure by helping to satisfy conditions needed for “pass-through insurance,” FDIC officials said Tuesday in a briefing.

    While FDIC insurance doesn’t get paid out in the event the fintech provider fails, like in the Synapse situation, enhanced records would help a bankruptcy court determine who is owed what, the officials added.

    If approved by the FDIC board of governors in a vote Tuesday, the rule will get published in the Federal Register for a 60-day comment period.

    Separately, the FDIC also released a statement on its policy on bank mergers, which would heighten scrutiny of the impacts of consolidation, especially for deals creating banks with more than $100 billion in assets.

    Bank mergers slowed under the Biden administration, drawing criticism from industry analysts who say that consolidation would create more robust competitors for the likes of megabanks including JPMorgan Chase.

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  • CNBC Daily Open: Rate cuts might not benefit tech the most

    CNBC Daily Open: Rate cuts might not benefit tech the most

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    The sun rises behind the skyline of lower Manhattan and One World Trade Center as people walk along the Hudson River on September 14, 2024, in Jersey City, New Jersey. 

    Gary Hershorn | Corbis News | Getty Images

    This report is from today’s CNBC Daily Open, our 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.

    What you need to know today

    Record close for Dow
    The     S&P 500 and Dow Jones Industrial Average rose on Monday, with the Dow notching a record close. But the Nasdaq Composite fell. Asia-Pacific stocks were mixed. Japan’s Nikkei 225 fell 1.03% as the Japanese yen strengthened to 140.54 against the U.S. dollar. Hong Kong’s Hang Seng index climbed 1.15% as Midea Group shares jumped over 9% in their Hong Kong debut.

    Next move for the BOJ
    The Bank of Japan won’t be raising interest rates at its September meeting, according to a CNBC survey of 32 analysts. However, the outlook for its October and December meetings is less certain. Almost 20% think an October hike is likely, while 25% said the bank’s next hike will be in December.

    India’s slowing deposit growth
    Reserve Bank of India Governor Shaktikanta Das told CNBC in an exclusive interview that slowing growth in deposits is not a cause for concern currently, and said banks are “coming out with new products for deposit mobilization.”

    Intel forges new path for foundry
    Intel shares popped around 8% in extended trading on news the chipmaker plans to structure its foundry business as an independent unit with its own board and ability to raise outside funding. It might even spin off the business as a public company, according to a person with knowledge of the matter. Separately, the Biden administration on Monday awarded Intel up to $3 billion under the CHIPS Act.

    [PRO] “Golden age of fixed income”
    The U.S. Federal Reserve is poised to cut interest rates this week. Benchmark rates affect borrowing costs. This means bond yields will go down as the Fed lowers rates. Rick Rieder, BlackRock’s global chief investment officer of fixed income, thinks now’s the time for investors to take advantage of this “golden age of fixed income.”

    The bottom line

    Technology stocks benefit the most from low interest rates, conventional market wisdom says.

    That’s because tech companies tend to promise future profit in exchange for present money. When rates are low, that proposition appears attractive because returns are low elsewhere. But when rates are high, those promises don’t seem as attractive as less risky returns from assets such as Treasurys.

    The past two years have demolished this narrative. Tech has soared even as interest rates have been at 23-year highs, thanks to enthusiasm over artificial intelligence’s promise of new and explosive revenue streams.

    Nvidia, the lynchpin of AI, has soared nearly 136% just this year. Meta, which has its own AI model named Llama, is up about 51%.

    With the market pricing in a 67% chance — up from 30% last week — that the U.S. Federal Reserve will make a larger-than-usual cut of 50 basis points, according to the CME FedWatch Tool, it stands to reason tech will pop further.

    The sector, however, has been rocky in recent weeks. The VanEck Semiconductor ETF, for instance, fell 1.31% Monday, while Nvidia slipped 1.95%.

    The tech-heavy Nasdaq Composite fell 0.52%, while the S&P 500 inched up 0.13% and the Dow Jones Industrial Average added 0.55% to close at a new record.

    This implies investors have been moving out of tech to other sectors that might experience tailwinds amid lower rates. Case in point: the financial and energy sectors rose more than 1% on Monday, performing better than the broader market.

    Goldman Sachs noted hedge funds’ weekly purchases last week of financial stocks were the highest since June 2023.

    “Other areas of the market are starting to perk up, and a lot of that has to do with the future rate cuts that are coming into play,” said Christopher Barto, senior investment analyst at Fort Pitt Capital.

    That doesn’t mean tech’s out of favor. It’s likely to continue driving the market. But other sectors might show up for the ride.

    – CNBC’s Hakyung Kim, Pia Singh and Yun Li contributed to this story.

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  • CNBC Daily Open: Tech might not be the biggest beneficiary of rate cuts

    CNBC Daily Open: Tech might not be the biggest beneficiary of rate cuts

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    The sun rises behind the skyline of lower Manhattan and One World Trade Center on September 14, 2024, in Jersey City, New Jersey. 

    Gary Hershorn | Corbis News | Getty Images

    This report is from today’s CNBC Daily Open, our 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.

    What you need to know today

    Record close for Dow
    U.S. markets were     mixed on Monday. The S&P 500 and Dow Jones Industrial Average rose, with the Dow notching a record close. But the Nasdaq Composite fell. The pan-European Stoxx 600 index lost 0.16%. U.K.’s FTSE 100 ended flat. The Bank of England will meet Thursday for its latest monetary policy decision.

    Intel forges new path for foundry
    Intel shares popped around 8% in extended trading on news the chipmaker plans to structure its foundry business as an independent unit with its own board and ability to raise outside funding. It might even spin off the business as a public company, according to a person with knowledge of the matter. Separately, the Biden administration on Monday awarded Intel up to $3 billion under the CHIPS Act.

    Blemished Apple
    Apple shares slid 2.78% after TF Securities analyst Ming-Chi Kuo reported demand for Apple’s new iPhone 16 was down 12% year on year compared with the iPhone 15’s first-weekend sales. Kuo also said consumers weren’t enthused because Apple Intelligence wasn’t available with the iPhone at launch, and as competition from Chinese manufacturers dents iPhone demand.

    Choppy flight
    Boeing is implementing a hiring freeze amid plans to cut costs, such as pausing nonessential staff travel. Just this year, Boeing has had to deal with: a 737 MAX door panel blowing out in midair; its Starliner spacecraft returning to Earth without its two planned passengers; and a strike by more than 30,000 workers.

    [PRO] Short-lived record?
    The S&P 500 is less than 1% away from its record high set in July. The upcoming Federal Open Market Committee meeting, at which the U.S. Federal Reserve is expected to cut interest rates by at least 25 basis points, might lift the S&P to new heights. But analysts warn the new high might be short lived.

    The bottom line

    Technology stocks benefit the most from low interest rates, conventional market wisdom says.

    That’s because tech companies tend to promise future profit in exchange for present money. When rates are low, that proposition appears attractive because returns are low elsewhere. But when rates are high, those promises don’t seem as attractive as less risky returns from assets such as Treasurys.

    The past two years have demolished this narrative. Tech has soared even as interest rates have been at 23-year highs, thanks to enthusiasm over artificial intelligence’s promise of new and explosive revenue streams.

    Nvidia, the lynchpin of AI, has soared nearly 136% just this year. Meta, which has its own AI model named Llama, is up about 51%.

    With the market pricing in a 62% chance — up from 30% last week — that the U.S. Federal Reserve will make a larger-than-usual cut of 50 basis points, according to the CME FedWatch Tool, it stands to reason tech will pop further.

    The sector, however, has been rocky in recent weeks. The VanEck Semiconductor ETF, for instance, fell 1.31% Monday, while Nvidia slipped 1.95%.

    The tech-heavy Nasdaq Composite fell 0.52%, while the S&P 500 inched up 0.13% and the Dow Jones Industrial Average added 0.55% to close at a new record.

    This implies investors have been moving out of tech to other sectors that might experience tailwinds amid lower rates. Case in point: the financial and energy sectors rose more than 1% on Monday, performing better than the broader market.

    Goldman Sachs noted hedge funds’ weekly purchases last week of financial stocks were the highest since June 2023.

    “Other areas of the market are starting to perk up, and a lot of that has to do with the future rate cuts that are coming into play,” said Christopher Barto, senior investment analyst at Fort Pitt Capital.

    That doesn’t mean tech’s out of favor. It’s likely to continue driving the market. But other sectors might show up for the ride.

    – CNBC’s Hakyung Kim, Pia Singh and Yun Li contributed to this story.

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  • India’s central bank chief plays down fears of a deposit crunch

    India’s central bank chief plays down fears of a deposit crunch

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    Despite widespread bullishness on India, with its stock market highs and healthy bank balance sheets, a shortage of deposits is causing some uneasiness in the country’s financial sector.

    Speaking to CNBC in an exclusive interview, Reserve Bank of India (RBI) Governor Shaktikanta Das discussed the issue of slowing growth in bank deposits underperforming an expansion in loans. 

    There is not cause for concern currently, Das said, but there could be trouble ahead if the situation persists.

    “So there is a gap of 350 to 400 basis points,” he said, referencing the difference between credit and deposit growth. Annual figures from August put loan growth at 13.6% with deposit growth at 10.8%, according to Reuters.

    “If it persists, then naturally the ability of the banks to continue their lending will get affected,” Das added in the interview Friday.

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    When lending outpaces deposits, net interest margins — or the difference between what a bank earns on loans and pays out for deposits — take a hit. This could have ramifications for share prices, with many global institutional investors owning shares in Indian banks. In severe cases, it can lead to liquidity issues for banks if they have trouble meeting withdrawal demands.

    Das noted that the loans could be being deposited elsewhere, remaining in the banking system, and wouldn't be drawn on the money that might be finding its way into potentially riskier investments, such as debt funds or equity markets.

    "If people are going into the capital markets, it is their decision ... we have nothing to say on that," he said.

    Axis AMC CIO: Banking earnings to "be more muted" this year

    Das added that there was scope for banks to increase their deposits, however. "I am happy to note that most of the banks are today really working on their drawing boards, and they are working on coming out with new products for deposit mobilization."

    Speaking on the same subject, Ashish Gupta, CIO at Axis Mutual Fund, said he sees a muted earnings picture for Indian banks compared to the last two years — partly due to this credit-deposit gap.

    "I think that is clearly going to be visible. You will see earnings growth for the banks slow down," he told CNBC's Street Signs Asia."

    He backed the view that deposit growth would be slower compared to the last couple of years, and highlighted that future rate cuts by the RBI would also have a negative impact on banks' profit margins.

    The Chhatrapati Shivaji Terminus railway station in Mumbai, India.
    How to invest in India, the world's fastest-growing major economy

    India's GDP slowed to 6.7% in the second quarter compared to last year's 8.2%, piling pressure on the central bank to reverse a recent hiking cycle. Markets are currently pricing in a near-95% chance of a rate cut at the RBI's December meeting, with less conviction for the next meeting in October. Das highlighted there will be new members of the Monetary Policy Committee at its October meeting.

    "We will discuss and decide in the MPC, but so far as growth and inflation dynamics are concerned, two things I would like to say. One, the growth momentum continues to be good, India's growth story is intact and, so far as inflation outlook is concerned, we have to look at the month-on-month momentum," he said.

    He said the decision whether or not to cut rates in October will be based on that.

    We are not artificially keeping the Indian Rupee strong, says RBI Governor
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  • KBW CEO Tom Michaud on the Fed’s rate decision, state of banking sector and Basel III requirements

    KBW CEO Tom Michaud on the Fed’s rate decision, state of banking sector and Basel III requirements

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    Thomas Michaud, KBW president and CEO, joins ‘Squawk Box’ to discuss this week’s Fed interest rate decision, what to make of the recent volatility in bank stocks, impact of new Basel III requirements on the banking sector, and more.

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  • RBI Governor: Monitoring for any signs of stress in banking sector

    RBI Governor: Monitoring for any signs of stress in banking sector

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    Shaktikanta Das, the Governor of the Reserve Bank of India, spoke at length about the strict regulation of the NBFC sector, highlighting the RBI's commitment to maintaining India's financial stability.

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  • Axis AMC CIO: Banking earnings to “be more muted” this year

    Axis AMC CIO: Banking earnings to “be more muted” this year

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    Ashish Gupta, CIO at Axis Mutual Fund sees a pickup in Indian IPOs in response to increased demand to invest in the Indian market, but a more muted earnings picture for banks as the Reserve Bank of India looks to cut rates in 2024.

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