Bank of America shares could struggle as a key financial indicator for banks shows tightening, according to Atlantic Equities. Analyst John Heagerty downgraded the stock to neutral from overweight. He also lowered his price target by $5 to $40. The new target implies a 13.3% upside from where the stock closed Monday. Though Bank of America management has kept a handle on expense growth, Heagerty said it will be difficult to have operating leverage as net interest income, which finds the difference between revenue from interest-bearing liabilities and the cost to the bank of servicing them, slows. “With slowing NII growth and non-II revenues also facing headwinds in 2023, we are downgrading BAC to Neutral,” Heagerty said in a Tuesday note to clients. Heagerty said investors have started focusing on potential net interest margin declines in 2024 and the headwinds they would create for revenue. He added that the upside to net interest income for the current year is already priced into the stock. He expects pre-provision profit growth slowing from 14% in 2023 to 3% in 2024. Major banks delivered mixed results for the fourth quarter, as Heagerty noted financial stocks tend to struggle leading up to a recession but can outperform once the extent of an economic slowdown is clearer. Industry wide, he called net interest income forecasts for 2023 “slightly disappointing.” He said banks will continue to see “charge-offs,” or when outstanding debt cannot be collected. This contributes to pressure on performance, he said. Besides Bank of America, Heagerty reiterated his other bank stock ratings. He’s overweight on Wells Fargo and First Republic but underweight on Goldman Sachs . Bank of America traded down 0.9% in the premarket. The stock is up 6.6% in 2023 after losing 25.6% in 2022. — CNBC’s Michael Bloom contributed to this report.
UniCredit CEO Andrea Orcel tells CNBC how the lender beat 2022 targets despite the unwinding of its Russia business and other macro headwinds. The Italian bank’s fourth-quarter net profit came in at more than twice the average forecast.
UBS CEO Ralph Hamers discusses the lender's better-than-expected earnings, and weighs in on key factors for the year including the reopening of China's economy, inflationary trends, and the interest rate trajectory.
UBS reported fourth quarter and full-year earnings.
Fabrice Coffrini | Afp | Getty Images
UBS beat market expectations with its latest results on the back of lower expenses and higher interest rates. But the lender’s revenues declined because of weaker client activity.
The bank reported $1.7 billion of net income for the fourth quarter of last year, bringing its total annual profit to $7.6 billion in 2022. Analysts had expected UBS would achieve a net income of $1.3 billion in the fourth quarter and of $7.3 billion for the year, according to Refinitiv data.
Looking ahead, the Swiss lender said that revenues for the first quarter of 2023 are set “to be positively influenced” by higher client activity and interest rates, as well as by the easing of Covid-19 restrictions in Asia.
“We delivered good full-year and solid fourth-quarter results in a difficult macroeconomic and geopolitical environment,” CEO Ralph Hamers said in a statement.
Here are a couple of highlights from the latest release:
CET 1 capital ratio, a measure of bank solvency, stood at 14.2%, down from 14.4% in the previous quarter;
Revenues dropped to $8.029 billion from $8.705 billion a year ago;
Return on tangible equity, a measure of bank’s performance, rose to 13.2% at the end of the quarter, up from 10% a year ago.
Among the bank’s units, Global Wealth Management posted a fourth-quarter net interest income increase of 35% on the year, given higher deposit margins off the back of higher interest rates. Personal and Corporate Banking also recorded a 21% year-on-year hike in net interest income over the same period, as a result of higher interest rates and loan revenues.
But market uncertainty hit the investment banking and asset management arms of the business. The former saw a 24% yearly drop in revenues, whereas asset management revenues fell by 31% year-on-year due to the “negative market performance and foreign currency effects.”
“The rate environment is helping the business on one side, and that offsets some of the lower activity that we see on the investment side,” Hamers told CNBC’s Geoff Cutmore on Tuesday.
He added that, following the first half of last year, there was a shift in the markets that put pressure on the investment side of the bank.
“We saw a move from what we would call micro focus, which is equity focused, to macro focus, which is rates focused,” he said, noting that the Swiss bank was not able to benefit from that transition as much as some of its peers, given its smaller presence in the U.S.
UBS said it will be purchasing more shares this year.
“We remain committed to a progressive dividend and expect to repurchase more than $5 billion of shares in 2023,” Hamers said in a statement.
However, the Swiss bank is cautious about the economic outlook, citing central bank activity as a potential catalyst for market volatility.
“While inflation may have peaked in the second half of 2022, and an energy crisis in Europe seems likely to be averted, the outlook for economic growth, asset valuations and market volatility remains highly uncertain, and central bank tightening may have an impact on market liquidity,” the bank said in its latest results.
UBS shares are up by about 15% over the last 12 months.
This time, Fed officials likely will approve a 0.25 percentage point increase as inflation starts to ease, a more modest pace compared with earlier super-size moves in 2022.
Still, any boost in the benchmark rate means borrowers will pay even more interest on credit cards, student loans and other types of debt. On the flip side, savers could benefit from higher yields.
“The good news is that the worst is over,” said Yiming Ma, an assistant finance professor at Columbia University Business School.
The U.S. central bank is now knee-deep in a rate hike cycle that has raised its benchmark rate by 4.25 percentage points in less than a year.
Although inflation is still above the Fed’s 2% long-term target, pricing pressures have “come down substantially and the pace of rate hikes is going to slow,” Ma said.
The good news is that the worst is over.
Yiming Ma
assistant finance professor at Columbia University Business School
The goal remains to tame runaway inflation by increasing the cost of borrowing and effectively pump the brakes on the economy.
The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Whether directly or indirectly, higher Fed rates influence borrowing costs for consumers and, to a lesser extent, the rates they earn on savings accounts.
Here’s a breakdown of how it works:
Credit cards
Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, too, and credit card rates follow suit. Cardholders usually see the impact within a billing cycle or two.
After rising at the steepest annual pace ever, the average credit card rate is now 19.9%, on average — an all-time high. Along with the Fed’s commitment to keep raising its benchmark to combat inflation, credit card annual percentage rates will keep climbing, as well.
Households are also increasingly leaning on credit to afford basic necessities, since incomes have not kept pace with inflation. This makes it even harder for the growing number of borrowers who carry a balance from month to month.
“Credit card balances are rising at the same time credit card rates are at record highs; that’s a bad combination,” said Greg McBride, chief financial analyst at Bankrate.com.
If you currently have credit card debt, tap a lower-interest personal loan or 0% balance transfer card and refrain from putting additional purchases on credit unless you can pay the balance in full at the end of the month and even set some money aside, McBride advised.
Mortgages
Although 15-year 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, partly because of inflation and the Fed’s policy moves.
“Despite what will likely be another rate hike from the Fed, mortgage rates could actually remain near where they are over the coming weeks, or even continue to trend down slightly,” said Jacob Channel, senior economist for LendingTree.
The average rate for a 30-year, fixed-rate mortgage currently sits at 6.4%, down from mid-November, when it peaked at 7.08%.
Still, “these relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” Channel added.
Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. As the federal funds rate rises, the prime rate does, as well, and these rates follow suit. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.65% from 4.11% a year ago.
Auto loans
Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans. So if you are planning to buy a car, you’ll shell out more in the months ahead.
The average interest rate on a five-year new car loan is currently 6.18%, up from 3.96% at the beginning of 2022.
Boonchai Wedmakawand | Moment | Getty Images
“Elevated pricing coupled with repeated interest rate increases continue to inflate monthly loan payments,” Thomas King, president of the data and analytics division at J.D. Power, said in a statement.
Federal student loan rates are also fixed, so most borrowers won’t be affected immediately by a rate hike. The interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and 2.75% in 2020-21. Any loans disbursed after July 1 will likely be even higher.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that, as the Fed raises rates, those borrowers will also pay more in interest. How much more, however, will vary with the benchmark.
For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.
Savings accounts
On the upside, the interest rates on some savings accounts are higher after a run of rate hikes.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4.35%, much higher than the average rate from a traditional, brick-and-mortar bank, according to Bankrate.
“If you are shopping around, you are finding the best returns since the great financial crisis. If you are not shopping around, you are still earning next to nothing,” McBride said.
Still, any money earning less than the rate of inflation loses purchasing power over time, and more households have less set aside, in general.
“The best advice is pick up a side hustle to bring in some additional income, even if it’s just temporary, and pay yourself first with a direct deposit into your savings account,” McBride advised. “That’s how you are going to create the pathway to be able to save.”
This nascent bull market started with the peak in interest rates and the dollar back in the fall and then broadened to include bank and semiconductor stocks in 2023. Is it fragile? Is it alchemy? Is it real? We’ll know after we see the quarterly earnings this week from the likes of Club holdings Apple (AAPL), Meta Platforms (META) Alphabet (GOOGL) and Amazon (AMZN), as well as what the Federal Reserve decides at its two-day meeting ending Wednesday and what the monthly nonfarm payroll numbers show Friday. I’m not as concerned as I would normally be though because the critics right now feel like poor picadors to me who would never catch a bull, let alone a matador who would put an end to things. Here’s why: Much if not most of the investing public and the money managers entrusted with their assets stopped believing in this market a long time ago when the Fed let things get out of control for a year because it feared a resurgent Covid. Public health was none of its business but it became its business and it did the best it could do. The revulsion that managers and investors feel started with the free money that then-President Donald Trump gave out, which somehow, got invested in a lot junk. That started a brutal pace of illegitimacy. It was followed up with the wrath of tech and the trillionaire sell-off of FANG and Friends, one that ultimately led to the end of FANG. That’s right we created FANG a decade ago this week on “Mad Money,” and it was a really good call — until it wasn’t. Facebook, now Meta, peaked ages ago and seems almost unimportant. Amazon got so bloated during the pandemic that it must be rightsized or its earnings won’t entitle it to be a growth stock. Netflix (NFLX) was the best of the lot, but your money turned into a pillar of salt if you looked at it at any time since November 2021, the month of the tech-heavy Nasdaq ‘s record high. You could say that about all of the FANG and friends names, including Google, now Alphabet. Apple held up a little longer and didn’t peak until early January 2022 along with the broader market. Oh, and why not include Tesla (TLSA) in the bunch; it deserved its trillionaire-cursed fate. Microsoft (MSFT) and Tesla reported and they appear to be non-events, which is rather incredible when you consider that Microsoft’s forecast came down quite a bit because of the Azure cloud nonetheless, the putative gem of its web services business, and Tesla actually lowered the price of its vehicles, something never thought possible. When Amy Hood, CFO of Club holding Microsoft, dropped the hammer during the post-earnings conference call it looked over. When Elon Musk succumbed to competition, it looked dead. Yet, take a look: Both had excellent weeks. It didn’t matter. It could be the same for Alphabet, Amazon, Apple and Meta this week. That’s important. However, far more important is the lassitude with which we accepted these numbers. There was, indeed, an instant tsunami of selling after Hood dropped Microsoft’s bomb. Tesla’s stock had been going down for months. Other than the media did anyone care? The world is so worn out of fear for these, and the ennui for FANG and friends has transcended fear and gloom. We just don’t care anymore. The Fed? It could surprise us with a 50-basis-points interest rate hike this week. That would be poorly received initially but even that could be swallowed IF accompanied by a simple “done for now” statement. It’s worth noting that the market has over 98% odds on a 25-basis-point increase, according to the CME’s FedWatch tool . There’s even a slim contingent that sees a chance of no action. The nonfarm payroll report? We need to see decent wage-price stabilization — and given the layoffs we have seen — if we don’t get one, we will simply say it’s a matter of time. I know that these words sound like a derisking of the market. But that would be so wrong it’s painful. A decade after FANG what matters is everything else: the ascendancy of American businesses as a whole and all of those broadening bull markets. For example, Boeing (BA) rallied despite the FAA outage, and web stocks rallied despite Azure’s softness. Housing stocks held in because the demand for housing is demographically based and mortgage rates have stabilized, thanks to the inverted yield curve in the bond market, where short-duration rates are higher than longer-dated ones. The prices of new homes have been lowered, but that’s key to the hopefully receding inflation outlook. The key to the strength of this past week’s market was, of all things, Dow stock American Express (AXP). Much to the puzzlement of people who run big swaths of money, Amex’s strength came from millennial users. They are spending on travel and leisure and, most importantly, dinners out. But who can blame them. They are still remembering when they could do nothing during Covid. Plus, they love the points and the service. The Amexes, not the sideshow fintechs created by insane venture capitalists, are the winners. The stability of a market that’s based, in part, on the assumption of a JPMorgan (JPM) or an American Express or even a Boeing rallying on earnings, seems tidal to me. They stand for the broadening of it all, and the fact that it came after a huge overbought condition. That matters. When you study the S & P Oscillator, as I have, you get these confirmative moves when you experience further elevation as the Oscillator returns to the mean. That’s what’s happening as we consider the market to be far bigger than any group of a half-dozen stocks. No one company is important: The asset class prevails. It didn’t even matter that the incompetence of the men who run the machine surfaced again. The market is too strong for their stupidity — and the lack of actual names who were, well, stupid is a welcome sign. In short, we are experiencing the market’s liberation from FANG and friends. Even a miss by Apple can be explained away by the results of the pernicious, Orwellian-style release of people into a country, China, that had told you that Covid was a death sentence and the U.S. vaccines were worthless. You conquer that cynical belief system of the Communist Party with purchases of sneakers from Nike (NKE) and perfumes from Club holding Estee Lauder (EL), a la the lunar new year. You then have a pretty forgiving stance for Apple’s numbers. Undoubtedly, we have to get some bankruptcies soon, preferably by ne’er-do-well retailers and venture capital-backed fintechs and enterprise software firms and those who put money up for them. We need to rein in spending more so that the Fed can begin its period of peace having conquered those who kept paying up for the same thing. We are almost to the point, though not yet, where you can afford to job-hop. Thanks to Chipotle Mexican Grill (CMG) for announcing you need 15,000 people just when we thought the Fed was finishing its work. I guess that’s what burrito season brings us. Can we at least wait for the Super Bowl to be played? Yes, I am painting — without the help of ChatGPT, or its Nvidia (NVDA)-based backbone — a return to the era of no single company having real impact on the entire market, and no one move by the Fed doing so, either. The stalemate in Washington over the debt ceiling has led to the seemingly annual talk about a disastrous default that has always, to this point, been averted. The Fed may go with a completely against consensus 50 and say we aren’t done, stay tuned. We might even have misses among all the majors, but I am portraying a bull that just doesn’t care. It’s a bull that’s based on, not a lack of alternatives, which had been the case for three years, but a plethora of index fund money that follows the surges of whatever moves the needle collectively. You can boil all of this down to the suddenly hackneyed word, resiliency, as in the market is resilient in the face of its broad nature. We wait for the shortfall pronouncements from Apple, Amazon and Alphabet and move on NOT FROM THE STOCK MARKET but to OTHER STOCKS more representative of a resurgent America buoyed by its natural resources, its post-Covid strength, and its central bank that preserves purchasing power . We have the Russians, the Chinese and the Europeans to thank for that sanguine stance. The anticipation of what’s left of the FANG reporting season is simply prurient at this point and not dispositive. The drama is media created but ignored by 401(K) contributions and earmarked pension benefits that are actually being fulfilled. Sound too Panglossian? How about a hard-won battle with the narrowness of the bear that we have suffered from, not even seeming to acknowledge its beginning when the Fed went for preservation not profligacy back in the fall of 2021. The lack of credit to Fed Chairman Jerome Powell and company is astounding to me. But once a doofus always a doofus, from his lack of massive Treasury sales to his crazy cadence of rigor in 2022. Yes, I am shredding the cynicism and heralding the new bull market, one that’s not ignorant of what ails things, but is benignly rotational. The obsession with FANG a decade after its birth is over and that means more money for the rest of the 500 companies in the S & P 500 benchmark index. That’s something the media fails to acknowledge and that will be on display writ large next week. My take? Ignore the sirens of a Circe in Bear uniform. That now unheralded cohort and its despoiled fellow travelers didn’t even make the playoffs, let alone the two conference championships. This is a week we will get through and any decline will be regarded as a clarion call to get in — repulsed only by cynical market prognosticators who insist on being the sound and the fury signifying nothing as the bulls trample on and leave their underinvested legions to starve the once over-served steers. (Jim Cramer’s Charitable Trust is long AAPL, META, GOOGL, AMZN, MSFT, EL, NVDA. 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.
Jim Cramer at NYSE with bull. June 30, 2022.
Virginia Sherwood | CNBC
This nascent bull market started with the peak in interest rates and the dollar back in the fall and then broadened to include bank and semiconductor stocks in 2023. Is it fragile? Is it alchemy? Is it real? We’ll know after we see the quarterly earnings this week from the likes of Club holdings Apple (AAPL), Meta Platforms (META) Alphabet (GOOGL) and Amazon (AMZN), as well as what the Federal Reserve decides at its two-day meeting ending Wednesday and what the monthly nonfarm payroll numbers show Friday.
David Solomon, Chairman & CEO of Goldman Sachs, speaking on Squawk Box at the WEF in Davos, Switzerland on Jan. 23rd, 2023.
Adam Galica | CNBC
Goldman Sachs CEO David Solomon will get a $25 million compensation package for his work last year, the bank said Friday in a regulatory filing.
The package includes a $2 million base salary and variable compensation of $23 million, New York-based Goldman said in the filing. Most of Solomon’s bonus — 70%, or $16.1 million — is in the form of restricted shares tied to performance metrics, while the rest is paid in cash, the bank said.
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Solomon’s pay, while large, is about 29% lower than the $35 million he was granted for his 2021 performance. Similarly, Goldman’s full-year earnings fell by 48% to $11.3 billion amid sharp declines in investment banking and asset management revenue, the company said last week.
While the bank was primarily hit by industrywide slowdowns in capital markets activity as the Federal Reserve raised interest rates, Solomon also faced his own set of issues. Goldman was forced to scale back its ambitions in consumer finance and lay off nearly 4,000 workers in two rounds of terminations in recent months.
With all the major investment and money center banks having now reported fiscal fourth-quarter earnings, we compiled the results to compare how our Club holdings, Wells Fargo (WFC) and Morgan Stanley (MS), stand up against the competitors. Investment banking Morgan Stanley has certainly been the place to be among investment banks, not Goldman Sachs (GS). Both reported last week on Jan. 17. The key driver of the stark contrast comes largely in non-interest income. The former was able to really lean in and harvest management’s efforts to move deeper into asset and wealth management, while the latter struggled with the build-out of its consumer-facing offering. Goldman Sachs missed expectations on both the top and bottom lines. The Dow stock sank more than 6% the day it reported, compared to Morgan Stanley, which jumped nearly 6% on an EPS and revenue beats. While marking return on average tangible common equity (ROTCE) as a miss, Morgan Stanley’s ROTCE was 13.1%, excluding one-time integration-related costs. It was much more in line with expectations than what we saw from Goldman Sachs. We think this demonstrates why Morgan Stanley’s stock warrants a premium of 13x forward earnings estimates versus Goldman Sachs’ 9.8x multiple. The intense focus on diversified fee-based revenue also serves as justification for that premium compared to where Morgan Stanley’s stock has historically been valued. Its five-year average is 10.7x. Bottom line As we noted in our earnings analysis on Jan. 17 , Morgan Stanley is firing on all cylinders and in a position to continue generating strong shareholder returns due to its more resilient fee-based revenue streams and strong capital position. Goldman Sachs, on the other hand, deserves to be in the penalty box. Goldman has only gained a fraction of a percent year to date. Morgan Stanley shares have jumped 13% in 2023. MS GS YTD mountain Morgan Stanley (MS) YTD stock performance vs. Goldman Sachs (GS) Money-center banks For Q4, JPMorgan Chase (JPM) had the cleanest results. Second place was a tossup between Wells Fargo and Bank of America (BAC). The former’s net interest margin (NIM) was quite impressive, whereas the latter really put up a great show on ROTCE. We also like to see strong non-interest income, which we feel went to BofA. In terms of which stock we like more based on these numbers, we would have to stick with Wells Fargo over Bank of America because we ultimately believe it provides a better risk/reward profile. While the efficiency ratio from Wells Fargo is pretty horrendous and the bank’s ROTCE is nothing compared to BofA, we loved that NIM — a line item that fueled a net interest income (NII) surge over the year-ago period. It’s worth noting both the efficiency ratio and ROTCE at Wells Fargo offer a ton of room for improvement as management addresses legacy issues, meets goals set by regulatory bodies, and works toward the removal of its asset cap. However, therein lies the opportunity — not something we say lightly as we can’t stand when someone sees bad results and postures a they-can’t-get-any-worse attitude. In the case of Wells Fargo, we are seeing real improvements in the business and notable catalysts that we don’t see in the others. JPMorgan was clearly the best in Q4 and that’s why it trades at a premium to the group on both a tangible book value (TBV) and on 2023 earnings estimates. Bank of America comes in second, while Wells Fargo is cheaper than both. Though Citi group does trade below TBV, which you may be inclined to view as a great opportunity, this name has consistently traded at a discount in recent years because it doesn’t generate strong returns off its book as indicated by the lowest ROTCE of the group. We view that as red flag. While Wells Fargo’s ROTCE is nothing to write home about, it has been held down by its asset cap and a bloated expense structure, which management is aggressively working to reduce. On the fourth quarter conference call, management reiterated their confidence in achieving a 15% ROTCE as they work toward the removal of the asset cap and address expenses. As noted in our earnings analysis last week on Jan. 13, if we were to adjust for a $3.3 billion operating loss related to litigation, regulatory, and customer remediation matters, $1 billion of equity security impairments, $353 million in severance expenses, and $510 million in discrete tax benefits, ROTCE would have been closer to 16%. That’s a bit above the long-term goal as NII was higher than management’s long-term expectations due to interest rates, funding balances as well as mix and pricing. As the Wells Fargo’s ROTCE increases, we would expect to see its stock’s multiple expand to a level more in line with Bank of America. Wells Fargo price-to-earnings ratio stands at 9.1x forward earnings estimates, while BofA trades at 9.6x. WFC BAC YTD mountain Wells Fargo (WFC) YTD performance vs. Bank of America (BAC) Bottom line So, again, taking valuation into account, along with the fact that Wells Fargo has clear-cut areas catalysts as milestones are met and the asset cap is hopefully lifted, we think WFC is the place to be as far as its four large money center rivals are concerned. (Jim Cramer’s Charitable Trust is long WFC and MS. 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.
People walk past a Wells Fargo bank on 14th Street on December 20, 2022 in New York City.
Michael M. Santiago | Getty Images
With all the major investment and money center banks having now reported fiscal fourth-quarter earnings, we compiled the results to compare how our Club holdings, Wells Fargo (WFC) and Morgan Stanley (MS), stand up against the competitors.
“The pitch for consumers is an easier online checkout experience,” Rossman said. “You won’t need to enter all of your card information because it will already be saved in the system.
“And it will be managed by the banks, which will in theory have better fraud protection than retailers.”
The good news is “they are already a regulated sector,” added Pam Dixon, executive director of the World Privacy Forum, a nonprofit research group, in contrast to the equally popular buy now, pay later programs.
However, “consumers still have to be really careful,” Dixon cautioned. “This is your financial information.”
During the pandemic, shoppers showed a growing preference for cashless transactions and still do: Peer-to-peer payment apps — known as P2P — such as Zelle and Paypal’s Venmo, which let users store their banking information on their smartphone, have exploded in popularity.
Now, 64% of Americans use peer-to-peer payment apps, although for young adults that jumps to 81%, according to a March 2022 survey by Consumer Reports.
Roughly 40% of the more than 2,000 people polled said they use payment apps at least once a month, while 18% use them at least once a week.
Digital payments are generally more secure than credit card transactions because there’s a biometric component, Rossman said — “this online solution will likely have some sort of two-factor authentication, like a code sent via text message.”
But it is not without risk. Users are vulnerable to fraud or scams or can lose money if they accidentally send a payment to the wrong person, a Consumer Reports analysis found.
And peer-to-peer payments still have varying degrees of consumer protections, which could cause an issue when it comes to getting a refund.
Trying to get money back into your personal account after it’s been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on your behalf.
“It’s kind of like getting the toothpaste back in the tube,” Rossman said.
Zelle, in particular, has been the subject of recent criticism. A U.S. Senate report last fall stated that “Zelle is rampant with fraud and theft, and few customers are getting refunded — potentially violating federal laws and consumer rules.”
The Consumer Reports analysis included a call on policymakers to strengthen consumer protections. “There is a lag between the protections available to consumers and the latest technologies for payments,” said Delicia Hand, director of financial fairness for Consumer Reports.
In the meantime, “payment providers can raise the bar for consumer protection by taking more aggressive steps to minimize user risks,” Hand added.
If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.
Pam Dixon
executive director of the World Privacy Forum
Contrary to those findings, “99.9% of the 5 billion transactions processed on the Zelle network in the past five years were sent without any report of fraud or scams,” the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and The Clearing House said in a joint statement.
And in every instance in which a customer disputes a transaction made via Zelle, banks are obligated under federal law to investigate and provide reimbursement if the transaction was unauthorized, the statement said.
For now, Dixon offers consumers this advice: “Let the buyer beware.”
“If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.”
Also, adjust your privacy setting to minimize the amount of information that companies are collecting, Hand advised.
Opinions expressed by Entrepreneur contributors are their own.
If you own a small business, then you have a few bank accounts — at least I hope so. Most likely, you have a checking account or two, a few savings accounts and maybe some type of investment accounts as well. Now, when it comes to banking, and if you’re a one-man or one-woman operation, it’s just you on the account. But what about when your company gets bigger and bigger, and you have a difficult time keeping up with what’s happening in your accounts?
This is the point when you need to add people to your accounts to ensure that everything gets paid and there are no overdrafts. Here are some ideas and suggestions that can help you navigate the ins, outs, risks and rewards of having someone on your business bank accounts.
Signer: This is when you add another owner or a high-level employee (obviously one that you trust) to help you get your business banking done on time, every time. For banking purposes, this does not mean that they own the company in any way, they are just a signer on the bank account. They will be able to write checks, make cash withdrawals, order items like stamps, new checks and their own debit cards. They can also get online access, which is often a huge help to so many business owners as this person can help with bill pay, sign up for other online services, call the bank to inquire about fees or charges that they see on the account and any other account info they need. This is a great step if the business is growing and the owner can only do banking about once a week or so, which allows the signer to handle the day-to-day.
Downside? You better trust this person, as they have every right to write any check for any amount they want, even to themselves. They can literally clean you out by making a large cash withdrawal if they wanted to. To get the money back, the bank will not help since you were the one who added them as a signer on the account. You would have to take them to court for that matter. In the end, just be careful.
POA: Having a Power of Attorney added to your bank account can be a big help if you will be, for example, going in for surgery and will be out of commission for a few weeks or months. Or if you plan to travel overseas for a few months. Or for that “just in case” thing that usually happens in life. By designating someone as a POA, they can act on your behalf to ensure that bills are being paid, checks are being written, the mortgage is getting paid, etc.
For this, you’ll need to have the proper documents, which a good attorney can complete for you. Each bank is different in its requirements for a POA, but these papers will always need to be reviewed by the legal department of the bank before anyone can be actually added. Often, the paperwork is incomplete because the account owner is doing the paperwork themselves, so be sure to consult an attorney for this.
One more thing, if the account owner passes away, the POA is immediately null and void. POA is only good for people who are living.
POD: POD (Payable On Death), which is also referred to as a beneficiary for many banks, is also a good thing to have on your accounts. Let’s say you are getting much older or having extreme health issues, and the prognosis is not good, and the doctors are giving you only so much time left to live. It’s a smart thing to add the family member of choice to the bank account.
And here’s why: When you pass away, and you do not have a POD on the account, most times, the bank accounts will go directly to probate court, and your family will wait a long time for the funds and jump through needless hoops. Many people really need the money, too. By having the POD on the account, they can just come to any branch with your death certificate, close the account within a few days to a few weeks and have a cashier’s check issued to them directly.
If not, the funds can go to probate as mentioned, or the check issued will have to be issued to the Estate of “the person who just deceased.” All banks vary in their requirements as do state laws, so speak to your banker about this in detail.
Co-owner: This is just as it sounds and is similar to a signer on a business account, but this is for personal accounts, not business. To add a co-owner to the bank account, you must be present in the branch to do so. Adding someone by phone or online is generally never an option. Here is what a co-owner can do when you add them to the account: They can do any transaction they wish on the account, including closing the account. What they cannot do is remove the other owner without them being present. In the world of banking, the phrase is “if you’re getting a divorce, the person who gets to the bank first gets the money.”
Pro tip: There are many ways to add someone to your bank accounts — both business and personal — and there are a lot of benefits as well as a lot of risks involved, so you’d better talk to your banker. While the government makes the regulations that each bank must follow, each bank must decide what they will do to comply with that law and what logistical steps they will take to ensure that they are reducing any risk that comes with adding people to accounts. So, be sure to talk to your banker first to see what steps you need to take to make sure everything is properly conducted.
European Union lawmakers have voted to impose strict capital requirements on banks that hold cryptocurrencies, per a Reuters article.
In an effort to “prevent instability in the crypto world from spilling over into the financial system,” Markus Ferber, economic spokesperson for the EU parliament’s European People’s Party, says, “banks will be required to hold a euro of own capital for every euro they hold in crypto.”
Lawmakers cite the chaos in the markets seen over the last few months as further evidence that such regulation is necessary. With events like the collapse of FTX, Celsius and others fresh in the minds of users, the passing of this law is anticipated to be part of a larger set of regulations aimed at bringing the EU into line with international norms.
The passed regulation mirrors that suggested by the Bank for International Settlements’ Basel Committee, which also suggested the highest possible risk tier weighting for holdings of “unbacked crypto.” Their recommendations placed a 2% limit on tier 1 capital that could be held denominated in unbacked cryptocurrencies.
“There is no definition of crypto assets in the [legislation] and therefore the requirement may apply to tokenized securities, as well as the non-traditional crypto assets the interim treatment is targeted at,” the Association for Financial Markets in Europe (AFME), an EU lobby group representing finance organizations like investment banks said, indicating that the current form of the law could be unclear, but that draft issues may be fixed later on.
While the European Parliament’s Economic and Monetary Affairs Committee voted to approve the measures, in order for them to go fully into effect, they must also be approved by the European Parliament as a whole, and be presented to the national finance ministers meeting in the Council of the European Union.
The pace of change in the modern world is often rapid and dizzying. Technologies that seem integral to our lives can, in what feels like an instant, become redundant and irrelevant.
Energy is one sector where innovation and new ideas matter a great deal, as countries and companies try to find ways to shift to a society based around renewables like wind and solar rather than fossil fuels like coal, oil and natural gas.
During a panel discussion at last week’s World Economic Forum in Davos, Switzerland, one analyst expressed his fear that the market did not seem to have learned from other technological revolutions.
Thomas Hohne-Sparborth, head of sustainability research at Lombard Odier, highlighted the huge shifts taking place in the field of low and zero-carbon technologies and, by extension, wider society.
“We’ve seen past industrial revolutions, including past energy transitions,” Hohne-Sparborth said. “What we’re really seeing now is the complete transformation of our entire economy.”
“The demand side of our economy, the way we power vehicles, the way we heat our buildings, the way we use energy in industry — all of that needs to be transformed.”
We were, Hohne-Sparborth said, “looking at investment needs in the trillions of dollars.”
When it comes to the energy transition, the sums being discussed are indeed significant. Last year, the International Energy Agency’s “World Energy Outlook 2022” report said clean energy investment could be on course to exceed $2 trillion per year by 2030, an increase of over 50% compared to today.
As the discussion in Davos — which was moderated by CNBC’s Joumanna Bercetche — progressed, Hohne-Sparborth was asked if clean energy was now affordable at the scale required.
The answer to that question was, he replied, “very rapidly shifting, and today I would say, yes, it has become the cheapest source of energy.”
“What I think the market at large is underestimating is simply the pace at which this transition is unfolding,” he added, explaining that lessons could be learned from history.
“We’ve done some work looking at past technological revolutions, whether it’s the adoption of steamships, of mobile phones — any piece of major sort of new technology of infrastructure.”
All such transitions had, Hohne-Sparborth argued, “tended to follow a very similar pattern. They unfold very slowly … and then the transition completes in a span of 10 to 20 years.”
“Yet if you look today at what the market is anticipating — how long it will take us to electrify our buildings, to electrify our vehicle fleets — the timeframes there are still much longer.”
For Hohne-Sparborth, it didn’t seem to be getting through that, “when a new, superior technology emerges, that becomes cost competitive, that rollout can happen very quickly.”
Dramatic change
Also appearing on the CNBC panel was Andrés Gluski, the CEO of energy firm AES.
“What we’re facing … is a dramatic change,” he said, adding that renewables now represented “the cheapest form of energy, in most cases.”
“The problem is capacity — how do you keep the lights on 24/7 — and that’s where you have to use lithium-ion batteries on a daily basis.”
Expanding on his point, he went on to emphasize the importance of adopting a variety of technologies.
“To really get to a complete decarbonization we’re going to need green hydrogen, we’ll probably need small modular nukes, etcetera.”
“And I also agree very much that what we need is for renewables to be more than just competitive — just better so that we lower costs, [and] equal in quality.”
“And that’s honestly what the corporate sector is demanding very much, and many consumers.”
The logo of Credit Suisse Group in Davos, Switzerland, on Monday, Jan. 16, 2023.
Bloomberg | Bloomberg | Getty Images
The Qatar Investment Authority is the second-largest shareholder in Credit Suisse after doubling its stake in the embattled Swiss lender late last year, according to a filing with the U.S. Securities and Exchange Commission.
Combined with the 3.15% owned by Saudi-based family firm Olayan Financing Company, around a fifth of the company’s stock is now owned by Middle Eastern investors, Eikon data indicates.
Credit Suisse will report its fourth-quarter and full-year earnings on Feb. 9, and has already projected a 1.5 billion Swiss franc ($1.6 billion) loss for the fourth quarter as a result of the ongoing restructuring. The shake-up is designed to address persistent underperformance in the investment bank and a series of risk and compliance failures.
The injection of investment from the Middle East comes as major U.S. investors Harris Associates and Artisan Partners sell down their shares in Credit Suisse. Harris remains the third-largest shareholder at 5%, but has cut its stake significantly over the past year, while Artisan has sold its position entirely.
Earlier this month, Deutsche Bank resumed its coverage of Credit Suisse with a “hold” rating, noting that the strategy update announced in October and subsequent rights issue in December were the start of the group’s “final pivot towards more stable, higher growth, higher return, higher multiple businesses.”
“While strategically largely the right measures have been announced in our view, the execution of the group’s transformation requires time to lower costs, regain operational momentum as well as reduce complexity funding costs. Hence, we expect subdued profitability, below its potential, even by 2025,” said Benjamin Goy, head of European financials research at Deutsche Bank.
As such, he said that Credit Suisse’s valuation was “not cheap based on earnings anytime soon.”
Central to Credit Suisse’s new strategy is the spin-off of its investment bank to form CS First Boston, which will be headed by former Credit Suisse board member Michael Klein.
In a note earlier this month, Barclays Co-Head of European Banks Equity Research Amit Goel characterized Credit Suisse’s earnings estimates as “more art than science,” arguing that details remain limited on the earnings contribution from the businesses being exited.
“For Q422, we will be focused on what is driving the losses (we found it quite hard to get to c.CHF1.1bn of underlying losses in the quarter), whether there are any signs of stabilisation in the business, and if there is more detail on the restructuring,” he added.
Islamic fintech startup Wahed has opened its first physical branch on Baker Street in London. The glossy retail location is designed to look like an Apple store.
Wahed
An investing platform backed by the likes of oil giant Saudi Aramco and French soccer player Paul Pogba is launching a novel proposition in the U.K.: a physical branch and bank accounts backed by gold.
New York-based Wahed, which describes itself as a “halal investing platform,” has opened a branch in the U.K. in a bid to target the country’s 3.9 million Muslims with a sharia-compliant investment management and advice service.
The glossy retail location has a similar design to an Apple store, with digital displays inside and a bright sign displaying its logo outside. It is located on Baker Street in central London, just opposite a branch of U.K. banking giant HSBC.
Khabib Nurmagomedov, the Russian former professional mixed martial artist, is a promoter of the firm and will be among those attending the branch opening Tuesday.
Wahed is also debuting a debit card that lets users deposit funds with an exchange-traded commodity that tracks the price of gold, meaning they can effectively pay for everyday goods via gold.
Investors will be able to redeem the gold in their accounts for physical bars. Junaid Wahedna, CEO and Co-founder of Wahed, said it’s a way for Muslim — as well as non-Muslim — consumers to beat currency fluctuations and the rising cost of living.
“[Muslims are] an underserved community as a whole,” Wahedna said in an interview with CNBC, referring to the market opportunity for digital Islamic finance. “It’s a minority community, there’s a lack of financial literacy.”
Banking startups such as Monzo and Revolut have flourished in the U.K. without physical bank branches, offering smartphone apps that help users manage all their finances. But Wahedna cautioned that this risks leaving behind Muslim consumers.
“In the United Kingdom, [the Muslim community is] actually one of the lowest socio-economic segments of the country,” Wahed’s boss said, with “low incomes or financial literacy.”
“They have trust issues,” he added. “And so they want to see a physical presence before they trust you with money.”
Wahed’s service aims to help clients adhere to the Islamic faith’s strict doctrines on financial services: sharia law forbids its followers from charging or earning interest on loans, or investing in firms that make most of their money from the sale of things such as alcohol and gambling.
Wahed prohibits investments in companies that make money from lending, gambling, alcohol and tobacco. An account with Wahed also doesn’t offer interest on savings, nor does it tout wild returns on risky crypto tokens. Instead, the value of users’ deposits tracks the value of gold, with the precious metal fluctuating in price depending on supply and demand.
“I think it really fits with the Muslim community and what their needs are,” Wahedna said. “Because otherwise, what happens is the Muslim community, because they’re underserved, they keep their money in cash under their mattress, or in something that’s very unsafe, and they lose their money every few years because there’s a scam in the community or someone takes advantage of them. And that poverty cycle just continues.”
Junaid slammed the state of modern fintech companies, suggesting that the industry is too focused on consumer lending with the rise of Klarna and other hyped “buy now, pay later” services.
“All of their business plans are built around lending revenue, right? Even digital banks, it’s like, okay, I’ll start off being a new bank, but then eventually, I’m gonna get a banking license,” said Wahedna.
Wahed is debuting a debit card linked to a gold-backed spending account. The startup is backed by French soccer star Paul Pogba.
Wahed
He said Wahed is focused on making money by charging wealth management fees, which charge users a percentage of their overall asset holdings. The startup, which was founded in 2017, remains lossmaking, but has hit operating breakeven in Malaysia and the U.S., he added.
“I feel that fintech, like most of the finance industry, is very heavily geared towards lending,” Wahedna said. “In fact, I would say, it’s making the cost of living crisis, a debt crisis, worse with a lot of the products.”
“If you look at the buy, now pay later companies, people are struggling — that’s the worst type of innovation, you’re making it easier to get people into debt,” he added.
Wahedna stressed that the company is not only for Muslims and aims to serve followers of other Abrahamic faiths as well, including Judaism and Christianity.
Staff at its London branch will help customers open accounts, make investments and give guidance on wills and estate planning.
The firm is targeting high-net-worth individuals as well as less well-off consumers, Wahedna said.
Wahed has raised $75 million of total funding to date from investors including Saudi Aramco Entrepreneurship Capital, the venture capital arm of Saudi state-backed oil firm Saudi Aramco, as well as French footballer Paul Pogba, who is a practicing Muslim.
Islamic finance has achieved significant growth over the past decade and is expected to reach $4.9 trillion in value by 2025, according to Refinitiv’s Islamic Finance Development Indicator. A number of other fintech players are seeking to tap into the halal money space, including Zoya and Niyah.
Colombo, Sri Lanka – More than 180 prominent economists and development experts from around the world have made a global appeal to Sri Lanka’s financial lenders to forgive its debt, even as other experts are not convinced it is the best way forward for the island nation.
According to World Bank estimates, Sri Lanka has an external debt burden of more than $52bn as of December. Of that, nearly 40 percent is owed to private creditors, including financial institutions, while the rest is owed to bilateral creditors where China (52 percent), Japan (19 percent) and India (12 percent) are the largest ones.
Colombo defaulted on its debt repayments in April and negotiated a $2.9bn bailout with the International Monetary Fund (IMF).
But the IMF will not release the cash until it feels that the island nation’s debt is sustainable.
Now several prominent academics and economists, including Thomas Piketty who wrote the bestseller Capital, Harvard University economist Dani Rodrik and Indian economist Jayati Ghosh have issued a statement (PDF) calling for the cancellation of Sri Lanka’s debt by all external creditors and measures to stem the illicit outflow of capital from the country. The statement was put together by the “Debt Justice” campaign group, a global movement to “end unjust debt and the poverty and inequality it perpetuates”.
The private investors who lent at high interest rates to corrupt politicians must face the consequences of their risky lending by cancelling the debt, the academics said in the statement.
The academics have accused private creditors of contributing to Sri Lanka’s first-ever sovereign debt default as they accrued “a massive profit” by charging a premium to lend. Therefore, they said, the private lenders who benefitted from higher returns must be “willing to take the consequences” of their actions, meaning cancelling the debt and forfeiting the loans.
But not everyone agrees with this suggestion.
WA Wijewardene, a former deputy governor of the Central Bank of Sri Lanka, says that should the debt cancellation plan actually go through, it might lead to the collapse of the current global financial system.
Many of the academics who have signed the said statement are not economists, he told Al Jazeera.
“It is a galaxy of academics belonging to the social sciences field. As such, it needs to be critically appraised because, if accepted for Sri Lanka, it in fact provides a blueprint for a new world economic order.”
He added: “The present economic order is an interdependent, interconnected system. If you break this, the world will collapse. You don’t know what would happen thereafter.”
The ongoing economic crisis has left at least 8 million Sri Lankans as ‘food insecure’ [File: Eranga Jayawardena/AP Photo]
Wijewardene told Al Jazeera that he was surprised that Dani Rodrik, “who was a strong advocate for Washington Consensus, ie neo-liberal economic reform throughout the world” and Thomas Piketty, “who is from the opposite camp,” are on the same platform calling for debt cancellation.
Instead, he said, these academics and economists “should argue for the accountability to be established”.
“Money borrowed has been wasted or appropriated by rulers, leaving [out] people who haven’t benefitted from them. Those rulers should be made accountable for the losses and we should fight to establish a governance system in which they should be prosecuted for their crimes,” he said.
Wijewardene added that the cancellation of debt would not benefit the people but “the corrupt, despot” leaders.
“Corrupt despots have already benefitted from the money borrowed. When debt is cancelled, they don’t have to repay and can continue to borrow more and use that money for private gains. This is known as the moral hazard problem in economics; that when someone has taken responsibility for your liabilities, you have no incentive to take even the minimum precautions to minimise it,” he said.
Time for bilateral creditors to step up
For now, Nandalal Weerasinghe, the head of the Sri Lanka Central Bank, has urged China and India to come to an agreement over reducing the country’s debt.
“We don’t want to be in this kind of situation, not meeting the obligations, for too long. That is not good for the country and for us. That’s not good for investor confidence in Sri Lanka,” Weerasinghe told the BBC recently.
On Friday, India’s Foreign Minister S Jaishankar, while on a two-day visit to Sri Lanka, said that New Delhi had extended financing assurances to the IMF to clear the way for Sri Lanka to move forward but did not specify what those assurances were.
India’s Foreign Minister S Jaishankar (left), seen shaking hands with Sri Lankan President Ranil Wickremesinghe, told Sri Lanka that his country has given financial assurances to the IMF to facilitate a bailout plan [File: Sri Lankan President’s Office via AP]
On the heels of India’s assurance, China has offered a two-year moratorium, according to Sri Lanka’s Sunday Times newspaper.
In a letter to President Ranil Wickremesinghe, the Exim Bank of China, responsible for much of the loans given to Sri Lanka, said the two-year moratorium would be a short-term suspension of the debts owed to China while asking all Sri Lanka’s creditors to get together to work out medium-term and long-term commitments.
China is yet to make any official statement in this regard.
The assurances come on the eve of a Paris Club meeting of Sri Lanka’s creditors to discuss debt restructuring measures as a prelude to the IMF funds.
The chances of China acceding to requests for a loan waiver are slim as similar demands will then come from other parts of the developing world where China is an active lender, said Dhananath Fernando, the chief executive officer of Advocata Institute, an economic policy think tank in Sri Lanka.
“When you offer a debt relief to one country, it is like a court order. Other countries will also like to get the same relief,” he told Al Jazeera.
Moreover, taxpayers in any country would not be happy to completely write off loans offered to another country, a sentiment pointed out by IMF Managing Director Kristalina Georgieva.
“It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore … they expect to be paid back because it is a developing country,” she said in a media roundtable earlier this month.
“So, a haircut in the Chinese context is politically very difficult,” but China understands that the equivalent of that can be achieved by stretching maturities, reducing or eliminating interest rates, and payments to ultimately reduce the burden of debt, she added.
Dismissing the call for debt cancellation as “impractical”, Advocata Institute’s Fernando said that all the creditors will eventually have to agree on either a haircut (reducing the debt payment), coupon clipping (asking the lenders to reduce or waive off interest rates on bonds), extending the maturity of the loans or a combination of all three.
The Japanese embassy in Colombo had not responded by press time to an Al Jazeera request for comment.
Trade unions join call to cancel debt
Meanwhile, supporting the call for debt cancellation, a trade union representing garment factory workers, a key employer and income generator in Sri Lanka, said the economic restructuring measures required by the IMF as part of its debt relief plan will have the Sri Lankan government privatise state-owned enterprises, impose new taxes and increase the tax rates.
None of these measures “would provide an answer to Sri Lanka’s present debt crisis,” said Anton Marcus, co-secretary of the Free Trade Zones and General Services Employees Union, in a statement. The academics’ call “should be further lobbied by all labour rights campaigners and global trade union federations when Sri Lanka’s export manufacturing and service sector is hard-pressed for orders that threaten employment on large scale, in a country that is burdened with spiralling cost of living,” Marcus said.
The World Food Programme estimates that 8 million Sri Lankans — out of a 22 million population — are “food insecure” with hunger especially concentrated in rural areas.
This dip in rates provides welcomed relief for many potential homebuyers who’ve put their dreams on pause thanks to high mortgage interest rates, which have drastically reduced their buying power.
On top of reduced interest rates, the Federal Housing Finance Agency (FHFA) has announced changes to its fee structure beginning May 1, 2023. These changes affect conventional loans and will reduce the cost of a loan for certain borrowers (while increasing it for others).
Plus, according to Redfin, average home prices in the U.S. have continuously dropped, albeit slowly, since hitting their peak in May 2022.
With rates lower than they have been and fee changes coming down the pipeline, it’s a good time to reassess the home-buying plans you may have put on hold and decide if now is the time to act.
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If a painfully-high interest rate was the only thing holding you back from signing a mortgage, then you may want to jump on today’s (relatively) low rates.The Federal Reserve has been steadily increasing its benchmark Federal Funds rate and has signaled its intent to continue this pattern until inflation is under control. As long as the Federal Funds rate stays high, so will mortgage rates.
The recent dip in rates represents a significant savings for home buyers. Today’s 30-year mortgage rates are currently 0.93% lower than they were last fall, when rates hit 7.08%. For a $500,000 home loan, a 0.93% lower rate saves you $300+ on your monthly payment and over $110,000 in interest over the life of the loan.
To get the lowest interest rate on your mortgage, however, you’ll want to make sure your credit score is as high as possible. This may be the most-important step you can take when trying to get the best terms on a mortgage.
But before committing to buying a home, you’ll need to save up money for a down payment and closing costs. These upfront costs can easily add up to 10%- 20% of the home’s purchase price. On top of that, it’s a good idea to have money set aside for maintenance, repairs and moving costs. You’ll need to make sure you have enough money saved up before starting your home search.
One way you can reduce some of the upfront costs of buying a home is to compare offers from lenders that don’t charge origination fees. Here are some of the best lenders with no origination fees according to our rankings:
The upcoming FHFA fee changes affect conforming conventional loans, which can be sold to Fannie Mae or Freddie Mac by lenders. More niche mortgages, such as jumbo loans, FHA loans and VA loans will not be affected by these changes.
The specific fees that are changing are known as Loan Level Price Adjustments (LLPAs), which are risk-based fees applied to loans. Lenders base these fees on factors such as the borrower’s credit score, the loan-to-value ratio (LTV) and the type of mortgage. In general, you’ll pay more if your credit score is lower or if you’re borrowing a higher percentage of the property’s value (i.e. higher LTV).
The future fee changes will add an additional layer of complexity to a process that already causes heads to spin. For example, the LLPAs for a purchase mortgage will drop for some borrowers with lower credit scores, while borrowers with higher credit scores could be paying more in certain circumstances.
Given the amount of nuance with LLPAs, it’s important to have a conversation with your lender (or multiple lenders) to see how the upcoming changes could affect your home loan. Keep in mind that although the changes apply to loans sold to Fannie Mae or Freddie Mac from May 1, 2023, lenders will begin adjusting their fees well before that deadline.
Mortgage rates have dipped in recent weeks, which can help make your future mortgage payments more affordable. Just be sure to pay attention to the fees, in addition to the rate, when you are comparing mortgage loan offers.
Also, certain fees associated with conventional loans are changing soon, which could save you money or cost you more depending on your situation. So if you’re in the process of buying a home, talk with your lender to figure out how you’ll be affected.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
Several banks are reportedly working on a digital wallet that links with debit and credit cards to compete with Apple Pay and PayPal.
According to the Wall Street Journal, the digital wallet would be operated by Early Warning Services, a joint venture from several banks that also runs Zelle. The major banks involved include Wells Fargo, JPMorgan Chase and Bank of America, according to the report.
The new wallet would initially be launched with Visa and Mastercard already on board, according to the report.
The move could be seen as an effort to slow Apple‘s push into consumer banking, as the tech giant already offers a branded credit card and is exploring other products for their famously loyal customer base.
Shares of PayPal, which has digital payments as its core business, slipped about 1.5% in premarket trading.
The report follows a mixed earnings season for big banks, with several CEOs including Bank of America’s Brian Moynihan warning that the U.S. was likely to see a mild recession. Bank stocks have struggled over the past year even as interest rates have risen, as fears of a recession and a slower investment banking environment have offset gains in net interest income.
Goldman Sachs Group Inc’s asset management arm will significantly reduce the $59 billion of alternative investments that weighed on the bank’s earnings, an executive told Reuters.
The Wall Street giant plans to divest its positions over the next few years and replace some of those funds on its balance sheet with outside capital, Julian Salisbury, chief investment officer of asset and wealth management at Goldman Sachs, told Reuters in an interview.
“I would expect to see a meaningful decline from the current levels,” Salisbury said. “It’s not going to zero because we will continue to invest in and alongside funds, as opposed to individual deals on the balance sheet.”
Goldman had a dismal fourth quarter, missing Wall Street profit targets by a wide margin. Like other banks struggling as company dealmaking stalls, Goldman is letting go of more than 3,000 employees in its biggest round of job cuts since the 2008 financial crisis.
The bank will provide further details on its asset plan during Goldman Sachs’ investor day on Feb. 28, he said. Alternative assets can include private equity or real estate as opposed to traditional investments such as stocks and bonds.
EARNINGS VOLATILITY
Slimming down the investments on a bank’s balance sheet can reduce volatility in its earnings, said Mark Narron, senior director of North American banks at credit rating agency Fitch Ratings. Shedding investments also cuts the amount of so-called risk-weighted assets that are used by regulators to determine the amount of capital a bank must hold, he said.
Goldman Sachs’ asset and wealth management posted a 39% decline in net revenue to $13.4 billion in 2022, with its revenue from equity and debt investments sinking 93% and 63%, respectively, according to its earnings announced last week.
The $59 billion of alternative investments held on the balance sheet fell from $68 billion a year earlier, the results showed. The positions included $15 billion in equity investments, $19 billion in loans and $12 billion in debt securities, alongside other investments.
“Obviously, the environment for exiting assets was much slower in the back half of the year, which meant we were able to realize less gains on the portfolio compared to 2021,” Salisbury said.
If the environment improves for asset sales, Salisbury said he expected to see “a faster decline in the legacy balance sheet investments.”
“If we would have a couple of normalized years, you’d see the reduction happening,” in that period, he said.
PRIVATE CREDIT
Clients are showing keen interest in private credit given sluggish capital markets, Salisbury said.
“Private credit is interesting to people because the returns available are attractive,” he said. “Investors like the idea of owning something a little more defensive but high yielding in the current economic environment.”
Goldman Sachs’ asset management arm closed a $15.2 billion fund earlier this month to make junior debt investments in private equity-backed businesses.
Private credit assets across the industry have more than doubled to over $1 trillion since 2015, according to data provider Preqin.
Investors are also showing interest in private equity funds and are looking to buy positions in the secondary market when existing investors sell their stakes, Salisbury said.
The U.S. investment-grade primary bond market kicked off 2023 with a flurry of new deals.
The market rally has “more legs” because investors are willing to buy bonds with longer maturities while seeking higher credit quality because of the uncertain economic environment, he said.
Goldman Sachs economists expect the Federal Reserve to raise interest rates by 25 basis points each in February, March and May, then holding steady for the rest of the year, Salisbury said.
More broadly, the “chilling effect” of last year’s rate hikes is starting to cool economic activity, Salisbury said, citing softer hiring activity and slowing growth in rents.
Mike Mayo, Wells Fargo Securities senior banking analyst, joins ‘Closing Bell Overtime’ to discuss the fall of Goldman Sachs consumer banking division, the Federal Reserve investigation facing Goldman Sachs, and stock recommendations for the banking sector.
Greg McBride, chief financial analyst at Bankrate.com, joins ‘The Exchange’ to discuss credit rate increases, a growing volume of credit card debt, and the relationship between credit card rates and Fed policy
