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Tag: Citizens Financial Group Inc.

  • Earnings will drive the stock market in the week ahead. That’s a good thing

    Earnings will drive the stock market in the week ahead. That’s a good thing

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    A view of the New York Stock Exchange building in the Financial District in New York City on Aug. 5, 2024.

    Charly Triballeau | Afp | Getty Images

    The good times are still rolling on Wall Street. An intensifying earnings season will put that momentum to the test.

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  • Regional bank earnings reports may not matter as group rips higher on rate cut optimism

    Regional bank earnings reports may not matter as group rips higher on rate cut optimism

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  • This bank just boosted its 1-year CD yield to more than 5%, even as traders await Fed rate cuts

    This bank just boosted its 1-year CD yield to more than 5%, even as traders await Fed rate cuts

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  • Investors may be looking at commercial real estate risk all wrong and missing these opportunities

    Investors may be looking at commercial real estate risk all wrong and missing these opportunities

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  • Regional banks will dominate rest of earnings season this week. Here’s what analysts expect

    Regional banks will dominate rest of earnings season this week. Here’s what analysts expect

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  • Bank branches inside supermarkets are closing 7 times faster than other locations

    Bank branches inside supermarkets are closing 7 times faster than other locations

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    Customers at a Safeway store in San Francisco.

    Getty Images

    American banks have been shuttering branches located within supermarket chains at a rate seven times faster than other locations amid the industry’s profit squeeze and customers’ migration to digital channels.

    Banks closed 10.7% of their in-store branches in the year ended June 30, according to Federal Deposit Insurance Corp. data. The closure rate for other branches was 1.4% in that period.

    Most branches within grocery stores are operated by regional banks, which have been under pressure since the March collapse of Silicon Valley Bank. PNC, Citizens Financial and U.S. Bank shut the most in-store locations during the 12-month period at chains including Safeway and Stop & Shop. Among retailers, Walmart houses the most bank branches with 1,179, according to an S&P Global report released this week.

    While the financial industry has been closing branches for years, the pace accelerated sharply in 2021 after the pandemic turbocharged the adoption of mobile and online banking. That year, banks closed nearly 18% of their in-store branches and 3.1% of other locations, S&P Global said.

    “In-store branches have fallen out of favor at many banks,” said Nathan Stovall, head of financial institutions research at S&P Global Market Intelligence. “We’ve seen banks look to shrink their branch networks, with a focus on cutting less-profitable branches that generate less customer traffic and fewer loans and high net worth accounts.”

    Banks began building branches inside supermarkets in the 1990s because the scaled-down locations were far cheaper to set up than regular locations. But the industry now views branches as a place to entice customers with wealth management accounts, credit cards and loans rather than just a place to withdraw money, and that favors full-sized branches.

    The pace of closures has slowed since the 2021 peak, but are still at an elevated level compared to before the pandemic. For instance, in 2019, banks shut 4.2% of in-store locations and 1.7% of other locations.

    The moves come as the industry is adjusting to higher funding costs as customers have moved balances into higher-yielding options like money market funds. U.S. banks registered a 15% decline in deposits from in-store branches, while deposits at other branches fell 4.7% in the year ended June 30, according to the FDIC.

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  • These regional banks are at risk of being booted from the S&P 500

    These regional banks are at risk of being booted from the S&P 500

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    A customer enters Comerica Inc. Bank headquarters in Dallas, Texas.

    Cooper Neill | Bloomberg | Getty Images

    The stock sell-off that hit regional banks this year has exposed lenders including Zions and Comerica to the risk of being delisted from the Standard & Poor’s 500 index.

    The banks, each with market capitalizations of around $5 billion, were the fourth- and sixth-smallest members of the 500 company listing as of this week, according to FactSet.

    That leaves the companies in a similar position to Lincoln National, which got shunted from the S&P 500 last month and placed into a small-cap index. Blackstone, the world’s largest alternative asset manager, took Lincoln National’s spot.

    This year’s regional banking crisis has already caused changes in the composition of the S&P 500, the most popular broad measure of large American companies in the investing world. Silicon Valley Bank and First Republic were removed from the benchmark after deposit runs led to their government seizure. More changes may be coming, especially if the industry faces a protracted slump, according to analysts.

    “It’s absolutely a risk,” Chris Marinac, research director at Janney Montgomery Scott, said in an interview. “If the market were to further change the valuation of these companies, especially if we have higher rates, I wouldn’t rule it out.”

    Banks begin disclosing third-quarter results Friday, led by JPMorgan Chase. Investors are keen to hear how rising interest rates affected bond holdings and deposits in the period.

    Companies that no longer qualify as large-cap stocks are at heightened risk of demotion from the S&P 500. There were seven members valued at $6 billion or less at the end of August. Two of them were removed the following month: insurer Lincoln National and consumer firm Newell Brands.

    Those that join the benchmark often celebrate the milestone. The popularity of mutual funds and ETFs based on the index means that new members typically see an immediate boost to their stock price. Those that get demoted can suffer declines as fewer money managers need to own shares in the companies.

    S&P guidelines

    To be considered for inclusion in the S&P 500, companies need to have a market capitalization of at least $14.5 billion and meet profitability and trading standards.

    Members that violate “one or more of the eligibility criteria for the S&P Composite 1500 may be deleted from the respective component index at the Index Committee’s discretion,” according to S&P Dow Jones Indices’ methodology.

    Still, that doesn’t mean Zions or Comerica are on the cusp of a delisting. The committee that decides the composition of the S&P 500 looks to minimize churn and accurately represent reference sectors, making changes only when “ongoing conditions warrant an index change,” according to S&P.

    Stock Chart IconStock chart icon

    Shares of regional banks ZIons and Comerica have tumbled this year.

    For instance, after the onset of the Covid pandemic in March 2020, many retail S&P 500 companies temporarily violated the profitability rule, but that didn’t result in widespread demotions, according to a person who has studied the S&P 500 index.

    S&P Dow Jones Indices declined to comment for this article, as did Comerica. Zion’s didn’t immediately return a message seeking comment.

    Besides Zions and Comerica, KeyCorp and Citizens Financial are the only other S&P 500 banks with market caps below the threshold for inclusion in the index, according to an Aug. 31 Piper Sandler note. KeyCorp and Citizens, however, each have market caps of greater than $10 billion, making them less likely to be impacted than smaller banks.

    After Blackstone became the first major alternative asset manager to join the S&P 500 last month, analysts said that peers including KKR and Apollo Global may be next, and they would likely replace other financial names. KKR and Apollo each have market capitalizations of greater than $50 billion.

    “Perhaps more demotions of low-market cap financials are to come,” Wells Fargo analyst Finian O’Shea said in a Sept. 5 research note.

    – CNBC’s Gabriel Cortes contributed to this article.

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  • These rare stocks are paying a higher dividend than the 10-year Treasury yield right now

    These rare stocks are paying a higher dividend than the 10-year Treasury yield right now

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  • Regional banks face another hit as regulators force them to raise debt levels

    Regional banks face another hit as regulators force them to raise debt levels

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    Martin Gruenberg, acting chairman of the Federal Deposit Insurance Corp. (FDIC), speaks during an Urban Institute panel discussion in Washington, D.C., on Friday, June 3, 2022.

    Ting Shen | Bloomberg | Getty Images

    U.S. regulators on Tuesday unveiled plans to force regional banks to issue debt and bolster their so-called living wills, steps meant to protect the public in the event of more failures.

    American banks with at least $100 billion in assets would be subject to the new requirements, which makes them hold a layer of long-term debt to absorb losses in the event of a government seizure, according to a joint notice from the Treasury Department, Office of the Comptroller of the Currency, Federal Reserve and Federal Deposit Insurance Corp.

    The steps are part of regulators’ response to the regional banking crisis that flared up in March, ultimately claiming three institutions and damaging the earnings power of many others. In July, the agencies released the first salvo of expected changes, a sweeping set of proposals meant to heighten capital requirements and standardize risk models for the industry.

    In their latest proposal, impacted lenders will have to maintain long-term debt levels equal to 3.5% of average total assets or 6% of risk-weighted assets, whichever is higher, according to a fact sheet released Tuesday by the FDIC. Banks will be discouraged from holding the debt of other lenders to reduce contagion risk, the regulator said.

    Higher funding costs

    The requirements will create “moderately higher funding costs” for regional banks, the agencies acknowledged. That could add to the industry’s earnings pressure after all three major ratings agencies have downgraded the credit ratings of some lenders this year.

    Still, the industry will have three years to conform to the new rule once enacted, and many banks already hold acceptable forms of debt, according to the regulators. They estimated that regional banks already have roughly 75% of the debt they will ultimately need to hold.

    The KBW Regional Banking Index, which has suffered deep losses this year, rose less than 1%.

    Indeed, industry observers had expected these latest changes: FDIC Chairman Martin Gruenberg telegraphed his intentions earlier this month in a speech at the Brookings Institution.

    Medium is the new big

    Broadly, the proposal takes measures that apply to the biggest institutions — known in the industry as global systemically important banks, or GSIBs — down to the level of banks with at least $100 billion in assets. The moves were widely expected after the sudden collapse of Silicon Valley Bank in March jolted customers, regulators and executives, alerting them to emerging risks in the banking system.

    That includes steps to raise levels of long-term debt held by banks, removing a loophole that allowed midsized banks to avoid the recognition of declines in bond holdings, and forcing banks to come up with more robust living wills, or resolution plans that would take effect in the event of a failure, Gruenberg said this month.

    Regulators would also look at updating their own guidance on monitoring risks including high levels of uninsured deposits, as well as changes to deposit insurance pricing to discourage risky behavior, Gruenberg said in the Aug. 14 speech. The three banks seized by authorities this year all had relatively large amounts of uninsured deposits, which were a key factor in their failures.

    What’s next for regionals?

    Analysts have focused on the debt requirements because that is the most impactful change for bank shareholders. The point of raising debt levels is so that if regulators need to seize a midsized bank, there is a layer of capital ready to absorb losses before uninsured depositors are threatened, according to Gruenberg.

    The move will force some lenders to either issue more corporate bonds or replace existing funding sources with more expensive forms of long-term debt, Morgan Stanley analysts led by Manan Gosalia wrote in a research note Monday.

    That will further squeeze margins for midsized banks, which are already under pressure because of rising funding costs. The group could see an annual hit to earnings of as much as 3.5%, according to Gosalia.

    There are five banks in particular that may need to raise a total of roughly $12 billion in fresh debt, according to the analysts: Regions, M&T Bank, Citizens Financial, Northern Trust and Fifth Third Bancorp. The banks didn’t immediately respond to requests for comment.

    Bank groups complain

    Having long-term debt on hand should calm depositors during times of distress and reduces costs to the FDIC’s own Deposit Insurance Fund, Gruenberg said this month. It also improves the chances that a weekend auction of a bank could be done without using extraordinary powers reserved for systemic risks, and gives regulators more options in that scenario, like replacing ownership or breaking up banks to sell them in pieces, he said.

    “While many regional banks have some outstanding long-term debt, the new proposal will likely require issuance of new debt,” Gruenberg said. “Since this debt is long-term, it will not be a source of liquidity pressure when problems become apparent. Unlike uninsured depositors, investors in this debt know that they will not be able to run when problems arise.”

    Investors in long-term bank debt will have “greater incentive” to monitor risk at lenders, and the publicly traded instruments will “serve as a signal” of the market’s view of risk in these banks, he said.

    Regulators are accepting comments on these proposals through the end of November. Trade groups raised howls of protest when regulators released part of their plans in July.

    Correction: FDIC Chairman Martin Gruenberg gave a speech in August at the Brookings Institution. An earlier version misstated the month.

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  • Regional bank shares under fire again after credit downgrade, head for worst day in three months

    Regional bank shares under fire again after credit downgrade, head for worst day in three months

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    A PNC Bank branch in New York, on Wednesday, Jan. 18, 2023.

    Bing Guan | Bloomberg | Getty Images

    Investors dumped shares of regional bank stocks on Tuesday after Moody’s made changes to the credit outlook for more than two dozen banks across the group, putting the sector on track for its worst day since May.

    Moody’s downgraded the credit of 10 small regional banks by one notch apiece, while 17 other banks were either given negative outlook or had their rating put under review.

    In a note, Moody’s cited many of the concerns around interest rate risk that led to the collapse of several regional banks earlier this year.

    “US banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets. Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital,” the Moody’s note said.

    Among the banks that were downgraded on Tuesday, shares of M&T Bank and Webster Financial fell more than 3% each. Shares of PNC Financial and Citizens Financial Group, which were given negative outlooks by Moody’s, fell about 4%.

    The declines dragged down the SPDR S&P Regional Banking ETF (KRE) by about 3.5%. That puts the fund on track for its worst day since May 4, when the fund fell nearly 5.5%.

    Stock Chart IconStock chart icon

    The KRE ETF was suffering one of its worst days in months on Tuesday.

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  • Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

    Moody’s cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

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    A general view of the New York Stock Exchange (NYSE) on Wall Street in New York City on May 12, 2023.

    Angela Weiss | AFP | Getty Images

    Moody’s cut the credit ratings of a host of small and mid-sized U.S. banks late Monday and placed several big Wall Street names on negative review.

    The firm lowered the ratings of 10 banks by one rung, while major lenders Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust are now under review for a potential downgrade.

    Moody’s also changed its outlook to negative for 11 banks, including Capital One, Citizens Financial and Fifth Third Bancorp.

    Among the smaller lenders receiving an official ratings downgrade were M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial.

    “U.S. banks continue to contend with interest rate and asset-liability management (ALM) risks with implications for liquidity and capital, as the wind-down of unconventional monetary policy drains systemwide deposits and higher interest rates depress the value of fixed-rate assets,” Moody’s analysts Jill Cetina and Ana Arsov said in the accompanying research note.

    “Meanwhile, many banks’ Q2 results showed growing profitability pressures that will reduce their ability to generate internal capital. This comes as a mild U.S. recession is on the horizon for early 2024 and asset quality looks set to decline from solid but unsustainable levels, with particular risks in some banks’ commercial real estate (CRE) portfolios.”

    Regional U.S. banks were thrust into the spotlight earlier this year after the collapse of Silicon Valley Bank and Signature Bank triggered a run on deposits across the sector. The panic eventually spread to Europe and resulted in the emergency rescue of Swiss giant Credit Suisse by domestic rival UBS.

    Though authorities went to great lengths to restore confidence, Moody’s warned that banks with substantial unrealized losses that are not captured by their regulatory capital ratios may still be susceptible to sudden losses of market or consumer confidence in a high interest rate environment.

    The Federal Reserve in July lifted its benchmark borrowing rate to a 5.25%-5.5% range, having tightened monetary policy aggressively over the past year and a half in a bid to rein in sky-high inflation.

    “We expect banks’ ALM risks to be exacerbated by the significant increase in the Federal Reserve’s policy rate as well as the ongoing reduction in banking system reserves at the Fed and, relatedly, deposits because of ongoing QT,” Moody’s said in the report.

    “Interest rates are likely to remain higher for longer until inflation returns to within the Fed’s target range and, as noted earlier, longer-term U.S. interest rates also are moving higher because of multiple factors, which will put further pressure on banks’ fixed-rate assets.”

    Regional banks are at a greater risk since they have comparatively low regulatory capital, Moody’s noted, adding that institutions with a higher share of fixed-rate assets on the balance sheet are more constrained in terms of profitability and ability to grow capital and continue lending.

    “Risks may be more pronounced if the U.S. enters a recession – which we expect will happen in early 2024 – because asset quality will worsen and increase the potential for capital erosion,” the analysts added.

    Though the stress on U.S. banks has mostly been concentrated in funding and interest rate risk resulting from monetary policy tightening, Moody’s warned that a worsening in asset quality is on the horizon.

    “We continue to expect a mild recession in early 2024, and given the funding strains on the U.S. banking sector, there will likely be a tightening of credit conditions and rising loan losses for U.S. banks,” the agency said.

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  • Regional bank yields have fallen but plenty are still paying more than 4%

    Regional bank yields have fallen but plenty are still paying more than 4%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


    U.S. Federal Reserve chart

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

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

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

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

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

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

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

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

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

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

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

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

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

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  • Federal Reserve says 23 biggest banks weathered severe recession scenario in stress test

    Federal Reserve says 23 biggest banks weathered severe recession scenario in stress test

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    Michael Barr, Vice Chair for Supervision at the Federal Reserve, testifies about recent bank failures during a US Senate Committee on Banking, House and Urban Affairs hearing on Capitol Hill in Washington, DC, May 18, 2023.

    Saul Loeb | AFP | Getty Images

    All 23 of the U.S. banks included in the Federal Reserve’s annual stress test weathered a severe recession scenario while continuing to lend to consumers and corporations, the regulator said Wednesday.

    The banks were able to maintain minimum capital levels, despite $541 billion in projected losses for the group, while continuing to provide credit to the economy in the hypothetical recession, the Fed said in a release.

    Begun in the aftermath of the 2008 financial crisis, which was caused in part by irresponsible banks, the Fed’s annual stress test dictates how much capital the industry can return to shareholders via buybacks and dividends. In this year’s exam, the banks underwent a “severe global recession” with unemployment surging to 10%, a 40% decline in commercial real estate values and a 38% drop in housing prices.

    Banks are the focus of heightened scrutiny in the weeks following the collapse of three midsized banks earlier this year. But smaller banks avoid the Fed’s test entirely. The test examines giants including JPMorgan Chase and Wells Fargo, international banks with large U.S. operations, and the biggest regional players including PNC and Truist.

    As a result, clearing the stress test hurdle isn’t the “all clear” signal its been in previous years. Still expected in coming months are increased regulations on regional banks because of the recent failures, as well as tighter international standards likely to boost capital requirements for the country’s largest banks.  

    “Today’s results confirm that the banking system remains strong and resilient,” Michael Barr, vice chair for supervision at the Fed, said in the release. “At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses.”

    Goldman’s credit card losses

    Losses on loans made up 78% of the $541 billion in projected losses, with most of the rest coming from trading losses at Wall Street firms, the Fed said. The rate of total loan losses varied considerably across the banks, from a low of 1.3% at Charles Schwab to 14.7% at Capital One.

    Credit cards were easily the most problematic loan product in the exam. The average loss rate for cards in the group was 17.4%; the next-worst average loss rate was for commercial real estate loans at 8.8%.

    Among card lenders, Goldman Sachs‘ portfolio posted a nearly 25% loss rate in the hypothetical downturn — the highest for any single loan category across the 23 banks— followed by Capital One’s 22% rate. Mounting losses in Goldman’s consumer division in recent years, driven by provisioning for credit-card loans, forced CEO David Solomon to pivot away from his retail banking strategy.

    Regional banks pinched?

    The group saw their total capital levels drop from 12.4% to 10.1% during the hypothetical recession. But that average obscured larger hits to capital — which provides a cushion for loan losses — seen at banks that have greater exposure to commercial real estate and credit-card loans.

    Regional banks including U.S. Bank, Truist, Citizens, M&T and card-centric Capital One had the lowest stressed capital levels in the exam, hovering between 6% and 8%. While still above current standards, those relatively low levels could be a factor if coming regulation forces the industry to hold higher levels of capital.

    Big banks generally performed better than regional and card-centric firms, Jefferies analyst Ken Usdin wrote Wednesday in a research note. Capital One, Citigroup, Citizens and Truist could see the biggest increases in required capital buffers after the exam, he wrote.

    Banks are expected to disclose updated plans for buybacks and dividends Friday after the close of regular trading. Given uncertainties about upcoming regulation and the risks of an actual recession arriving in the next year, analysts have said banks are likely to be relatively conservative with their capital plans.

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

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

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    Goodbye pandemic refi cash-outs. Hello HELOCs?

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

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

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

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

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

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

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

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


    BofA Global, New York Fed Consumer Credit Panel/Equifax

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

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

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

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

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

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

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

    Related: The economy was supposed to cave in by now. It hasn’t — and GDP is set to rise again.

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  • As regional bank stock rally regains steam, investors should watch out for these spoilers

    As regional bank stock rally regains steam, investors should watch out for these spoilers

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  • UBS says it’s time to start picking up some of the safer regional banks on the cheap

    UBS says it’s time to start picking up some of the safer regional banks on the cheap

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  • Jamie Dimon says ‘this part of the crisis is over’ after JPMorgan Chase buys First Republic

    Jamie Dimon says ‘this part of the crisis is over’ after JPMorgan Chase buys First Republic

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    Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., during a Bloomberg Television interview at the JPMorgan Global High Yield and Leveraged Finance Conference in Miami, Florida, US, on Monday, March 6, 2023.

    Marco Bello | Bloomberg | Getty Images

    The crisis that led to the downfall of three regional U.S. banks in recent weeks is largely over after the resolution of First Republic, according to JPMorgan Chase CEO Jamie Dimon.

    JPMorgan emerged as the winner of a weekend auction for First Republic after regulators decided that time had run out on a private sector solution. The Federal Deposit Insurance Corporation seized the bank and New York-based JPMorgan announced early Monday that it was acquiring nearly all of the deposits and most of the assets of First Republic.

    “There are only so many banks that were offsides this way,” Dimon told analysts in a call shortly after the deal was announced.

    “There may be another smaller one, but this pretty much resolves them all,” Dimon said. “This part of the crisis is over.”

    In the wake of the sudden collapse in March of Silicon Valley Bank and Signature Bank, investors have punished other lenders that had similar characteristics to SVB. Companies with the highest percentage of uninsured deposits and losses on their balance sheet were most scrutinized.

    The March turmoil exposed poor management by some midsized banks that essentially bet that interest rates wouldn’t rise; when rates did rise, the banks were caught “offsides” with unrealized losses from bonds on their balance sheet.

    But the $30 billion injection of deposits into First Republic last month bought time for the industry, allowing mid-sized banks to report first-quarter results in recent weeks that in many cases showed a stabilization of deposits. That eased investors’ fears that many more lenders would soon topple.

    Shares of regional banks including PacWest and Citizens Financial slumped in premarket trading.

    Down the road, investors are still exposed to risks created by the Federal Reserve’s interest rate hikes and their impact on assets including real estate, Dimon added.

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  • Regional bank reports so far show deposits are stabilizing. What’s next for the stocks

    Regional bank reports so far show deposits are stabilizing. What’s next for the stocks

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  • 10 dividend stocks yielding at least 4.5% that are rated ‘buy’ by most analysts

    10 dividend stocks yielding at least 4.5% that are rated ‘buy’ by most analysts

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    During a period of high interest rates, it might be more difficult to impress investors with dividend stocks. But the stocks can have an important advantage over the long term. The dividend payouts can increase over the years, helping to push share prices higher over time.

    When considering stocks for dividend income, yield shouldn’t be the only thing you consider. If a stock’s price has tumbled because investors are worried about the company’s business prospects, the dividend yield might be very high. A double-digit yield might mean investors expect to see a cut to the dividend soon.

    There are many ways to look at companies’ expected ability to maintain or raise their dividend payouts. But one can also take a simple approach to begin researching stock choices.

    At the moment, you can get a bank CD with a yield of close to 5% pretty easily. Here’s a look at current yields for CDs and U.S. Treasury securities and an approach for laddering them not only to protect your cash but to hedge against interest-rate risk.

    For investors who would rather aim for long-term growth to go along with dividend income, or take a relatively conservative approach to growth while reinvesting dividends, a screen of stocks in the S&P 500
    SPX,
    +0.33%
    produces only 10 stocks with dividend yields of 4.5% or higher with majority “buy” or equivalent ratings among analysts polled by FactSet. Here they are, sorted by dividend yield:

    Company

    		 Ticker

    		 Dividend Yield

    		 Expected payout increase through 2025

    		 Share “buy” ratings

    		 April 16 price

    		 Consensus price target

    		 implied 12-month upside potential
    Comerica Inc.

    		 CMA,
    +4.00%         		6.56%

    		 10%

    		 58%

    		 $43.30

    		 $60.53

    		 40%
    Citizens Financial Group Inc.

    		 CFG,
    +4.19%         		5.77%

    		 12%

    		 74%

    		 $29.10

    		 $39.29

    		 35%
    Healthpeak Properties Inc.

    		 PEAK,
    +2.33%         		5.71%

    		 9%

    		 60%

    		 $21.01

    		 $27.69

    		 32%
    Hasbro Inc.

    		 HAS,
    +1.28%         		5.34%

    		 8%

    		 69%

    		 $52.40

    		 $69.27

    		 32%
    Philip Morris International Inc.

    		 PM,
    +0.46%         		5.11%

    		 11%

    		 67%

    		 $99.48

    		 $113.56

    		 14%
    Realty Income Corp.

    		 O,
    +1.30%         		5.04%

    		 7%

    		 56%

    		 $60.77

    		 $70.00

    		 15%
    Fifth Third Bancorp

    		 FITB,
    +3.33%         		4.99%

    		 3%

    		 72%

    		 $26.44

    		 $34.55

    		 31%
    VICI Properties Inc.

    		 VICI,
    +1.58%         		4.82%

    		 12%

    		 95%

    		 $32.35

    		 $37.73

    		 17%
    Organon & Co.

    		 OGN,
    +1.01%         		4.71%

    		 5%

    		 55%

    		 $23.80

    		 $31.89

    		 34%
    Iron Mountain Inc.

    		 IRM,
    +0.82%         		4.69%

    		 15%

    		 78%

    		 $52.76

    		 $56.00

    		 6%
    Source: FactSet

    Click on the ticker for more about each company.

    Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

    The dividend yields for this group of 10 companies are based on current annual regular payout rates, with all paying quarterly except for Realty Income Corp.
    O,
    +1.30%    ,
    which pays monthly.

    These two oil and natural gas producers would have passed the above screen based on their most recent dividend payments and analysts’ sentiment, however, they pay a combined fixed-plus-variable dividend every quarter, with the fixed portion relatively low:

    • Shares of Pioneer Natural Resources Co.
      PXD,
      -0.77%
      closed at $230 on April 14. Among analysts polled by FactSet, 59% rate the stock a “buy” or the equivalent, and the consensus price target is $257.42. The company pays a fixed quarterly dividend of $1.10 a share, which would make for a dividend yield of only 1.91%. However, the most recent variable quarterly dividend was $4.48 a share, for a combined quarterly dividend of $5.58, which would translate to an annualized dividend yield of 9.70%. The consensus estimate for dividends in 2025 is $4.63 — the analysts are only estimating the fixed portion of the dividend. Pioneer has held preliminary merger discussions with Exxon Corp.
      XOM,
      -1.16%      ,
      according to a Wall Street Journal report.

    • Devon Energy Corp.’s
      DVN,
      -0.72%
      stock closed at $55.70 on April 14. The shares are rated “buy” or the equivalent by 55% of analysts and the consensus price target is $67.66. The fixed portion of Devon’s quarterly dividend is 20 cents a share, for an annualized dividend yield of 1.44%. The variable portion of the most recent quarterly dividend was 69 cents a share. The total payout of 89 cents would make for an annual dividend yield of 6.39%. Analysts expect the fixed portion of annual dividends to total $3.61 in 2025, according to FactSet.

    Don’t miss: Buffett is buying in Japan. This overseas value-stock fund is also making bets there. Is it a good way to diversify?

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