Tag: Commercial Banking

Banks underestimate small-business owners’ aversion to fees at their peril

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When nbkc bank started offering its small-business banking accounts nationwide, management’s first priority was to ensure the accounts had low fees, if any at all.

At the time — back in 2018 — this was an unusual move by a bank, said Melissa Eggleston, chief deposit officer for the Kansas City area bank. The $1.1 billion-asset bank made the strategic decision to forgo the short-term revenue that it could potentially generate by charging small-business owners more fees.

Instead, the bank decided to focus on building long-term relationships with these entrepreneurs by offering a more competitive product. Today, the bank’s website proudly proclaims that business owners will pay no fees for a range of services, including incoming wire transfers from anywhere in the U.S, online banking and bill payment.

“It was a breath of fresh air for them,” Eggleston said. “Historically a small-business customer would walk into a local bank and expect an extensive fee schedule.”

Melissa Eggleston, chief deposit officer of nbkc bank, said that her institution’s low- and no-fee checking account was “a breath of fresh air for” for small-business customers.
Paul Versluis

Now, nbkc bank has small-business customers in all 50 states. Its deposits doubled to $866 million from the end of 2017 to June 30, 2022, according to data from the Federal Deposit Insurance Corp. Specifically, the bank’s non-interest-bearing deposits, which includes these small-business accounts, have surged from just $44 million to almost $420 million over that same period, according to the FDIC.

It’s not surprising that nbkc’s low- or no-fee small-business accounts have been popular. On the retail side, there has been a greater focus on so-called junk fees that banks charge consumers. The fees small-business owners pay haven’t received the same level of attention, but experts say bankers would be wise to keep in mind that these customers are also similarly opposed to paying fees that come across as adding little to the relationship.

“Small businesses hate to pay fees, especially those often associated with their checking accounts. That’s one of the top things owners will say,” said Mary Beth Sullivan, managing partner at the bank consulting firm Capital Performance Group in Washington, D.C. “Having said that, small-business owners are a little less price sensitive because if they need help, they are willing to pay for it. The key is to make very clear the value received for the fees being paid.”

A universal loathing of fees

Banking is an infamously “sticky” business, with customers reluctant to change financial institutions.

This can be especially true for commercial clients, who generally have more complex needs than the typical retail consumer. This reluctance to switch institutions came through in a recent survey from Arizent, American Banker’s parent company, on what matters for small-business owners when it comes to banking. Only 16% of the small businesses surveyed said they were “very likely” or “somewhat likely” to leave their community bank in the next two years, according to Arizent’s data. For global banks and regional banks, those figures were 15% and 24%, respectively.

However, if small-business owners are extremely unlikely to switch banks, should financial institutions worry about irritating them with fees?

The answer to that question is undoubtedly yes, said Vincent Hui, managing director at Cornerstone Advisors in Scottsdale, Arizona. It’s true that many banks would be able to get away with adding or increasing various charges without a small-business customer walking away. But this strategy would likely limit that customer’s interactions with the bank.

Hui noted that research has shown that about a third of small-business owners are looking to borrow at any given time. An entrepreneur who is already irritated with his or her bank over a range of additional charges, often on top of a monthly service fee, is apt to look elsewhere to borrow those funds.

“If a small-business owner wants to take on debt because they have expansion and growth opportunities, that’s an instance where you want to have a good relationship with them and you are the first call they make, particularly if they are also looking to add on another service to help support their business,” Hui said. “If the business owner is merely tolerating you, that doesn’t mean you are in a good position to get that next piece of business.”

Additionally, there is a reputational risk in following a strategy of generating revenue through numerous fees, Hui said. A small-business owner who is simply staying with a bank out of convenience is far less inclined to recommend that bank to a colleague.

Arizent’s small-business banking survey backed up Hui’s point. Fees were frequently cited by “detractors” — customers who are not likely to recommend their financial institution to others — as a source of irritation.

“Service is terrible, and fees are excessive,” one survey respondent said.

“I like my banking relationship but they have recently added a monthly service fee to my account,” a second survey participant said.

“The bank I had used for 19 years sold to another bank. The new bank charges for almost everything you do,” another business owner said.

If the business owner is merely tolerating you, that doesn’t mean you are in a good position to get that next piece of business.

Vincent Hui, managing director at Cornerstone Advisors

Thirty-six percent of small-business owners said that competitive pricing and low fees were “critical” when selecting a primary institution. About 3% of business owners said fees were “not very important” or “not important at all.”

“Fees do create a bad experience,” said Rohit Arora, CEO of Biz2Credit, a New York-based online platform for small-business lending. “If the fees are too high, owners will switch their accounts over to another bank. There can be a tremendous amount of backlash.”

The fees banks charge can generally be broken down into two categories, said Grayson Tuck, president of the Memphis, Tennessee, law firm Gerrish Smith Tuck. First, there are fees on the lending side, primarily origination fees for a loan, in addition to whatever interest the borrower pays.

Then there are charges that bank customers, including small-businesses, face on the deposit side. These could include a monthly service fee, which can run as high as $30 a month, and charges for certain services, such as remote deposit capture, wire transfers, nonsufficient funds and treasury management.

Banks may justify charging commercial clients these fees, and not necessarily retail consumers for the same service, because a business relationship is typically more involved and requires more time and human resources, Tuck said.

“Banks will earn fees where they can get them,” he added.

A better way to structure fees

Arizent’s survey found that many financial institutions could be doing a better job of how they approach fees for entrepreneurs. There was a significant gap between the small-business owners who listed competitive fees as an area of critical importance to them and those who were satisfied with what they pay for banking services, according to the survey. That means this is an area where financial institutions could improve.

Experts suggested that banks cut fees that come across as merely looking for ways to earn an extra buck, rather than adding value to the relationship. This may involve understanding what matters to each individual small-business owner. For instance, some borrowers are loath to pay an origination fee for a loan but won’t mind paying a slightly higher interest rate to avoid that initial charge.

“Most small businesses may not look at one fee in the singular, but will look at the overall cost of the relationship and the overall benefit of the relationship,” Tuck said. “Does the cost justify the benefit?”

Most small-business owners, who understand the economics of running a successful enterprise, are willing to pay for services they feel add value to their banking relationship, experts said. This may include payroll services or treasury management. Simplifying the fee structure can also go a long way in generating goodwill.

“My sense is it is more about being nickel-and-dimed than it is business owners not wanting to pay,” Sullivan said. “They don’t have the time to track $5 here and there. Just wrap it all up and tell me what it costs, give me a package that will cost me X a month but everything is free.”

Besides its no- or low-fee checking, nbkc offers additional services for small-business owners to take advantage of, such as ACH originations to pay vendors or employees, and nbkc bank also has a relationship with Autobooks that can be used to help with invoicing, Eggleston said. The bank does charge customers for these services.

Eggleston emphasized that the bank is always listening to its small-business customers to see what additional products or services they want to help run their companies more smoothly.

“Everyone talks about growth and how important relationship growth is, but I think the notion of just understanding your existing portfolio is just as important,” she added. “I would encourage listening and polling your customers to understand their banking pain points today and the things that they wish were different. The last thing we want is for people to come in the front door and then leave out the back door.”

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Jackie Stewart

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November 25, 2022
How to fix business journalism: A very meta guide

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Journalism school is a good place for a pessimist.

There’s no shortage of people even in the country’s most venerated journalism programs who will happily tell you about the profession’s downslide. It’s economically unsustainable, far past the glory days of smoky newsrooms, gruff crime reporters on their third divorce and all the burnt coffee that sweet, sweet advertising money could buy.

And I’ll admit it, refreshing the homepage at 10 p.m. doesn’t punch the same way as a frantic editor yelling “Stop the presses!” when late-night news breaks.

Chris Roush’s new book, “The Future of Business Journalism, Why It Matters for Wall Street and Main Street,” tells a familiar tale: Business journalism used to be lucrative. Newspapers’ business sections had loads of readers with disposable income to spread around, and ad sellers were smart enough to tell that to the owners at the local appliance store, salon or whoever.

Newspapers began culling their business reporting staffs around the 2008 financial crisis, just as the country needed, more than ever, to understand what was going on in their local economies. Advertising dollars disappeared, especially as local businesses realized they could reach more people on new social media channels and online.

Then came Mike Bloomberg and his colorful keyboards. Turns out, people realize that good data and good journalism can make them a lot of money, and today places like Bloomberg and Reuters, which pair big data sets with scoop-heavy journalism in pricey subscription platforms, have the largest editorial staffs.

The problem with that? Business news is still available, and it’s valuable. It just goes to the people who can pay for it (and they pay a lot). It’s also mostly national news, leaving people in places like Des Moines, Iowa, and Atlanta struggling to understand what’s going on in their communities, or how big news events affect them.

So, that’s all still pretty grim. Where did that leave people like me, at 20 years old at the University of North Carolina, walking into Roush’s business reporting class for the first time? I took business reporting and economics reporting classes with Roush, now dean of the School of Communications at Quinnipiac University, when he ran the business journalism program at UNC.

Sure, reporting is fun, and it might be valuable, but it’s not worth much to me if I can’t make a career out of it. Screw it, maybe I should listen to my parents and go to law school. Or worse, into public relations.

But what sets Roush’s new book (and his classes) apart is his insistence that good journalism and profitable journalism are one and the same. I did not, thankfully, go to law school after taking Roush’s class. Instead I went to work at one of those local newspapers everyone liked to talk about.

They were one of the lucky ones that largely had a business desk still intact, but the empty chairs in the newsroom echoed the story that Roush told in his book. Still, local business leaders clamored for our coverage, and complained there wasn’t enough of it. That, Roush suggests, isn’t just a civic misstep, but a missed business opportunity.

Consider this publication. American Banker writes for banks across the country, and we’re one of the only publications providing dedicated community bank coverage. But how much of the story are the bankers in Omaha, Nebraska, missing if they’re only reading our banking stories but not seeing the trend pieces about meat processing plant layoffs right over the border in Council Bluffs, Iowa?

On a larger scale, most financial reporting now, in particular, focuses on Wall Street, Silicon Valley and Washington, and how the three intersect. Sure, these trends are important to understand, but so are the moves of state regulators, the contours of local economies and the personalities of figures about town. It can’t be the Wall Street Journals, the Bloombergs or even the American Bankers of the world that tell those stories. It has to be people embedded in those places.

Roush also brings up that financial journalism is mostly white, and largely still male, in a way that reminds us that the good ol’ days never quite existed the way we want them to. Business journalists might have caught on earlier to the trouble brewing in the housing market, he muses, if there had been more Black reporters in newsrooms at the time.

Reading my old professor’s words, I realized that critiquing the ways business and financial journalism goes wrong is easy, and the world certainly doesn’t need Chris Roush to do it. Where his book truly excels is his nuanced portrayal of the value of business journalism and, perhaps most important, how to fix its flaws.

It’s no secret that business journalism, particularly the kind that produces local coverage, has tricky economics. How do you make people pay for a product they expect to get for free? Maybe we should all Hail the Mouse and try to get bought by Disney, or jostle for a spot in the increasingly crowded newsletter market. Perhaps media startups like BuzzFeed are the key. Pick your celebrity crush and I’ll tell YOU which regulatory agency you are!

Startups like Axios, after all, have made a major local news push.

The big picture: Axios did see an opportunity in that local market I told you I worked in earlier, and have started a vertical and newsletter there.

• But Axios is betting a lot of its growth on a professional “Pro” service that will, once again, serve a high-paying business audience.

Roush has some practical suggestions for reporters: Make better friends with PR people, look at bankruptcy court filings and zoning documents to dig up good local stories, and start thinking of health care, in particular, as a story that affects every single aspect of the economy.

Local newsrooms could invest in artificial intelligence that takes some of the burden off overworked reporters, freeing them up to tell more compelling stories. Editors need to start building better pipelines of nonwhite reporters.

Perhaps most importantly, publishers and executives across the country should take a literal page out of Roush’s book, and start pitching business journalism as the competitive advantage it is.

Ultimately, though, none of this can happen unless there’s a demand. Local communities need to decide if the business of business journalism is something they value, and if it’s something they will support.

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Claire Williams

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November 24, 2022
Credit Suisse shares tumble after flagging $1.6 billion 4Q loss amid strain for wealth management comes

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Credit Suisse Group AG shares tumbled in Wednesday morning trading after the bank said asset outflows at its wealth-management business would lead to a fifth consecutive quarterly loss.

Shares
CS,
-1.45%

CSGN,
-4.64%
at 0830 GMT were down 4.9% to CHF3.66.

The Swiss lender said it expects to post a loss before taxes of around 1.5 billion Swiss francs ($1.58 billion) in the fourth quarter, after lower deposits and assets under management led to reduced commissions and fees.

The bank, Switzerland’s second-largest by assets, said that it net-asset outflows in the quarter to Nov. 11 were around 6%, or $88.3 billion of its total $1.47 trillion assets under management.

At the bank’s wealth-management arm, its key business serving the world’s rich, customers removed $66.7 billion.

It came after the Zurich-based company experienced deposit and net-asset outflows in the first two weeks of October, it said, after social-media reports and a spike in credit-default swaps caused a frenzy over the bank’s financial position.

The bank said the outflows led its liquidity to fall below some local-level legal requirements, but it maintained its required group-level liquidity and funding ratios at all times.

Write to Ed Frankl at edward.frankl@dowjones.com

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November 22, 2022
WaFd sees earlier version of itself in merger partner Luther Burbank

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When Washington Federal CEO Brent Beardall looks at Luther Burbank Corp., it reminds him of WaFd 10 or 15 years ago — an efficient bank with above-average asset quality and a commercial lending operation that could expand to serve more industries.

Seattle-based WaFd’s agreement to buy Luther Burbank for $654 million comes with the promise to transform the Santa Rosa, Calif., bank in a manner similar to WaFd’s evolution over the past decade.

“We built a playbook that we think is working pretty well, and now we’ll have the opportunity to use that playbook in a state that’s a phenomenal opportunity for us,” Beardall said on a call with analysts Monday.

The combined WaFd-Luther Burbank would have about $29 billion of assets and $22 billion of deposits. Its network of more than 200 branches would stretch across nine states, including California.
WaFd

The deal would mark the $20.8 billion-asset WaFd’s entrance into California, which has the biggest state economy in the country. Setting up shop there is an attractive prospect for banks focused on commercial lending like WaFd, where about 80% of all new loan originations are to corporate clients. About 12% of visitors to the bank’s website are from California, Beardall said, a potential indicator of customer appetite.

If completed, the purchase would be WaFd’s first since 2014, when it bought 23 Bank of America branches in Arizona and Nevada. That deal added $4 million in loans and $610 million in deposits.

Beardall said his bank’s focus in recent years has been growing organically and not necessarily hunting for merger partners.

“It’s not like we were out there kicking the bushes,” Beardall said in an interview.

The $7.9 billion-asset Luther Burbank was one of the top 25 multifamily housing lenders in the U.S. in 2021, originating $1.3 in loans in the sector, according to an investor presentation that accompanied the deal announcement. The bank gets its name from a well-known botanist who worked in Santa Rosa in the late 19th and early 20th centuries.

Many of the big-dollar deals — much larger than WaFd’s proposed merger — announced last year have taken longer to navigate the merger-approval process amid renewed merger scrutiny ordered by the Biden administration. For several months in 2021, regulators didn’t approve any bank deals.

WaFd executives say the lack of overlap between new and current branches, Luther Burbank’s outstanding CRA rating and the portfolio-lending model of both institutions put them in a good position to move through the merger-approval process.

“We are well aware of how long merger applications have been taking, but we are optimistic that we are strongly positioned with this merger,” Beardall said on the analysts call.

The combined entity would have about $29 billion of assets and $22 billion of deposits. Its network of more than 200 branches would stretch across nine states: Washington, Oregon, California, Idaho, Utah, Nevada, Arizona, New Mexico and Texas. Luther Burbank has 10 branches in California and one in Washington.

Luther Burbank shareholders would receive approximately 0.3353 shares of WaFd stock per Luther Burbank share. The California bank’s chairman, Victor Trione, agreed not to sell more than one-third of his shares in each of the three years following the merger’s completion.

Beardall would remain CEO of WaFd. The bank said it would add two seats on its board, both to be filled by Luther Burbank. WaFd would select a regional president, likely from Luther Burbank, to lead the California market, Beardall said.

WaFd said it expects the deal to close as early as the second quarter.

Mergers and acquisitions have declined this year from a post-crisis high in 2021 as executives brace for an economic downturn and watch valuations fall. The first nine months of 2022 produced about $18 billion of bank mergers, well below the $67 million recorded in full-year 2021.

But analysts expect the next wave of deals, while smaller, could present better value for acquirers.

Shares of WaFd closed down 6.2% Monday, while Luther Burbank shares lost 5%.

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Orla McCaffrey

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November 14, 2022

20 dividend stocks that may be safest if the Federal Reserve causes a recession

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Investors cheered when a report last week showed the economy expanded in the third quarter after back-to-back contractions.

But it’s too early to get excited, because the Federal Reserve hasn’t given any sign yet that it is about to stop raising interest rates at the fastest pace in decades.

Below is a list of dividend stocks that have had low price volatility over the past 12 months, culled from three large exchange traded funds that screen for high yields and quality in different ways.

In a year when the S&P 500
SPX,
-0.40%
is down 18%, the three ETFs have widely outperformed, with the best of the group falling only 1%.

Read: GDP looked great for the U.S. economy, but it really wasn’t

That said, last week was a very good one for U.S. stocks, with the S&P 500 returning 4% and the Dow Jones Industrial Average
DJIA,
-0.32%
having its best October ever.

This week, investors’ eyes turn back to the Federal Reserve. Following a two-day policy meeting, the Federal Open Market Committee is expected to make its fourth consecutive increase of 0.75% to the federal funds rate on Wednesday.

The inverted yield curve, with yields on two-year U.S. Treasury notes
TMUBMUSD02Y,
4.540%
exceeding yields on 10-year notes
TMUBMUSD10Y,
4.064%,
indicates investors in the bond market expect a recession. Meanwhile, this has been a difficult earnings season for many companies and analysts have reacted by lowering their earnings estimates.

The weighted rolling consensus 12-month earning estimate for the S&P 500, based on estimates of analysts polled by FactSet, has declined 2% over the past month to $230.60. In a healthy economy, investors expect this number to rise every quarter, at least slightly.

Low-volatility stocks are working in 2022

Take a look at this chart, showing year-to-date total returns for the three ETFs against the S&P 500 through October:

FactSet

The three dividend-stock ETFs take different approaches:

The $40.6 billion Schwab U.S. Dividend Equity ETF
SCHD,
+0.15%
tracks the Dow Jones U.S. Dividend 100 Indexed quarterly. This approach incorporates 10-year screens for cash flow, debt, return on equity and dividend growth for quality and safety. It excludes real estate investment trusts (REITs). The ETF’s 30-day SEC yield was 3.79% as of Sept. 30.
The iShares Select Dividend ETF
DVY,
+0.45%
has $21.7 billion in assets. It tracks the Dow Jones U.S. Select Dividend Index, which is weighted by dividend yield and “skews toward smaller firms paying consistent dividends,” according to FactSet. It holds about 100 stocks, includes REITs and looks back five years for dividend growth and payout ratios. The ETF’s 30-day yield was 4.07% as of Sept. 30.
The SPDR Portfolio S&P 500 High Dividend ETF
SPYD,
+0.60%
has $7.8 billion in assets and holds 80 stocks, taking an equal-weighted approach to investing in the top-yielding stocks among the S&P 500. It’s 30-day yield was 4.07% as of Sept. 30.

All three ETFs have fared well this year relative to the S&P 500. The funds’ beta — a measure of price volatility against that of the S&P 500 (in this case) — have ranged this year from 0.75 to 0.76, according to FactSet. A beta of 1 would indicate volatility matching that of the index, while a beta above 1 would indicate higher volatility.

Now look at this five-year total return chart showing the three ETFs against the S&P 500 over the past five years:

The Schwab U.S. Dividend Equity ETF ranks highest for five-year total return with dividends reinvested — it is the only one of the three to beat the index for this period.

Screening for the least volatile dividend stocks

Together, the three ETFs hold 194 stocks. Here are the 20 with the lowest 12-month beta. The list is sorted by beta, ascending, and dividend yields range from 2.45% to 8.13%:

Company	Ticker	12-month beta	Dividend yield	2022 total return
Newmont Corp.	NEM, -0.78%	0.17	5.20%	-30%
Verizon Communications Inc.	VZ, -0.07%	0.22	6.98%	-24%
General Mills Inc.	GIS, -1.47%	0.27	2.65%	25%
Kellogg Co.	K, -0.93%	0.27	3.07%	22%
Merck & Co. Inc.	MRK, -1.73%	0.29	2.73%	35%
Kraft Heinz Co.	KHC, -0.56%	0.35	4.16%	11%
City Holding Co.	CHCO, -1.45%	0.38	2.58%	27%
CVB Financial Corp.	CVBF, -1.24%	0.38	2.79%	37%
First Horizon Corp.	FHN, -0.18%	0.39	2.45%	53%
Avista Corp.	AVA, -7.82%	0.41	4.29%	0%
NorthWestern Corp.	NWE, -0.21%	0.42	4.77%	-4%
Altria Group Inc	MO, -0.18%	0.43	8.13%	4%
Northwest Bancshares Inc.	NWBI, +0.10%	0.45	5.31%	11%
AT&T Inc.	T, +0.63%	0.47	6.09%	5%
Flowers Foods Inc.	FLO, -0.44%	0.48	3.07%	7%
Mercury General Corp.	MCY, +0.07%	0.48	4.38%	-43%
Conagra Brands Inc.	CAG, -0.82%	0.48	3.60%	10%
Amgen Inc.	AMGN, +0.41%	0.49	2.87%	23%
Safety Insurance Group Inc.	SAFT, -1.70%	0.49	4.14%	5%
Tyson Foods Inc. Class A	TSN, -0.40%	0.50	2.69%	-20%
Source: FactSet

Any list of stocks will have its dogs, but 16 of these 20 have outperformed the S&P 500 so far in 2022, and 14 have had positive total returns.

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

Don’t miss: Municipal bond yields are attractive now — here’s how to figure out if they are right for you

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November 1, 2022

Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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Bank of America Reports Earnings Monday. What Wall Street Is Watching.

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October 17, 2022
JPMorgan profit falls but beats estimates while Wells Fargo misses

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JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest in come in the coming quarter.

In a busy day for bank earnings, Wells Fargo & Co.
WFC,
+4.62%
fell short of earnings target but its stock rose in premarket trades as it beat revenue estimates.

Morgan Stanley
MS,
+3.55%
shares fell after it missed Wall Street’s targets for earnings and revenue.

Citigroup Inc.
C,
+5.17%
shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.

Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.

As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
JPM,
+5.56%
turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.

The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.

“In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”

Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.

Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.

Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time

JPMorgan Chase’s stock rose 2.4% ahead of Friday’s open after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.

Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.

Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T

The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.

Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% to $16.9 billion on higher interest rates.

JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.

Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.

Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.

“Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.

Shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
DJIA,
+2.83%
and a 23.0% loss by the S&P 500
SPX,
+2.60%.

Wells Fargo misses profit target but share rise

Wells Fargo & Co. shares advanced 2% in Friday’s premarket after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.

The megabank fell short of the earnings-per-share target of $1.09 a share.

Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.

Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”

However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “

The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.

Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.

Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.

Shares of Wells Fargo have declined 12% in the year to date.

Morgan Stanley shares fall on results

Morgan Stanley fell 2.6% in premarket trades after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.

Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.

Third-quarter revenue dropped to $12.99 billion from $14.75 billion.

Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.

“Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”

Morgan Stanley shares have lost 19.2% in 2022.

Citi beats targets but shares lose ground

Citigroup shares fell 1.3% in premarket trades Friday after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.

Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.

Excluding divestiture-related impacts, earnings were $1.50 a share.

Total revenue increased to $18.5 billion from $17.4 billion.

Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.

Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.

Shares of Citigroup have dropped 28.9% in 2022.

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October 14, 2022
Nasdaq closes at 2-year low after stocks fail to shake off Fed rate-hike gloom
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AP

U.S. stocks finished with losses on Monday, sending the Nasdaq Composite to its lowest close in more than two years, after investors failed to shake off worries about further Federal Reserve rate hikes and JPMorgan Chase & Co.’s Jamie Dimon warned of a potential 20% decline in the S&P 500.
How stocks traded

The Dow
DJIA,
-0.32%
closed down by 93.91 points, or 0.3% at 29,202.88.

The S&P 500
SPX,
-0.75%
finished down by 27.27 points, or 0.8%, at 3,612.39.

The Nasdaq Composite gave up 110.30 points, or 1%, to end at 10,542.10 — the lowest close since July 28, 2020.

Monday’s declines exacerbated losses which occurred at the end of last week. On Friday, the Dow fell 630 points, or 2.1%, the S&P 500 declined 2.8%, and the Nasdaq Composite dropped 3.8%. The Nasdaq Composite was down 31.9% for the year to date through Friday.

What drove markets

Major indexes finished lower for a fourth consecutive session on Monday as concerns about additional rate hikes by the Fed continued to damp sentiment. Dow industrials, the S&P 500 and the Nasdaq all fell to session lows after a CNBC interview with Dimon, chief executive of JPMorgan
JPM,
-0.93%,
who said the S&P 500 could fall by “another easy 20%” from current levels.

Read: Here are the 5 times traders and stock-market investors got fooled by Fed ‘pivot’ hopes in past year

Soft data a week ago had raised hopes that the Fed would soon pause its monetary tightening cycle in its battle to suppress multidecade high inflation, and the market subsequently rebounded off its near two-year lows. But a strong jobs report on Friday crushed that Fed “pivot” narrative and stocks plunged again.

On Monday, the CBOE Vix index
VIX,
+3.48%,
a gauge of expected S&P 500 volatility, sat at 32.15, well above its long-term average of 20.

“The low interest-rate environment forced investors to chase yield and bid up the asset prices too high. Eventually the market is fair and asset values have to achieve some sense of common ground or base level valuation. So it was inevitable that this valuation correction would happen,” said Siddharth Singhai, chief investment officer for New York-based hedge fund IronHold Capital.

“Panic will swing the market towards excessive pessimism and then the valuations will be too cheap. That hasn’t happened yet. Upcoming rate hikes will most likely be a catalyst for panic, however,” he wrote in an email to MarketWatch on Monday.

Coming into Monday’s session, trading had been expected to be somewhat thinned by the Columbus Day and Indigenous People’s Day holiday, which closed the Treasury market.

Now, traders are looking toward more data later in the week for further guidance on Fed thinking and equity valuations. The U.S. producer price numbers will be released on Wednesday and the consumer prices report on Thursday, the last of their kind before the Fed’s policy decision on Nov. 2.

Then on Friday, third-quarter corporate earnings season really kicks into gear when big banks like JPMorgan
JPM,
-0.93%
and Citigroup
C,
-1.40%
present their numbers.

Read: JPMorgan, Citi, Morgan Stanley and Wells Fargo kick off bank earnings season in choppy waters and S&P 500 would be in an ‘earnings recession’ if not for this one booming sector — but that may not last long

Investors were also keeping an eye on the strong U.S. dollar, which is considered a drag on the earnings of U.S. multinationals. The dollar index
DXY,
+0.25%
rose 0.3% to 113.12 as the euro intermittently broke below $0.97 after Russia sent missiles into cities across Ukraine.

See: A rampaging U.S. dollar is wreaking havoc in financial markets. Here’s why it’s so hard to stop it.

“We expect a lot more volatility in markets for the remainder of the year as the inevitability of higher rates sinks in and the economic consequences become more pronounced,” said Arthur Laffer Jr., president of Nashville-based Laffer Tengler Investments. Fed Chairman Jerome Powell “will not be a very popular person but it seems his legacy is focused on fighting any resurgence of 1970s inflation in the U.S. at all costs.”

Companies in focus

Rivian Automotive Inc.
RIVN,
-7.28%
intends to recall about 13,000 vehicles due to a possible safety issue that has so far been found to have affected several units, the company said Friday night. Shares finished down by 7.3%.

Tesla Inc.
TSLA,
-0.05%
reported record monthly sales of China-made electric vehicles in September, as it continues to ramp production in the world’s number-two economy. The electric-vehicle maker delivered 83,135 EVs from its Shanghai plant in September, an 8% rise from August, according to a report by the China Passenger Car Association. Tesla shares nonetheless finished down by less than 0.1%.

–— Jamie Chisholm contributed to this article.
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October 10, 2022
Credit Suisse makes $2.98 billion debt-repurchase offers

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Credit Suisse Group AG said Friday that it is offering to repurchase debt securities for a total of close to $3 billion as the troubled lender looks to manage its liabilities ahead of a touted restructuring.

The Swiss bank
CS,
+1.66%

CSGN,
+3.13%
is offering to buy back eight euro- or pound sterling-denominated senior debt securities for a total of up to 1 billion euros ($979.2 million,) it said.

It is also offering to buy back 12 U.S. dollar-denominated securities for up to $2 billion. Both offers are subject to various conditions and will expire on Nov. 3 and Nov. 10, respectively, Credit Suisse said.

The value of some Credit Suisse bonds fell at the beginning of this week alongside shares in the lender amid speculation over its financial health. The bank has moved to reassure investors ahead of a planned strategy update due on Oct. 27 alongside quarterly results.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

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October 6, 2022

Tag: Commercial Banking

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