M&T Bank Corp – ReportWire

Sharp disagreements over economy threaten Federal Reserve interest rate cut

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WASHINGTON (AP) — What was once seen as a near-certain cut in interest rates next month now looks more like a coin flip as Federal Reserve officials sharply disagree over the economy’s health and whether stubborn inflation or weak hiring represent a bigger threat.

In several speeches in the past week, some policymakers have registered greater concern over persistent inflation in an echo of the “affordability” concerns that played a large role in elections earlier this month.

At the same time, another camp is much more concerned about meager hiring and the threat that the “low-hire, low-fire“ job market could worsen into one where layoffs become more widespread.

The turmoil on the Fed’s 19-member interest-rate setting committee reflects a deeply uncertain economic outlook brought about by multiple factors, including tariffs, artificial intelligence, and changes in immigration and tax policies.

“It’s reflective of a ton of uncertainty,” said Luke Tilley, chief economist at M&T Bank. “It’s not surprising at all that there’s a wide divergence of opinions.”

Fewer rate cuts by the Fed could leave borrowing costs for homes and cars elevated. More expensive mortgages and auto loans contribute to the widespread view, according to polls, that the cost of living is too high.

Some Fed watchers say that an unusually high number of dissents are possible at the December 9-10 meeting, regardless of whether the central bank reduces rates or not. Krishna Guha, an analyst at Evercore ISI, said a decision to cut could lead to as many as four or five dissents, while a decision to keep rates unchanged could produce three.

Four dissenting votes would be highly unusual, given the Fed’s history of seeking consensus. The last time four officials dissented was in 1992, under then-Chair Alan Greenspan.

Fed governor Christopher Waller on Monday noted that critics of the Fed often accuse it of “group think,” since many of its decisions are made unanimously.

“People who are accusing us of this, get ready,” Waller said Monday in remarks in London. “You might see the least group think you’ve seen … in a long time.”

The differences have been exacerbated by the government shutdown’s interruption of economic data, a particular challenge for a Fed that Chair Jerome Powell has often described as “data dependent.” The government’s last jobs report was for August, and inflation for September.

September jobs data will finally be published Thursday, and are expected to show a small gain of 50,000 jobs that month and an unchanged unemployment rate at a still-low 4.3%.

For now, Wall Street investors put the odds of a December rate cut at 50-50, according to CME Fedwatch, down sharply from nearly 94% a month ago. The decline has contributed to the stock market’s drops this week.

After cutting their key rate in September for the first time this year, Fed policymakers signaled they expected to cut twice more, in October and December.

But after implementing a second reduction Oct. 29, Powell poured cold water on the prospects of another cut, describing it as “not a foregone conclusion — far from it.”

And speeches last week by a raft of regional Fed officials pushed the market odds of a December cut even lower. Susan Collins, president of the Federal Reserve Bank of Boston, said, “in all of my conversations with contacts across New England, I hear concerns about elevated prices.”

Collins said that keeping the Fed’s key rate at its current level of about 3.9% would help bring inflation down. The economy “has been holding up quite well” even with interest rates where they are, she added.

Several other regional presidents voiced similar concerns, including Raphael Bostic of the Atlanta Fed, Alberto Musalem of the St. Louis Fed, and Jeffrey Schmid at the Kansas City Fed. Musalem, Collins, and Schmid are among the 12 officials who vote on policy this year. Schmid dissented in October in favor of keeping rates unchanged.

“When I talk to contacts in my district, I hear continued concern over the pace of price increases,” Schmid said Friday. “Some of this has to do with the effect of tariffs on input prices, but it is not just tariffs — or even primarily tariffs — that has people worried. I hear concerns about rising health care costs and insurance premiums, and I hear a lot about electricity.”

On Monday, however, Waller argued that sluggish hiring is a bigger concern, and renewed his call for a rate cut next month.

“The labor market is still weak and near stall speed,” he said. “Inflation through September continued to show relatively small effects from tariffs and support the hypothesis that tariffs … are not a persistent source of inflation.”

Waller also dismissed the concern — voiced by Schmid and others — that the Fed should keep rates elevated because inflation has topped the Fed’s 2% target for five years. So far that hasn’t led the public to worry that inflation will stay elevated for an extended period, Waller noted.

“You can’t just sort of say it’s been above target for five years, so I’m not going to cut,” he added. “You got to give us better answers than that.”

There could be consensus for an interest rate cut if, say, new data for October and November show the economy shedding jobs, according to Esther George, the former president of the Kansas City Fed.

It’s also worth noting that many economists had expected multiple dissents in September, but instead only Stephen Miran, a governor appointed that month by President Donald Trump, voted against the rate cut decision, in favor of an even bigger reduction.

“Registering a dissent is a hard decision, and I think you’re going to find people that are speaking today that wouldn’t follow through with a vote in that direction,” she said. “I think you’re going to find enough consensus, whichever way they go.”

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November 19, 2025

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

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July 16, 2024

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

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April 16, 2024

What to expect from bank earnings as high interest rates pressure smaller players

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Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., February 7, 2024.

Brendan Mcdermid | Reuters

The benefits of scale will never be more obvious than when banks begin reporting quarterly results on Friday.

Ever since the chaos of last year’s regional banking crisis that consumed three institutions, larger banks have mostly fared better than smaller ones. That trend is set to continue, especially as expectations for the magnitude of Federal Reserve interest rates cuts have fallen sharply since the start of the year.

The evolving picture on interest rates — dubbed “higher for longer” as expectations for rate cuts this year shift from six reductions to perhaps three – will boost revenue for big banks while squeezing many smaller ones, adding to concerns for the group, according to analysts and investors.

JPMorgan Chase, the nation’s largest lender, kicks off earnings for the industry on Friday, followed by Bank of America and Goldman Sachs next week. On Monday, M&T Bank posts results, one of the first regional lenders to report this period.

The focus for all of them will be how the shifting view on interest rates will impact funding costs and holdings of commercial real estate loans.

“There’s a handful of banks that have done a very good job managing the rate cycle, and there’s been a lot of banks that have mismanaged it,” said Christopher McGratty, head of U.S. bank research at KBW.

Pricing pressure

Take, for instance, Valley Bank, a regional lender based in Wayne, New Jersey. Guidance the bank gave in January included expectations for seven rate cuts this year, which would’ve allowed it to pay lower rates to depositors.

Instead, the bank might be forced to slash its outlook for net interest income as cuts don’t materialize, according to Morgan Stanley analyst Manan Gosalia, who has the equivalent of a sell rating on the firm.

Net interest income is the money generated by a bank’s loans and securities, minus what it pays for deposits.

Smaller banks have been forced to pay up for deposits more so than larger ones, which are perceived to be safer, in the aftermath of the Silicon Valley Bank failure last year. Rate cuts would’ve provided some relief for smaller banks, while also helping commercial real estate borrowers and their lenders.

Valley Bank faces “more deposit pricing pressure than peers if rates stay higher for longer” and has more commercial real estate exposure than other regionals, Gosalia said in an April 4 note.

Meanwhile, for large banks like JPMorgan, higher rates generally mean they can exploit their funding advantages for longer. They enjoy the benefits of reaping higher interest for things like credit card loans and investments made during a time of elevated rates, while generally paying low rates for deposits.

JPMorgan could raise its 2024 guidance for net interest income by an estimated $2 billion to $3 billion, to $93 billion, according to UBS analyst Erika Najarian.

Large U.S. banks also tend to have more diverse revenue streams than smaller ones from areas like wealth management and investment banking. Both should provide boosts to first-quarter results, thanks to buoyant markets and a rebound in Wall Street activity.

CRE exposure

Furthermore, big banks tend to have much lower exposure to commercial real estate compared with smaller players, and have generally higher levels of provisions for loan losses, thanks to tougher regulations on the group.

That difference could prove critical this earnings season.

Concerns over commercial real estate, especially office buildings and multifamily dwellings, have dogged smaller banks since New York Community Bank stunned investors in January with its disclosures of drastically larger loan provisions and broader operational challenges. The bank needed a $1 billion-plus lifeline last month to help steady the firm.

NYCB will likely have to cut its net interest income guidance because of shrinking deposits and margins, according to JPMorgan analyst Steven Alexopoulos.

There is a record $929 billion in commercial real estate loans coming due this year, and roughly one-third of the loans are for more money than the underlying property values, according to advisory firm Newmark.

“I don’t think we’re out of the woods in terms of commercial real estate rearing its ugly head for bank earnings, especially if rates stay higher for longer,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual.

“If there’s even a whiff of problems around the credit experience with your commercial lending operation, as was the case with NYCB, you’ve seen how quickly that can get away from you,” he said.

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April 11, 2024

These regional banks are at greatest risk of being taken over by rivals, according to KBW

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

Cooper Neill | Bloomberg | Getty Images

A trio of regional banks face increasing pressure on returns and profitability that makes them potential targets for acquisition by a larger rival, according to KBW analysts.

Banks with between $80 billion and $120 billion in assets are in a tough spot, says Christopher McGratty of KBW. That’s because this group has the lowest structural returns among banks with at least $10 billion in assets, putting them in the position of needing to grow larger to help pay for coming regulations — or struggling for years.

Of eight banks in that zone, Comerica, Zions and First Horizon might ultimately be acquired by more profitable competitors, McGratty said in a Nov. 19 research note.

Zions and First Horizon declined comment. Comerica didn’t immediately have a response to this article.

While two others in the cohort, Western Alliance and Webster Financial, have “earned the right to remain independent” with above-peer returns, they could also consider selling themselves, the analyst said.

The remaining lenders, including East West Bank, Popular Bank and New York Community Bank each have higher returns and could end up as acquirers rather than targets. KBW estimated banks’ long-term returns including the impact of coming regulations.

“Our analysis leads us to these conclusions,” McGratty said in an interview last week. “Not every bank is as profitable as others and there are scale demands you have to keep in mind.”

Banking regulators have proposed a sweeping set of changes after higher interest rates and deposit runs triggered the collapse of three midsized banks this year. The moves broadly take measures that applied to the biggest global banks down to the level of institutions with at least $100 billion in assets, increasing their compliance and funding costs.

Invesco KBW Regional Bank ETF

While shares of regional banks have dropped 21% this year, per the KBW Regional Banking Index, they have climbed in recent weeks as concerns around inflation have abated. The sector is still weighed down by concerns over the impact of new rules and the risk of a recession on loan losses, particularly in commercial real estate.

Given the new rules, banks will eventually cluster in three groups to optimize their profitability, according to the KBW analysis: above $120 billion in assets, $50 to $80 billion in assets, and $20 to $50 billion in assets. Banks smaller than $10 billion in assets have advantages tied to debit card revenue, meaning that smaller institutions should grow to at least $20 billion in assets to offset their loss.

The problem for banks with $80 billion to $90 billion in assets like Zions and Comerica is that the market assumes they will soon face the burdens of being $100 billion-asset banks, compressing their valuations, McGratty said.

On the other hand, larger banks with strong returns including Huntington, Fifth Third, M&T and Regions Financial are positioned to grow through acquiring smaller lenders, McGratty said.

While others were more bullish, KBW analysts downgraded the U.S. banking industry in late 2022, months before the regional banking crisis. KBW is also known for helping determine the composition of indexes that track the banking industry.

Banks are waiting for clarity on regulations and interest rates before they will pursue deals, but consolidation has been a consistent theme for the industry, McGratty said.

“We’ve seen it throughout banking history; when there’s lines in the sand around certain sizes of assets, banks figure out the rules,” he said. “There’s still too many banks and they can be more successful if they build scale.”

The American banking landscape is on the cusp of a seismic shift

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November 27, 2023

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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August 29, 2023

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%.

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

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August 8, 2023

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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August 8, 2023

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 C harles 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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June 28, 2023

Buy this resilient regional bank trading at a 50% discount, Bank of America says

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May 18, 2023

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

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April 19, 2023

CNBC Daily Open: China reported an economic boom

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Tourists bustle in front of Huawei’s global flagship store near Nanjing Road Pedestrian street in Shanghai, China, March 21, 2023.

CFOTO | Future Publishing | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

China’s economy boomed in the first three months of the year. In the U.S., regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.

What you need to know today

China reported its first-quarter gross domestic product popped 4.5% from a year earlier, more than economists’ expectation of 4% and the highest since the first quarter of 2022. Retail sales, a key engine of China’s growth, surged 10.6% in March.

Markets expect the Federal Reserve to continue hiking rates at its next meeting, but central banks in Asia-Pacific are already hitting the brakes on rate increases — and some might even start cutting rates this year.

Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.

PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.

The bottom line

China’s economy is rebounding on multiple fronts, according to data released Tuesday by the country’s National Bureau of Statistics. Last month, gross domestic product shot up, retail sales boomed, industrial output rose and fixed asset investment climbed.

Admittedly, some of those figures were lower than expected. Real estate investment declined, indicating China’s property sector is still a weak point in the country’s economy. Detractors can also point to China’s lower-than-expected 0.7% rise in March’s consumer price index, year on year, as a sign that consumption might not be as robust as retail sales suggest.

Indeed, the tepid reactions of stock markets on the mainland and in Hong Kong reinforce the idea that the red-hot numbers aren’t as significant as they initially seem.

Meanwhile, regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.

First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.

M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.

But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.

Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.

Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.

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April 17, 2023

CNBC Daily Open: The regional banks are OK. Sort of

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UNITED STATES – JUNE 30: Pedestrians pass by a Charles Schwab brokerage, in New York, Friday, June 30, 2006. (Photo by Stephen Hilger/Bloomberg via Getty Images)

Stephen Hilger | Bloomberg | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

Regional banks’ earnings reports weren’t a disaster, but neither were they a picture of health.

What you need to know today

Samsung is reportedly considering switching from Google to Microsoft’s Bing as the default search engine on its phone. If the South Korean conglomerate carries through on its plan, Alphabet, Google’s parent, could lose billions of dollars in advertising. Alphabet sank 2.66% on the news.

PRO Higher interest rates helped big U.S. banks reap huge profits and revenue. But they’re hurting smaller banks like State Street, which fell short of earnings expectations. Here’s why rates affect those banks’ revenue differently.

The bottom line

Regional banks in the U.S. began reporting results Monday. It wasn’t the disaster many had feared, but it didn’t paint a picture of health in the sector, either.

First, the good news. Charles Schwab’s first-quarter net income rose 14% from a year ago to $1.6 billion, while its revenue increased 10% to $5.12 billion. Its revenue didn’t reach Wall Street’s estimate, but it’s pretty remarkable the bank (which also functions as a brokerage) managed to increase its profit despite being one of the hardest-hit financial institutions amid SVB’s collapse. Investors thought so too, pushing Charles Schwab shares 3.94% higher.

M&T Bank, a bank with assets of $201 billion (as of 2022), posted even better results. It beat first-quarter expectations on both the top and bottom lines, causing its stock to surge 7.78%.

But other banks didn’t fare as well. State Street, which is a custodian bank that holds financial assets like stocks and bonds, saw a 5% decline in first-quarter net income, to $549 million, even though its total revenue rose. The report made investors unload State Street stock, which plunged 9.18%.

Bank of New York Mellon, another large custody bank, sank 4.59% after State Street posted its earnings.

Earnings aside, all banks that reported Monday revealed a drop in deposits. Those at State Street and M&T shrank about 3%, while Charles Schwab saw an 11% drop in deposits from the prior quarter. However, when juxtaposed against the banks’ stock movement, it seems investors were more concerned about profitability than the size of deposits, which could be a promising signal that it’s back to business as usual in the sector.

The major U.S. indexes all rose, but only mildly. The S&P 500 added 0.33%, the Dow Jones Industrial Average 0.3% and the Nasdaq Composite rose 0.28%. Investors are still waiting for companies in other industries to report this week — some, like health care and communications, may disappoint investors, according to Sam Stovall, chief investment strategist at CFRA Research.