ReportWire

Tag: PNC Financial Services Group Inc

  • Berkshire Hathaway’s big mystery stock wager could be revealed soon

    Berkshire Hathaway’s big mystery stock wager could be revealed soon

    Warren Buffett tours the grounds at the Berkshire Hathaway Annual Shareholders Meeting in Omaha Nebraska.

    David A. Grogan | CNBC

    Berkshire Hathaway, led by legendary investor Warren Buffett, has been making a confidential wager on the financial industry since the third quarter of last year.

    The identity of the stock — or stocks — that Berkshire has been snapping up could be revealed Saturday at the company’s annual shareholder meeting in Omaha, Nebraska.

    That’s because unless Berkshire has been granted confidential treatment on the investment for a third quarter in a row, the stake will be disclosed in filings later this month. So the 93-year-old Berkshire CEO may decide to explain his rationale to the thousands of investors flocking to the gathering.

    The bet, shrouded in mystery, has captivated Berkshire investors since it first appeared in disclosures late last year. At a time when Buffett has been a net seller of stocks and lamented a dearth of opportunities capable of “truly moving the needle at Berkshire,” he has apparently found something he likes — and in the financial realm no less.

    That’s an area he has dialed back on in recent years over concerns about rising loan defaults. High interest rates have taken a toll on some financial players like regional U.S. banks, while making the yield on Berkshire’s cash pile in instruments like T-bills suddenly attractive.

    “When you are the GOAT of investing, people are interested in what you think is good,” said Glenview Trust Co. Chief Investment Officer Bill Stone, using an acronym for greatest of all time. “What makes it even more exciting is that banks are in his circle of competence.”

    Under Buffett, Berkshire has trounced the S&P 500 over nearly six decades with a 19.8% compounded annual gain, compared with the 10.2% yearly rise of the index.

    Coverage note: The annual meeting will be exclusively broadcast on CNBC and livestreamed on CNBC.com. Our special coverage will begin Saturday at 9:30 a.m. ET.

    Veiled bets

    Berkshire requested anonymity for the trades because if the stock was known before the conglomerate finished building its position, others would plow into the stock as well, driving up the price, according to David Kass, a finance professor at the University of Maryland.

    Buffett is said to control roughly 90% of Berkshire’s massive stock portfolio, leaving his deputies Todd Combs and Ted Weschler the rest, Kass said.

    While investment disclosures give no clue as to what the stock could be, Stone, Kass and other Buffett watchers believe it is a multibillion-dollar wager on a financial name.

    That’s because the cost basis of banks, insurers and finance stocks owned by the company jumped by $3.59 billion in the second half of last year, the only category to increase, according to separate Berkshire filings.

    At the same time, Berkshire exited financial names by dumping insurers Markel and Globe Life, leading investors to estimate that the wager could be as large as $4 billion or $5 billion through the end of 2023. It’s unknown whether that bet was on one company or spread over multiple firms in an industry.

    Schwab or Morgan Stanley?

    If it were a classic Buffett bet — a big stake in a single company —  that stock would have to be a large one, with perhaps a $100 billion market capitalization. Holdings of at least 5% in publicly traded American companies trigger disclosure requirements.

    Investors have been speculating for months about what the stock could be. Finance covers all manner of companies, from retail lenders to Wall Street brokers, payments companies and various sectors of insurance.

    Charles Schwab or Morgan Stanley could fit the bill, according to James Shanahan, an Edward Jones analyst who covers banks and Berkshire Hathaway.

    “Schwab was beaten down during the regional banking crisis last year, they had an issue where retail investors were trading out of cash into higher-yielding investments,” Shanahan said. “Nobody wanted to own that name last year, so Buffett could’ve bought as much as he wanted.”

    Other names that have been circulated — JPMorgan Chase or BlackRock, for example, are possible, but may make less sense given valuations or business mix. Truist and other higher-quality regional banks might also fit Buffett’s parameters, as well as insurer AIG, Shanahan said, though their market capitalizations are smaller.

    Buffett & banks

    Berkshire has owned financial names for decades, and Buffett has stepped in to inject capital — and confidence — into the industry on multiple occasions.

    Buffett served as CEO of a scandal-stricken Salomon Brothers in the early 1990s to help turn the company around. He pumped $5 billion into Goldman Sachs in 2008 and another $5 billion into Bank of America in 2011, ultimately becoming the latter’s largest shareholder.

    But after loading up on lenders in 2018, from universal banks like JPMorgan to regional lenders like PNC Financial and U.S. Bank, he deeply pared his exposure to the sector in 2020 on concerns that the coronavirus pandemic would punish the industry.

    Since then, he and his deputies have mostly avoided adding to his finance stakes, besides modest positions in Citigroup and Capital One.

    ‘Fear is contagious’

    Last May, Buffett told shareholders to expect more turbulence in banking. He said Berkshire could deploy more capital in the industry, if needed.

    “The situation in banking is very similar to what it’s always been in banking, which is that fear is contagious,” Buffett said. “Historically, sometimes the fear was justified, sometimes it wasn’t.”

    Wherever he placed his bet, the move will be seen as a boost to the company, perhaps even the sector, given Buffett’s track record of identifying value.

    It’s unclear how long regulators will allow Berkshire to shield its moves.

    “I’m hopeful he’ll reveal the name and talk about the strategy behind it,” Shanahan said. “The SEC’s patience can wear out, at some point it’ll look like Berkshire’s getting favorable treatment.”

    — CNBC’s Yun Li contributed to this report.

    Don’t miss these exclusives from CNBC PRO

    Source link

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

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

    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.

    Source link

  • House Republicans subpoena Citibank over info shared with FBI after Jan. 6

    House Republicans subpoena Citibank over info shared with FBI after Jan. 6

    Chairman Jim Jordan, R-Ohio, conducts the House Judiciary Committee hearing on the “Report of Special Counsel John Durham,” in Rayburn Building on Wednesday, June 21, 2023.

    Tom Williams | CQ-Roll Call, Inc. | Getty Images

    WASHINGTON — House Judiciary Committee Chairman Jim Jordan issued a subpoena to Citibank on Thursday, demanding information about whether the bank gave law enforcement information about customer transactions in the days surrounding the attack on the U.S. Capitol on Jan. 6, 2021.

    The subpoena, obtained exclusively by CNBC, came after Jordan previously requested that several financial institutions, including Citibank, provide the information voluntarily. They include Bank of America, J.P. Morgan, PNC, Truist, U.S. Bank and Wells Fargo.

    Citibank was the only bank that had not voluntarily complied with the committee’s request, according to a source familiar with the investigation.

    The bank’s lawyers told the committee it would only do under a subpoena, according to Jordan. A Citibank spokesperson did not immediately respond to a request for comment from CNBC.

    The wider probe into whether banks turned over data to the government to assist in the investigation and prosecution of Jan. 6 rioters was sparked by an FBI whistleblower, who disclosed that Bank of America had voluntarily provided a list of people who made transactions with a BofA credit or debit card in the Washington area between Jan. 5 and Jan. 7, 2021.

    BofA did not deny the whistleblower’s allegation, telling Fox News earlier this year that that the bank “follows all applicable laws” to “narrowly respond to law enforcement requests.”

    Now the committee wants to know if other banks did the same.

    Subscribe to CNBC on YouTube.

    WATCH: House committee investigating Jan. 6 riots release never-before-seen footage of insurrection

    Source link

  • 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

    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.

    Source link

  • ‘Completely off the table’ that there will be more regional bank failures: RBC’s Gerard Cassidy

    ‘Completely off the table’ that there will be more regional bank failures: RBC’s Gerard Cassidy

    Share

    Gerard Cassidy from RBC Capital Markets shares his outlook on U.S. regional banks if the Fed keeps raising rates.

    03:01

    Tue, Jul 18 202310:20 PM EDT

    Source link

  • 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

    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

    Source link

  • 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

    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.

    Source link

  • 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.

    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.

    Source link

  • JPMorgan shares rise after winning First Republic auction

    JPMorgan shares rise after winning First Republic auction

    JPMorgan Chase JPM shares rose 3% in early premarket trade after winning the auction to buy First Republic Bank. JPMorgan said it expects the deal to be modestly earnings per share accretive, generating more than $500 million of incremental net income per year, excluding a $2.6 billion one-time gain and estimated $2 billion of restructuring costs. First Republic shares FRC fell 36% to $2.24, even though neither the FDIC nor JPMorgan release indicates shareholders will get any consideration. JPMorgan said it is not assuming First Republic’s corporate debt or preferred stock. Shares of PNC Financial Services PNC, which…

    Source link

  • Big banks including JPMorgan Chase, Bank of America asked for final bids on First Republic

    Big banks including JPMorgan Chase, Bank of America asked for final bids on First Republic

    A First Republic bank branch in Manhattan on April 24, 2023 in New York City.

    Spencer Platt | Getty Images

    U.S. regulators have asked banks for their best and final takeover offers for First Republic by Sunday afternoon, in a move that authorities hope will calm markets and cap a period of uncertainty for regional lenders.

    JPMorgan Chase and PNC are likely bidders for the ailing lender, which would be seized in receivership and immediately sold to the winning bank, according to people with knowledge of the situation. The Wall Street Journal reported those banks’ interest late Friday.

    Other companies are likely to step up. Bank of America is among several other institutions that are weighing a potential bid for First Republic, according to people with knowledge of the matter.

    This is breaking news. Please check back for updates.

    Source link

  • The bad loan term that’s back for banks trying to spot a recession

    The bad loan term that’s back for banks trying to spot a recession

    Signs explaining Federal Deposit Insurance Corporation (FDIC) and other banking policies on the counter of a bank in Westminster, Colorado November 3, 2009. 

    Rick Wilking | Reuters

    If there wasn’t enough banking jargon to blind you, it’s time to learn a new piece of it: Welcome to the industry’s era of the “criticized loan.”

    It’s a loan that’s not gone bust, or even missed a payment. But in a time when Wall Street is vibrating to any sign of recession risk, especially from banks, it’s gaining new currency. Criticized loans are those that show preliminary signs of higher risk, such as a developer who’s making payments but is otherwise having financial trouble, or an office building that recently lost a big tenant and needs to replace it.

    And they’re rising, which sets off the kind of bells that have sent bank stocks down roughly 20% since early March, even as earnings from the sector are coming in healthier than expected. Wall Street is watching stats on commercial real estate loans almost as closely as for signs that depositors are fleeing for higher interest rates paid by money-market funds (the No. 1 question on recent earnings calls).

    Banks are being asked more about criticized loans partly because other credit quality metrics look so good, despite the failures of Silicon Valley Bank and Signature Bank last month, according to David George, a banking analyst with Robert W. Baird & Co. Watching these loans is a way to gain at least limited insight into a real estate downturn many analysts expect to get worse before it gets better, as a combination of recession fears and the slow return of workers to post-Covid offices drives expectations of rising office vacancy rates.

    “It’s more subjective, but there are regulators at every bank,” he said. “Criticized loans could be paying or performing but a loan could be singled out because of its collateral.” 

    Not all banks disclose criticized loan growth in earnings reports, and the definition of a criticized asset is more fluid than classifications of whether a loan has missed payments or is otherwise “non-performing,” meaning it has missed payments or violated some other term of the loan deal. A bank’s quarter-end list of criticized assets is developed by a bank itself, under the supervision of bank examiners, according to David Fanger, senior vice president at the bond-rating agency Moody’s Investor Service.

    The Federal Deposit Insurance Corp.’s guidelines for such loans say they should be singled out if “well-defined weaknesses are present which jeopardize the orderly liquidation of the debt, [including] a project’s lack of marketability, inadequate cash flow or … the project’s failure to fulfill economic expectations. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.” 

    Bank earnings show modest growth in ‘criticized loans’

    So far, reports for the first quarter show only slight growth in criticized loans, even as they move into the spotlight at regional banks and national-level commercial banks like Bank of America and Wells Fargo.

    At Bank of America, criticized loans to office building projects rose to $3.7 billion out of $19 billion in office loans. But office buildings represent only a quarter of the bank’s commercial real estate loans, and all CRE is just 7% of the bank’s total loans and leases. So even that ominous-sounding number — 20% of office loans look at least potentially shaky — works out to less than 1% of the bank’s total loans and leases.  Bank of America set aside $900 million for potential loan losses in all categories, a truer indication of short-term vulnerability.

    “They’re over-reserved,” George said. “It’s almost impossible for us to see office [losses] more than 4 or 5 percent of office loans. They already have reserves for that.”

    Wells Fargo, the nation’s biggest commercial real estate lender, according to American Banker, did not disclose its level of criticized loans in its earnings report. A spokeswoman said in an e-mail that the number will be in the bank’s quarterly Securities and Exchange Commission filing. Wells Fargo previously said its criticized loan levels in commercial real estate fell during 2022, but ticked upward in the fourth quarter to $12.4 billion out of $155.8 billion in loans. 

    Among the most detailed disclosures are those from Huntington Bancshares, a Columbus, Ohio-based regional with $169 billion in assets. Its criticized loans, which include all commercial lending and not just real estate, rose 5% to $3.89 billion. That included upgrades of $323 million in loans to a higher risk rating, and paydowns of $483 million, offset by $893 million in loans newly placed in the “criticized” category. Criticized loans are only 3.5% of Huntington’s total loans and 13 times more than the total of commercial loans that are 30 days past due. 

    Of Huntington’s $16 billion-plus in commercial real estate loans, none are 90 days past due and only 0.25% of balances are 30 days past due or more. But the 30-days-late category is up from close to zero in late 2022. How big a problem is this? If all of the 30-days-late loans went unpaid and had to be written off, Huntington’s quarterly earnings of $602 million would have dropped by about 7%, or $41 million. The total of all criticized loans compares to 2022 net income of $2.13 billion.

    “Our credit quality remains top-tier,” Huntington CEO Stephen Steinour told analysts on its recent earnings call. “Huntington is built to thrive during times like this.”

    The story is similar among regional banks generally. PNC, the second-largest regional bank, said criticized real estate loans are now 20% of office loans, because multi-tenant buildings it has lent to are about 25% empty, and 60% of the loans are up for refinancing or repayment by the end of 2024. But only 0.2% of office loans are actually delinquent. “In the near term, this (multi-tenant office) is our primary concern area,” CFO Robert Reilly told analysts. PNC has loan loss reserves of 9.4% of total multi-tenant office loans.

    At Cincinnati-based Fifth Third Bancorp, 8.2% of office loans are now criticized, but that represents about 0.1% of the bank’s total loans. Cleveland-based Keycorp said its criticized loans were about 2.8% of its total, up from 2.5% late last year, but that only 0.2% of loans aren’t being paid on time.  

    “Credit quality remains strong,” Keycorp CEO Christopher Gorman said after its earnings, adding that the company has reduced risk for a decade, including by eliminating most construction loans to office building developers. “We have limited exposure to high-risk areas, such as office, lodging and retail,” he told analysts on the quarterly earnings call.

    There is an estimated $1.5 trillion in the commercial real estate refinancing pipeline over the next three years, but Moody’s research shows the portfolios to be well diversified across bank types, and according to a recent analysis from CNBC Pro using Deutsche Bank data, the concentration of CRE risk is smallest at the largest banks, where office loans make up less than 5% of total loans, and are less than 2% on average.

    For investors, the key is to look at all the metrics together to manage their own risk, Fanger said. Many, even most, criticized loans will never go bad, he said, since they can be restructured or refinanced, or the office building collateral can be sold to repay some loans. But the newly prominent metric, which he said has been around for years, is the place to look for one version of what could happen down the road.

    “There’s a qualitative aspect to any rating,” Fanger said. “We find it a useful measure for the likely direction of risk.” 

    Source link

  • Warren Buffett on banking crisis fallout and why he sold most of his bank stocks except one

    Warren Buffett on banking crisis fallout and why he sold most of his bank stocks except one

    Share

    Warren Buffett, Berkshire Hathaway CEO, joins CNBC’s “Squawk Box” to discuss the fallout from the banking crisis and why he sold certain bank stocks.

    Source link

  • Wall Street says bad news is no longer good news. Here’s why | CNN Business

    Wall Street says bad news is no longer good news. Here’s why | CNN Business

    A version of this story first appeared in CNN Business’ Before the Bell newsletter. Not a subscriber? You can sign up right here. You can listen to an audio version of the newsletter by clicking the same link.


    New York
    CNN
     — 

    There’s been a seismic shift in investor perspective: Bad news is no longer good news.

    For the past year, Wall Street has hoped for cool monthly economic data that would encourage the Federal Reserve to halt its aggressive pace of interest rate hikes to tame inflation.

    But at its March meeting — just days after a series of bank failures raised concerns about the economy’s stability — the central bank signaled that it plans to pause raising rates sometime this year. With an end to interest rate hikes in sight, investors have stopped attempting to guess the Fed’s next move and have turned instead to the health of the economy.

    This means that, whereas softening economic data used to signal good news — that the Fed could potentially stop raising rates — now, cooling economic prints simply suggest the economy is weakening. That makes investors worried that the slowing economy could fall into a recession.

    What happened last week? Markets teetered after a slew of economic reports signaled that the red-hot labor market is finally cooling (more on that later), flashing warning signals across Wall Street.

    Investors accordingly shed high-growth, large-cap stocks that have surged recently to rush into defensive stocks in industries like health care and consumer staples.

    While tech stocks recovered somewhat by the end of the short trading week — markets were closed in observance of Good Friday — the Nasdaq Composite still slid 1.1%. The broad-based S&P 500 fell 0.1% and the blue-chip Dow Jones Industrial Average gained 0.6%.

    What does this mean for markets? Now that Wall Street is in “bad news is bad news and good news is good news” mode, it will be looking for signs that the economy remains resilient.

    What hasn’t changed is that investors still want to see cooling inflation data. While the central bank has signaled that it will pause hiking rates this year, its actions so far have only somewhat stabilized prices. The Personal Consumption Expenditures price index, the Fed’s preferred inflation gauge, rose 5% for the 12 months ended in February — far above its 2% inflation target.

    Moreover, Wall Street might be overly optimistic about how the Fed will act going forward: Some investors expect the central bank to cut rates several times this year, even though the central bank indicated last month that it does not intend to lower rates in 2023.

    It’s unclear how markets will react if the Fed doesn’t cut rates this year. But there likely won’t be a notable rally unless the central bank pivots or at least indicates that it plans to soon, said George Cipolloni, portfolio manager at Penn Mutual Asset Management.

    Commentary that’s hawkish or reveals inflation worries could hurt markets, he adds. “It keeps that boiling point and that temperature a little high.”

    What comes next? The Fed holds its next meeting in early May. Before then, it will have to parse through several economic reports to get a sense of how the economy is doing, and what it will be able to handle. Markets currently expect the Fed to raise interest rates by a quarter point, according to the CME FedWatch tool.

    The labor market appears to be cooling somewhat, at least according to the slew of data released last week. But it’s still far too early to assume that the job market has lost its strength.

    President Joe Biden said in a statement Friday that the March data is “a good jobs report for hard-working Americans.”

    The March jobs report revealed that US employers added a lower-than-expected 236,000 jobs last month. Economists expected a net gain of 239,000 jobs for the month, according to Refinitiv.

    The unemployment rate dropped to 3.5%, according to the Bureau of Labor Statistics. That’s below expectations of holding steady at 3.6%.

    The jobs report was also the first one in 12 months that came in below expectations.

    But that doesn’t mean that the job market isn’t strong anymore.

    “The labor market is showing signs of cooling off, but it remains very tight,” Bank of America researchers wrote in a note Friday.

    Still, other data released last week help make the case that cracks are finally starting to form in the labor market. The Job Openings and Labor Turnover Survey for February revealed last week that the number of available jobs in the United States tumbled to its lowest level since May 2021. ADP’s private-sector payroll report fell far short of expectations.

    What this means for the Fed is that the cooldown in the latest jobs report likely won’t be enough for the central bank to pause rates at its next meeting.

    “The Fed will more than likely raise rates in May as the labor market continues to defy the cumulative effects of the rate hikes that began over a year ago,” said Quincy Krosby, chief global strategist at LPL Financial.

    Monday: Wholesale inventories.

    Tuesday: NFIB Small Business Optimism Index. Earnings from CarMax (KMX), Albertsons (ACI) and First Republic Bank (FRC).

    Wednesday: Consumer Price Index and FOMC meeting minutes.

    Thursday: OPEC monthly report and Producer Price Index. Earnings from Delta Air Lines (DAL).

    Friday: Retail sales and University of Michigan consumer sentiment survey. Earnings from JPMorgan Chase (JPM), Wells Fargo (WFC), BlackRock (BLK), Citigroup (C) and PNC Financial Services (PNC).

    Source link

  • The coming commercial real estate crash that may never happen

    The coming commercial real estate crash that may never happen

    Richard Baker | In Pictures | Getty Images

    Only two months ago, SL Green & Co. chief executive Marc Holliday was sounding happy. The head of New York’s biggest commercial landlord firm told Wall Street analysts that traffic to the company’s buildings was picking up, and more than 1 million square feet of space was either recently leased or in negotiations. The company’s debt was down, it had finished the structure for its 1 Madison Avenue tower in Manhattan, and local officials had just completed an extension of commuter rail service from Long Island to Green’s flagship tower near Grand Central Station.

    “We are full guns blazing,” Holliday said on the quarterly earnings call, with workers headed back to offices after a pandemic that rocked developers as more people worked from home, raising the question of how much office space companies really need any more. “We can hopefully …continue on a path to what we think will be a pivot year for us in 2023.” 

    Then Silicon Valley Bank failed, and Wall Street panicked. 

    Shares of developers, and the banks that lend to them, dropped sharply, and bank shares have stayed low. Analysts raised concerns that developers might default on a big chunk of $3.1 trillion of U.S. commercial real estate loans Goldman Sachs says are outstanding. Almost a quarter of mortgages on office buildings must be refinanced in 2023, according to Mortgage Bankers’ Association data, with higher interest rates than the 3 percent paper that stuffs banks’ portfolios now. Other analysts wondered how landlords could find new tenants as old leases expire this year, with office vacancy rates at record highs.

    How much an office crash could hurt the economy

    There are reasons to think the road ahead will be rocky for the real estate industry and banks that depend on it. And the stakes, according to Goldman, are high, especially if there is a recession: a credit squeeze equal to as much as half a percentage point of growth in the overall economy. But credit in commercial real estate has performed well until now, and it’s far from clear that U.S. credit issues spreading outward from real estate is likely.

    “There’s a lot of headaches about calamity in commercial real estate,” said Kevin Fagan, director of commercial real estate analysis at Moody’s Analytics. “There likely will be issues but it’s more of a typical down cycle.”

    The vacancy rate for office buildings rose to a record high 18.2% by late 2022, according to brokerage giant Cushman & Wakefield, topping 20 percent in key markets like Manhattan, Silicon Valley and even Atlanta. 

    But this year’s refinancing cliff is the real rub, says Scott Rechler, CEO of RXR, a closely-held Manhattan development firm. Loans that come due will have to be financed at higher interest rates, which will mean higher payments even as vacancy rates rise or remain high. Higher vacancies mean some buildings are worth less, so banks are less willing to touch them without tougher terms. That’s especially true for older, so-called Class B buildings that are losing out to newer buildings as tenants renew leases, he said. And the shortage of recent sales makes it hard for banks to decide how much more cash collateral to demand.

    “No one knows what is a fair price,” Rechler said. “Buyers and sellers have different views.” 

    What the Fed has said about commercial real estate

    Federal Reserve officials up to and including Chair Jerome Powell have stressed that the collapse of Silicon Valley Bank and Signature Bank were outliers whose failures had nothing to do with real estate – Silicon Valley Bank had barely 1 percent of assets in commercial real estate. Other banks’ exposure to the sector is well under control.

    “We’re well aware of the concentrations people have in commercial real estate,” Powell said at a March22 press conference. “I really don’t think it’s comparable to this. The banking system is strong, it is sound, it is resilient, it’s well capitalized.”

    The commercial real estate market is a bigger issue than a few banks which mismanaged risk in bond portfolios, and the deterioration in conditions for Class B office space will have wide-reaching economic impacts, including the tax base of municipalities across the country where empty offices remain a significant source of concern. 

    But there are reasons to believe lending issues in commercial real estate will be contained, Fagan said.

    The first is that the office sector is only one part of commercial real estate, albeit a large one, and the others are in unusually good shape.

    Vacancy rates in warehouse and industrial space nationally are low, according to Cushman and Wakefield. The national retail vacancy rates, despite the migration of shoppers to online shopping, is only 5.7%. And hotels are garnering record revenue per available room as both occupancy and prices surged post-Covid, according to research firm STR.  Banks’ commercial real estate lending also includes apartment complexes, with rental vacancies rates at 5.8 percent in Federal Reserve data.

    “Market conditions are fine today, but what develops over the next two to three years could be pretty challenging for some properties,” said Ken Leon, who follows REITs for CFRA Research.

    Still, most debt coming due in the next two years looks like it can be refinanced, Fagan said.

    That’s one of the reasons Rechler has been drawing attention to the issues. It shouldn’t sneak up on the market or economy, and it should be manageable with the loans spread out across their own maturity ladder.

    About three-fourths of commercial real estate debt generates enough income to pass banks’ recent refinancing standards without major changes, Fagan said. Banks have been extending credit using a rule of thumb that a property’s operating income will be at least 8% of the loan every year, though other experts claim a 10% test is being applied to some newer loans. 

    To date, banks have had virtually no losses on commercial real estate, and companies are showing little need to default either on loans to banks or rent payments to office building owners. Even as companies lay off workers, the concentration of job losses among big tech employers, in Manhattan, at least, means that tenants have no trouble paying their rent, S.L. Green said. 

    Bank commercial mortgage books

    Take Pittsburgh-based PNC Financial, or Cincinnati-based Fifth Third, two of the biggest regional banks.

    At PNC, the $36 billion in commercial mortgages on the books of the bank is a small fraction of its $557 billion in total assets, including $321.9 billion in loans. Only about $9 billion of loans are secured by office buildings. At Fifth Third, commercial real estate represents $10.3 billion of $207.5 billion in assets, including $119.3 billion in loans.

    And those loans are being paid as agreed. Only 0.6% of PNC’s loans are past due, with delinquencies lower among commercial loans. The proportion of delinquent loans fell by almost a third during 2022, the bank said in federal filings. At Fifth Third, only $10 million of commercial real estate loans were delinquent at year-end.

    Or take Wells Fargo, the nation’s largest commercial real estate lender, where credit metrics are excellent. Last year, Wells Fargo’s chargeoffs for commercial loans were .01 of 1 percent of the bank’s portfolio, according to the bank’s annual report. Writeoffs on consumer loans were 39 times higher. The bank’s internal assessment of each commercial mortgage’s loan’s quality improved in 2022, with the amount of debt classified as “criticized,” or with a higher-than-average risk of default even if borrowers haven’t missed payments, dropping by $1.8 billion to $11.3 billion

    “Delinquencies are still lower than pre-pandemic,” said Alexander Yokum, banking analyst at CFRA Research. “Any credit metric is still stronger than pre-pandemic.”

    Wall Street is worried

    The riposte from Wall Street is that the good news on loan performance can’t last – especially if there is a broader recession. 

    In a March 24 report, JPMorganChase bank analyst Kabir Caprihan warned that 21% of office loans are destined to go bad, with lenders losing an average of 41% of the loan principal on the failures. That produces potential writedowns of 8.6%, Caprihan said, with banks losing $38 billion on office mortgages. But it is far from certain that so many projects would fail, or why value declines would be so steep.

    RXR’s Rechler says that market softness is showing in refinancings already, in ways banks’ public reports don’t yet reveal. The real damage is showing up less in late loans than in the declining value of bonds backed by commercial mortgages, he said.  

    One sign of the tightening: RXR itself, which is financially strong, has advanced $1 billion to other developers whose banks are making them post more collateral as part of refinancing applications. Rechler dismissed rating agencies’ relatively sanguine view of commercial mortgage backed securities, arguing that markets for new CMBS issues have locked up in recent weeks and ratings agencies missed early signs of housing-market problems before 2008’s financial crisis. 

    The commercial mortgage-backed bond market is relatively small, so its short-term issues are not major drivers of the economy. Issuance of new bonds is down sharply – but that began last year, when fourth-quarter deal volume fell 88 percent, without causing a recession.

    CMBS issuance

    Loan type Q1 2022 Q1 2023
    Conduit $7.9B $2.3B
    SASB $19.1B $2.7B
    Large loan $442.6M $13.1M
    CRE CLO $15.3B $1.5B
    Total $42.8B $6.5B

    Source: Trepp

    “The statistics don’t reflect where it’s going to come out as regulators take a harder look,” Rechler said. “You’re going to have to rebalance loans on even good properties.” 

    Wells Fargo has tightened standards, saying it is demanding that payments on refinanced loans take up a smaller percentage of a building’s projected rent and that only “limited” exceptions will be made to the bank’s credit standards on new loans.

    Without a deep recession, though, it’s not clear how banks’ and insurance companies’ relatively diversified loan portfolios get into serious trouble. 

    The primary way real estate could cause problems for the economy is if an extended decline in the value of commercial mortgages made deposits flow out of banks, forcing them to crimp lending not just to developers but to all customers. In extreme cases, that could threaten the banks themselves. But if developers continue to pay their loans on time and manage refinancing risk, MBS owners and banks will simply get paid as loans mature. 

    Markets are split on whether any version of this will happen. The S&P United State REIT Index, which dropped almost 11% in the two weeks after Silicon Valley Bank failed, has recovered most of its losses, down 2% over the past month and remains barely positive for the year. But the KBW Regional Banking Index is down 14% in the last month, even though deposit loss has slowed to a trickle.

    The solution will lie in a combination of factors. The amount of loans that come up for refinancing drops sharply after this year, and new construction is already slowing as it does in most real estate downturns, and loan to value ratios in the industry are lower than in 2006 or 2007, before the last recession.

    “We feel like there’s going to be pain in the next year,” Fagan said. “2025 is where we see our pivot toward a [recovery] for office.”

    Source link

  • Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

    Sens. Booker, Warnock press big bank CEOs to pause overdraft fees after SVB failure

    Sen. Cory Booker (D-NJ) speaks during Attorney General nominee Merrick Garland’s confirmation hearing before the Senate Judiciary Committee, Washington, DC, February 22, 2021.

    Al Drago | Pool | Reuters

    WASHINGTON — Sens. Cory Booker and Raphael Warnock have urged the CEOs of 10 major banks to waive overdraft and nonsufficient fund fees that could cost some Americans more than $100 a day in the wake of the failures of Silicon Valley Bank and Signature Bank.

    In letters dated Tuesday, the New Jersey and Georgia Democrats asked banks to help customers whose payments were delayed or missing due to the collapse of SVB and Signature earlier this month. The letters went to the CEOs of Wells Fargo, U.S. Bank, Truist Financial Corporation, TD Bank, Regions Financial Corporation, PNC Bank, JP Morgan Chase, Huntington National Bank, Citizens Bank and Bank of America.

    “Disruptions across the banking industry this month rattled consumers and threw into jeopardy the paychecks of millions of American workers,” wrote Booker, who is a member of the Senate Committee on Small Business and Entrepreneurship, and Warnock.

    The fees, which can reach up to $111 a day for low account balances or up to $175 on low account fees, “compound the difficult financial situation customers find themselves in, particularly when their lack of funds is due to an unprecedented, unexpected delay,” the senators added.

    JPMorgan declined to comment. The other banks that received the letters did not immediately respond to requests for comment.

    The Federal Deposit Insurance Corporation closed SVB on March 10 after the bank announced a nearly $2 billion loss in asset sales. The agency said SVB’s official checks would continue to clear and assets would be accessible the following day.

    Regulators shuttered New York-based Signature Bank days later in an effort to stall a potential banking crisis. Many of its assets have since been sold to Flagstar Bank, a subsidiary of New York Community Bankcorp.

    Booker and Warnock said banking customers whose paydays fell between March 10 and March 13 were unable to receive or deposit checks from payroll providers banking with SVB and Signature Bank. They also noted that online merchant Etsy notified customers of payment delays because it used SVB payment processing.

    The senators also cited an unrelated, nationwide technical glitch on the 10th that caused missing payments and incorrect balances for Wells Fargo customers.

    “These delays will disproportionately harm the impacted customers who are part of the sixty-four percent of Americans living paycheck-to-paycheck, who are often ‘minutes to hours away from having the money necessary to cover’ expenses that lead to overdraft nonsufficient fund fees,” Booker and Warnock wrote.

    They praised steps taken by the Treasury and the FDIC to stem a possible economic catastrophe by ensuring access to depositor funds over the $250,000 FDIC-guarantee threshold and creating a new, one-year loan to financial institutions to safeguard deposits in times of stress.

    Treasury Secretary Janet Yellen on Tuesday said the Treasury is prepared to guarantee all deposits for financial institutions beyond SVB and Signature Bank if the crisis worsens.

    “In line with quick, decisive government response to assist the businesses and individuals who were helped immediately in order to contain the broader fallout of these bank failures, we urge you to act with similar urgency to backstop American families from unexpected and undeserved charges,” the senators wrote.

    Source link

  • This is why the Federal Reserve could stay the course and raise interest rates again

    This is why the Federal Reserve could stay the course and raise interest rates again

    Source link

  • First Republic gets $30 billion in deposits from 11 major U.S. banks, but stock resumes slide as it suspends dividend

    First Republic gets $30 billion in deposits from 11 major U.S. banks, but stock resumes slide as it suspends dividend

    Bank of America BAC, Citigroup C, JPMorgan Chase JPM and Wells Fargo WFC said Thursday that they are each making $5 billion in uninsured deposits into First Republic Bank FRC as part of a $30 billion backstop by 11 banks against the ravaged banking landscape of the past week.

    However, First Republic stock fell 14.7% in after-hours trading after the bank said it would suspend its dividend to conserve cash. The bank last paid a quarterly dividend of 27 cents a share on Feb. 9 to shareholders of record as of Jan. 26.

    It…

    Source link

  • First Republic and Western Alliance pace big rebound in regional-bank stocks after huge losses

    First Republic and Western Alliance pace big rebound in regional-bank stocks after huge losses

    Shares of regional banks posted big gains on Tuesday as they regained their footing after huge losses in the previous session, but volatility continued in the sector following the demise of Silicon Valley Bank, Signature Bank and Silvergate Capital in the past week.

    While the rise in some cases is eye-popping, most stocks have yet to recover fully from losses in the past few days. Most stocks are trading well below their levels from a week ago, even with Tuesday’s gains.

    Among…

    Source link

  • How Zelle is different from Venmo, PayPal and CashApp

    How Zelle is different from Venmo, PayPal and CashApp

    More than half of smartphone users in the U.S. are sending money via some sort of peer-to-peer payment service to send money to friends, family and businesses.

    Stocks of payment services like PayPal, which owns Venmo, and Block, which owns Cash App, boomed in 2020 as more people began sending money digitally.

    related investing news

    CNBC Pro

    Zelle, which launched in 2017, stands out from the pack in a few ways. It’s owned and operated by Early Warning Services, LLC, which is co-owned by seven of the big banks and it’s not publicly traded. The platform serves the banks beyond generating an independent revenue stream.

    “Zelle is not really a revenue-generating enterprise on a stand-alone basis,” said Mike Cashman, a partner at Bain & Co. “You should think of this really as a little bit of an accommodation, but also as an engagement tool versus a revenue-generating machine.”

    “If you’re already transacting with your bank and you trust your bank, then the fact that your bank offers Zelle as a means of payment is attractive to you,” said Terri Bradford, a payment specialist at the Federal Reserve Bank of Kansas City.

    One limitation of PayPal, Venmo and Cash App is that users must all be using the same service. Zelle, on the other hand, appeals to users because anyone with a bank account at one of the seven participating firms can make payments.

    “For banks, it’s a no-brainer to try to compete in that space,” said Jaime Toplin, senior analyst at Insider Intelligence. “Customers use their mobile-banking apps all the time, and no one wants to cede the opportunity from a space that people are already really active in to third-party competitors.”

    Watch the video above to learn more about why the banks created Zelle and where the service may be headed.

    Source link

  • Why the big banks created Zelle

    Why the big banks created Zelle

    Share

    Competition among peer-to-peer payment apps like Venmo, PayPal, Cash App and Zelle have been heating up for the past 10 years. The big banks tried to compete in the space when PayPal first came on the scene 25 years ago, but their business models failed. Now, Zelle, a seven-bank platform, is outpacing its rivals in average transaction value. But a rise in reported fraud activity recently got the attention of Congress, with allegations that the banks aren’t supporting those affected customers.

    Source link