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Tag: Truist Financial Corp

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

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

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

    Charly Triballeau | Afp | Getty Images

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

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  • Federal Reserve says all 31 banks in annual stress test withstood a severe hypothetical downturn

    Federal Reserve says all 31 banks in annual stress test withstood a severe hypothetical downturn

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    Federal Reserve Board Vice Chair for Supervision Michael Barr testifies before a House Financial Services Committee hearing on the response to the bank failures of Silicon Valley Bank and Signature Bank, on Capitol Hill in Washington, D.C., on March 29, 2023.

    Kevin Lamarque | Reuters

    The Federal Reserve said Wednesday that the biggest banks operating in the U.S. would be able to withstand a severe recession scenario while maintaining their ability to lend to consumers and corporations.

    Each of the 31 banks in this year’s regulatory exercise cleared the hurdle of being able to absorb losses while maintaining more than the minimum required capital levels, the Fed said in a statement.

    The stress test assumed that unemployment surges to 10%, commercial real estate values plunge 40% and housing prices fall 36%.

    “This year’s results show that under our stress scenario, large banks would take nearly $685 billion in total hypothetical losses, yet still have considerably more capital than their minimum common equity requirements,” said Michael Barr, the Fed’s vice chair for supervision. “This is good news and underscores the usefulness of the extra capital that banks have built in recent years.”

    The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends. This year’s version included giants such as JPMorgan Chase and Goldman Sachs, credit card companies including American Express and regional lenders such as Truist.

    While no bank appeared to get badly tripped up by this year’s exercise, which had roughly the same assumptions as the 2023 test, the group’s aggregate capital levels fell 2.8 percentage points, which was worse than last year’s decline.

    That is because the industry is holding more consumer credit card loans and more corporate bonds that have been downgraded. Lending margins have also been squeezed compared to last year, according to the Fed.

    “While banks are well-positioned to withstand the specific hypothetical recession we tested them against, the stress test also confirmed that there are some areas to watch,” Barr said. “The financial system and its risks are always evolving, and we learned in the Great Recession the cost of failing to acknowledge shifting risks.” 

    The Fed also performed what it called an “exploratory analysis” of funding stresses and a trading meltdown that applied to only the eight biggest banks.

    In this exercise, the companies appeared to avoid disaster, despite a sudden surge in the cost of deposits combined with a recession. In a scenario where five large hedge funds implode, the big banks would lose between $70 billion and $85 billion.

    “The results demonstrated that these banks have material exposure to hedge funds but that they can withstand different types of trading book shocks,” the Fed said.

    Banks are expected to begin announcing their latest share repurchase plans on Friday.

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  • The next airport terminal lounge or club you pass may also be a bank branch

    The next airport terminal lounge or club you pass may also be a bank branch

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    Nicolette Nelson was running late for her return flight to Fairbanks as she sprinted towards her gate at Cincinnati/Northern Kentucky International Airport (CVG). Overcome by a medical issue, she didn’t make it to her gate and wound up spending the night in a Cincinnati hospital. By the next day, she had recovered and awaited her flight home, but it was repeatedly delayed.

    So Nelson spent hours of her delay in a quiet cubicle in an unlikely place — a bank — waiting for her flight and wiling away the time on electronic devices.

    “It’s been really, it’s quiet and that is what I need,” Nelson said.

    Fifth Third Bank was trying to appeal to this type of traveler when it rechristened its 40-year-old CVG branch last month as a combination lounge and lending center. Weary travelers and constantly working entrepreneurs stake out prime spots in the bank away from the airport hubbub, while corporate travelers use the center to squeeze out more business.

    “One woman wanted to rent my office to work,” remembers Lisa Slocum, the airport Fifth Third Bank branch manager. Slocum directed the woman to other options in the branch.

    Other customers use the bank on a purely transactional basis. On a recent day, Hannah Thelen and her mother, Ashley Thelen, were passing through on their way to Spain and stopped in to convert currency.

    “I love the central location,” Ashley Thelen said as she converted dollars to euros. 

    It’s a central location for a flyer, but a maze of trams, moving sidewalks, and concourses need to be navigated to get to it in Terminal B, and it is past the TSA checkpoint, so the branch doesn’t get customers off the street.

    Fifth-Third Bank isn’t the first financial institution to create an airport lounge vibe. Capital One closed its branch at Washington, D.C.’s Dulles International Airport in 2020, instead creating “airport lounges” for cardholders in Dulles, along with similar spots at airports in Denver and Dallas. The lounges offer amenities on par with an airline rewards club but are only for Capital One card holders, and banking services are not a part of the experience like they are at Fifth-Third’s CVG branch.

    Capital One Lounge inside Dulles International Airport in Washington, D.C.

    Capital One

    If CVG were a city, it’d be the fourth or fifth largest in Kentucky on most days, with 16,000 workers employed on the airport campus daily, according to Mindy Kershner, CVG’s senior manager of communications, plus the nine million passengers going through the gates yearly. That’s a lot of potential banking customers. Yet full-service airport bank branches are a relative rarity, surprising in a retail landscape that often resembles an upscale mall more than a terminal.

    Wings Credit Union has a small full-service branch at the Minneapolis-St. Paul International Airport, and Wings Vice President of Marketing Brent Andersen said the branch is also more about serving the large number of airport employees who are members than the traveling public. He adds, however, that in terms of visibility and advertising, even with the higher airport rent, the branch is a no-brainer.

    “We’d have to spend a lot more in other advertising to get that kind of visibility,” Andersen said, crediting the branch with also landing new members.

    For Fifth Third Bank, and a handful of other retail banking players, the airport branches are more than just expensive advertising for the brand (though that’s certainly part of the appeal). They are also functional financial centers, and in a digital era when bank branches are under existential scrutiny, some financial companies are betting on airports as a viable and visible place to keep their shingle hung.

    Big banks are adding hundreds of branches

    The banks and credit unions adding airport branches are just another indicator that the long-predicted demise of in-person banking at the hands of digital isn’t happening exactly as expected. The long-term trend is still less retail footprint, but branches have been staging a bit of a comeback. In fact, FDIC data shows that 2023 saw the first annual gain in branch count nationwide, to nearly 70,000, in a decade. This rebound comes as banking giants JPMorgan Chase and PNC have announced plans to open more branches — Chase up to 500, plus 1,700 renovations, while PNC is adding 100 new branches and renovating another 1,000 at a cost of $1 billion over the next three to five years.

    When Fifth Third Bank, the nation’s tenth-largest bank by deposits, rechristened its 40-year-old CVG location last month, it did so with plenty of local media coverage, cementing its commitment to airport banking.

    “There are very few full-service branches in airports, and this is one of a kind,” said John Sieg, regional retail executive for Fifth Third Bank. The bank is trying to create something like Delta’s Sky Club, except with on-site banking — cashing checks, checking balances, and converting currency — and open to all. And you won’t get dinged with an overdraft fee for lounging on their sofas.

    “Our objective is for travelers to have a place to do their full-service banking and hang out with us. They could hang out with us all day if they have a delayed flight. We have had customers that have done it,” Sieg said.

    Wells Fargo operates a full-service branch in Las Vegas’s Harry Reid International Airport, and according to a bank spokeswomen, has a multi-year relationship with the airport that involves both the branch and multiple ATMs throughout terminals. Although Wells Fargo had little to say about the branch, it’s not difficult to imagine why it might be popular in Vegas, where slots are as much a part of the landscape as espresso machines.

    Truist Bank, formerly SunTrust, operates a full-service bank branch at Hartsfield-Jackson Atlanta International Airport, where serving customers remains a top priority, but Brian Davis, director of consumer and small business banking communications, also noted that being at the airport provides the bank with “a high level of brand visibility for the millions of passengers who pass through.”

    Still, not everyone in the industry is sold on mixing anxiety about getting through security and to the gate on time with personal finance.

    “I think it’s a bad idea,” says Paul McAdam, senior director of banking and payments intelligence at analytics firm J.D. Power. McAdam says ATMs and advanced-function kiosks are one thing, but a full-service branch, except maybe in the largest markets, is overkill. JFK Airport in New York City has three credit unions in its terminals.

    “I sense that bank branches in airports would handle a lot of transaction volume but very little value-added volume of customers looking to open accounts or receive advice. Who wants to open a new account in an airport?” McAdam said.

    Financial giants are testing the concept of bank-branded destinations more widely. Capital One has opened some cafes in New York that cater to the remote worker, offering a financial vibe without vaults of money and tellers watching your every move. 

    With most travelers focused on traveling, Fifth Third conceded that banking isn’t top of mind for many airport customers. Sieg says the CVG branch does about 1,700 transactions a month.

    “That is probably on the smaller side of what a transaction count would be at a traditional bank mart or office,” he said, but the visibility of the branch makes up for lower volume.

    The branch offers an array of spaces, including a service bar where travelers can tap away at their tablets while watching coffee-clutching, harried travelers racing for their gates. The bank also includes a fully private office with phones, a hydration station, sofas, and overstuffed chairs, an enticement for remote workers. 

    “Regardless of whether you are a customer or a non-customer, we wanted to put out the best welcome sign we could have. Everybody is invited and can use this space,” Sieg said.

    However, if someone feels a need to apply for a mortgage during their layover or open a savings account, the branch has that functionality.

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

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

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    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.

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

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

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    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.

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

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  • Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

    Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

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    A sign for the financial agency Fitch Ratings on a building at the Canary Wharf business and shopping district in London, U.K., on Thursday, March 1, 2012.

    Matt Lloyd | Bloomberg | Getty Images

    A Fitch Ratings analyst warned that the U.S. banking industry has inched closer to another source of turbulence — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include the likes of JPMorgan Chase.

    The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t trigger downgrades on banks.

    But another one-notch downgrade of the industry’s score, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, Wolfe told CNBC in an exclusive interview at the firm’s New York headquarters.

    “If we were to move it to A+, then that would recalibrate all our financial measures and would probably translate into negative rating actions,” Wolfe said.

    The credit rating firms relied upon by bond investors have roiled markets lately with their actions. Last week, Moody’s downgraded 10 small and midsized banks and warned that cuts could come for another 17 lenders, including larger institutions like Truist and U.S. Bank. Earlier this month, Fitch downgraded the U.S. long-term credit rating because of political dysfunction and growing debt loads, a move that was derided by business leaders including JPMorgan CEO Jamie Dimon.

    This time, Fitch is intent on signaling to the market that bank downgrades, while not a foregone conclusion, are a real risk, said Wolfe.

    The firm’s June action took the industry’s “operating environment” score to AA- from AA because of pressure on the country’s credit rating, regulatory gaps exposed by the March regional bank failures and uncertainty around interest rates.

    The problem created by another downgrade to A+ is that the industry’s score would then be lower than some of its top-rated lenders. The country’s two largest banks by assets, JPMorgan and Bank of America, would likely be cut to A+ from AA- in this scenario, since banks can’t be rated higher than the environment in which they operate.

    And if top institutions like JPMorgan are cut, then Fitch would be forced to at least consider downgrades on all their peers’ ratings, according to Wolfe. That could potentially push some weaker lenders closer to non-investment grade status.

    Hard decisions

    For instance, Miami Lakes, Florida-based BankUnited, at BBB, is already at the lower bounds of what investors consider investment grade. If the firm, which has a negative outlook, falls another notch, it would be perilously close to a non-investment grade rating.

    Wolfe said he didn’t want to speculate on the timing of this potential move or its impact to lower-rated firms.

    “We’d have some decisions to make, both on an absolute and relative basis,” Wolfe said. “On an absolute basis, there might be some BBB- banks where we’ve already discounted a lot of things and maybe they could hold onto their rating.”

    JPMorgan declined to comment for this article, while Bank of America and BankUnited didn’t immediately respond to messages seeking comment.

    Rates, defaults

    In terms of what could push Fitch to downgrade the industry, the biggest factor is the path of interest rates determined by the Federal Reserve. Some market forecasters have said the Fed may already be done raising rates and could cut them next year, but that isn’t a foregone conclusion. Higher rates for longer than expected would pressure the industry’s profit margins.

    “What we don’t know is, where does the Fed stop? Because that is going to be a very important input into what it means for the banking system,” he said.

    A related issue is if the industry’s loan defaults rise beyond what Fitch considers a historically normal level of losses, said Wolfe. Defaults tend to rise in a rate-hiking environment, and Fitch has expressed concern on the impact of office loan defaults on smaller banks.

    “That shouldn’t be shocking or alarming,” he said. “But if we’re exceeding [normalized losses], that’s what maybe tips us over.”

    The impact of such broad downgrades is hard to predict.

    In the wake of the recent Moody’s cuts, Morgan Stanley analysts said that downgraded banks would have to pay investors more to buy their bonds, which further compresses profit margins. They even expressed concerns some banks could get locked out of debt markets entirely. Downgrades could also trigger unwelcome provisions in lending agreements or other complex contracts.

    “It’s not inevitable that it goes down,” Wolfe said. “We could be at AA- for the next 10 years. But if it goes down, there will be consequences.”

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  • Watch CNBC’s full interview with Potomac Wealth’s Mark Avallone and KKM’s Jeff Kilburg

    Watch CNBC’s full interview with Potomac Wealth’s Mark Avallone and KKM’s Jeff Kilburg

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    Mark Avallone, president of Potomac Wealth Advisors, and Jeff Kilburg, CEO of KKM Financial, join ‘The Exchange’ to discuss stocks falling after the Moody’s downgrade, the case for buying regional banks, consolidation in the VIX and owning tech in an equal weighted manner.

    06:56

    Tue, Aug 8 20231:49 PM EDT

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

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

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

    Angela Weiss | AFP | Getty Images

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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  • Why Tesla investors should care about Elon Musk’s multiplying ventures

    Why Tesla investors should care about Elon Musk’s multiplying ventures

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    Tesla CEO Elon Musk and his security detail depart the company’s local office in Washington, January 27, 2023.

    Jonathan Ernst | Reuters

    Elon Musk‘s multiple ventures and the relationships between them are facing increased scrutiny as the Tesla CEO continues to add more to his plate.

    During Tesla’s second-quarter earnings call on Wednesday, Truist analyst William Stein asked Musk about yet another tech venture he has started up and incorporated in Nevada: xAI. Musk recently said that the artificial intelligence startup aims to compete with Google Bard or OpenAI’s ChatGPT someday, and plans to collaborate with Tesla on software and silicon alike.

    Stein asked him, “For investors that think there might be quite a bit of value in the AI features and products of Tesla, it might be concerning to see you pursuing another endeavor where AI is the focus. Can you talk about how xAI might overlap, might perhaps compete with Tesla or in other ways perhaps it enhances the value of what Tesla does?”

    Musk claimed that xAI and its focus artificial general intelligence on would bring some value to Tesla, and talked about recruiting as an example.

    “There were just some of the world’s best AI engineers and scientists that were willing to join a startup but they were not willing to join a large, sort of relatively established company like Tesla.” He added, “So I was like, OK well, better it’s a startup that I run than they go work somewhere else. That’s kind of the genesis of xAI.”

    In addition to the xAI example, he said he was only able to entice a top materials science engineer away from his job at Apple by promising the engineer could work concurrently for SpaceX and Tesla. The engineer in question, Charles Kuehmann, joined Tesla in late 2015 and now holds the title of vice president of SpaceX and Tesla materials engineering, reporting directly to the CEO.

    The issue of Musk and his multiple ventures also came up earlier this month, when Sen. Elizabeth Warren, D-Mass., urged the Securities and Exchange Commission to investigate its Twitter ties and related corporate governance issues.

    Musk led a $44 billion buyout of the social media company last year and appointed himself CEO there temporarily. He is now the controlling shareholder, CTO and executive chair of Twitter while holding down the CEO role both at Tesla and at his aerospace and defense company, SpaceX. He’s also the founder and funder at the brain-computer interface startup Neuralink and tunneling venture The Boring Co.

    Tesla is the only public company among the bunch. And it has never disclosed to shareholders exactly how much talent, time and money it has spent helping Musk at his other ventures, or why sending people over to Twitter would comprise a reasonable use of Tesla resources. Musk previously enlisted Tesla, SpaceX and The Boring Co. employees to assist him with his Twitter takeover, as CNBC reported.

    At least one senior Tesla employee has jumped ship to Musk’s X Corp., the parent company of Twitter. Court filings revealed that Dhruv Batura, who had worked at Tesla since late 2013 and was a senior manager of business operations finance there, is now a senior director of finance at X Corp. Batura was posting job ads for X Corp. on Twitter on the day of Tesla’s second-quarter earnings report.

    In a May 2023 proxy filing, Tesla did disclose a few details about its related party transactions. Among these, Tesla revealed that “Twitter is party to certain commercial and support agreements with Tesla. Under these agreements, Twitter incurred expenses of approximately $1.0 million in the aggregate in 2022 and $0.4 million in 2023 through February.” Tesla hasn’t said what, exactly, Twitter is buying from the company.

    Risks include lack of focus, employee burnout

    According to London School of Economics professor of organizational behavior, Randall S. Peterson, “Musk is making a convoluted argument in saying ‘I am helping Tesla by keeping these great people from joining a competitor.’ It’s a counter-factual you cannot ever really test or challenge in an investigation.”

    Most startups fail, Peterson noted, and people who want to create startups were probably not likely to join Tesla’s direct competitors in the automotive industry.

    Peterson said Musk’s many ventures can create risks for Tesla, and shareholders should seek more details.

    “It’s hard to focus on and excel at any one thing when you run multiple companies,” Peterson said. “That’s a risk around the CEO himself. Would most companies’ shareholders tolerate their CEO running several other companies at the same time? The answer to that is probably no. So that raises a question of what the Tesla board is doing, whether they are independent at any level, or are so enamored of Musk that they not only tolerate his unusual way of working, but might be missing significant fundamental problems as long as the money keeps coming.”

    Boards at companies that have ended up in crisis, like Enron and the Royal Bank of Scotland, failed to rein in their CEOs despite signs of problems for many quarters, he noted.

    Another risk, Peterson said, is that Musk’s employees may feel pressure to work on many projects at once for him concurrently, outside of Tesla. In a quest to please him or rack up new work experience, employees may fail to recuperate from their work and burnout. Burnout, he said, can lead to high attrition or poor performance.

    Finally, the professor noted, Musk may be creating distractions that impede focus among his employees, even if his intention is to cross-pollinate among his businesses.

    “You need to be super-focused to be the best at something, both as an individual and as a corporation. That’s the reason we have seen a trend away from conglomerates which were big in the 70s to companies that are more focused today,” the professor said.

    Still, Musk appears to be doubling down on unapologetic collaborations between companies in his growing empire.

    On Wednesday’s call, he was asked to give an update on Tesla’s progress developing a humanoid robot dubbed Optimus. Musk waxed on in a futuristic vein, saying that Tesla may one day collaborate with Neuralink to make robotic, prosthetic arms and legs to help amputees return to full mobility or dexterity.

    Tesla did not immediately respond for a request for comment. Twitter responded with an automated reply containing a crude symbol.

    — CNBC’s Rohan Goswami contributed reporting.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


    U.S. Federal Reserve chart

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Saul Loeb | AFP | Getty Images

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

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

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

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

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

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

    Goldman’s credit card losses

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

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

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

    Regional banks pinched?

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

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

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

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

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

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

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  • Wall Street is confident high-yielding banks won’t cut their dividends

    Wall Street is confident high-yielding banks won’t cut their dividends

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  • 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

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    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.

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  • 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

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  • 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

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    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…

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  • Regional bank stock plunge creating key entry point for investors, top analyst says

    Regional bank stock plunge creating key entry point for investors, top analyst says

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    The dramatic drop in regional bank stocks is a key entry point for investors, according to analyst Christopher Marinac.

    Marinac, who serves as Director of Research at Janney Montgomery Scott, believes the group’s decline over the past week provides an attractive entry point for investors because underlying business fundamentals remain intact.

    “We have definitely slipped on a banana peel as it pertains to this deposit worry and scare,” Marinac told CNBC’s “Fast Money” on Monday.

    The SPDR S&P Regional Banking ETF dropped by more than 12% on Monday after regulators shuttered Silicon Valley Bank and Signature Bank. They’re the second- and third-largest bank failures, respectively, in U.S. history.

    “The main lending in America is still mid-size and small community banks,” he added. “Those companies are excellent plays.”

    When asked which regional banks look most attractive, Marinac recommends Fifth Third Bank. The stock is off more than 27% over the past week.

    “They’re a very innovative company in the fintech arena, which still has merit as we go forward,” he said, adding that CEO Timothy Spence has an “excellent” handle on interest rate risk and credit.

    Marinac also named Truist as a top sector pick, saying the company has a competitive advantage among regional banks after selling a portion of its insurance unit. Truist stock has dropped 30% over the past five sessions.

    “That’s going to help them pass the stress test in June, so that company certainly is not only a survivor, but a thriver,” he said.

    On the longer-term outlook for regionals, Marinac expects the group to pare its losses.

    “Eventually, the storm will calm and the seas will part such that banks can go back to trading at book value and higher as we go forward,” Marinac said.

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  • Op-ed: Financials may get more love amid sustained higher interest rates

    Op-ed: Financials may get more love amid sustained higher interest rates

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    Credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months.

    Valentinrussanov | E+ | Getty Images

    Financial stocks were so out of favor for most of 2022 that perhaps their tickers should have been appended with a Nathaniel Hawthorne-esque “U” — for “unloved.” Yet after some decent gains so far this year, the sector could draw suitors aplenty as 2023 progresses.

    The present allure of financial stocks, stemming from low valuations and high levels of capital, is especially strong as higher interest rates are making lending money more profitable.

    As of mid-February, the Financial Select Sector SPDR ETF had recovered about half its 2022 losses. Amid this comeback, robust earnings have kept the sector’s price-earnings ratios low, as reflected by XLF’s P/E of 14.5 in mid-February.

    Buckets are out at the banks

    Low share prices are the norm

    Despite gains this year, share prices of this sector are still quite low, considering good earnings and a long history of corporate performance.  

    One reason for the low prices is fear of recession. But even if the most widely anticipated recession ever actually becomes reality, assuming that the short-and-shallow camp turns out to be right, financial sector earnings could easily prove more resilient than normally expected in a downturn.

    Also tamping down prices is long-term market perception, said Christopher Davis, portfolio manager and chairman of Davis Advisors in New York. Several months ago, he made the case that financials tend to be mispriced because they’re “widely misunderstood,” adding the sector was (and still is, in my opinion) “primed for long-term revaluation.”

    Revaluation could be in the offing, as indicated by shifts in the sector’s technical indicators, especially those for diversified financial companies and insurance companies, following growth in the latter this year. As of late February, Invesco KBW Property & Casualty Insurance ETF was up more than 14% over the preceding six months. After taking big hits from Hurricane Ian last year, insurance companies are getting more respect from analysts now that they are on firmer footing in fairer weather.

    A close haircut for regional banks

    Regional banks, which took a close haircut early last year after hitting a five-year peak in January, are also recovering. The bellwether ETF for this group, SPDR Regional Banking, was up nearly 9% year to date as of mid-February. Many regional banks have recently been buying back shares to support a floor on prices and give shareholders more total return without getting locked into dividend increases.

    Meanwhile, credit card providers are benefitting from post-pandemic travel and increasing card usage in general, with balances way up in recent months. Also positive are prospects for exchanges and data providers, a sector category whose earnings in recent years have grown twice as fast as those of the S&P 500.

    Here are some attractive financial stocks with strong growth prospects and fundamental metrics signaling low downside risk:

    • Truist Financial: Formed in 2019 by a merger of equals — regional banks BB&T Corp. and SunTrust — Truist is now the nation’s seventh-largest bank, with a capitalized ratio nearly twice what’s required by regulators. Truist’s dividend has more than doubled in the last 10 years. Post-merger kinks typically dampen companies’ share price growth, so Truist’s recent underperformance relative to KRE was expected. And Truist’s growth could exceed peers’ because it operates in rapidly growing regions — primarily, the mid-Atlantic and Southeast.
    • East West Bancorp: This is a fast-growing, full-service commercial bank with locations in the U.S., serving the Asian-American community, and in China. Shares were up nearly 19% year to date as of mid-February. This growth is expected to accelerate from China’s reopening from Covid lockdowns. CFRA has this bank as a strong buy, forecasting 2023 growth of 17% to 19%, in part because net interest income currently makes up 89% of its revenue, versus 73% for peers. Also, the bank has “no exposure to mortgage banking or capital markets, which have been severely impacted by rising rates and economic uncertainty,” CFRA states, citing balance sheet momentum, a discounted valuation and the advantage of a Chinese population in the U.S. that’s growing faster than the whole.
    • FactSet Research Systems: FactSet is the star of the sector’s data-provider segment. It’s an interesting, attractive play with recurring revenues of 98%, largely because financial firm customers rely so heavily on FDS’s data. You can see it cited on brokerage platforms and analyst reports. FDS’s software, data and analytics supports the workflow of both buy-side and sell-side clients. Customers include asset managers, bankers, wealth managers, asset owners, hedge funds, corporate users, and private equity and venture capital professionals. The company has an excellent track record of maneuvering through tough economic times, evidenced by its top-line sales growth for 42 consecutive years and annual dividend raises for the last 23 years. The difficulties of changing data providers amount to an economic moat that’s daunting to competitors.
    • American Express: This is the right business at the right time, with business travel improving, China reopening and consumer spending among the affluent strong. Revenue growth went from a 10-year stretch of 2% annually to 25% in 2022, with 17% growth forecast for this year. Connecting better with millennials and Generation Z customers than its peers, American Express is acquiring new cardholders at an increasing rate. Analysts expect earnings to rocket up 30% over the next two years, while those of competitors appear likely to shrink. And because of well-heeled customers, this company has less credit risk than its peers.
    • Chubb: Chubb is the world’s largest publicly traded property and casualty insurer, operating in 54 countries but with 60% of its revenue from North America. CB has a market-leading position in industrial, commercial and mid-market traditional and specialty property-casualty coverage. It is also a leader in high net worth personal-insurance coverage, a category unlikely to feel pain from an economic downturn. Chubb has high-quality underwriting, but shares are trading at a discount to peers with lower-quality underwriting. Higher premiums, a 98.4% customer-retention rate and higher interest rates should all contribute to strong earnings growth, and shares are widely viewed as significantly undervalued.

    The current, higher rates aren’t going down anytime soon. This sector is currently positioned for sustained earnings strength and likely price growth throughout this year and into 2024.

    — By Dave Sheaff Gilreath, CFP, partner and chief investment officer of Sheaff Brock Investment Advisors LLC and Innovative Portfolios LLC.

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  • How Zelle is different from Venmo, PayPal and CashApp

    How Zelle is different from Venmo, PayPal and CashApp

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    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.

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    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.

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