Bank stocks slump on Fed forecast; Quicken going public

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Wall Street Journal

Stock nosedive

Bank stocks fell sharply on Thursday, a day after the Federal Reserve predicted “that some damage to the labor market could last for years, coupled with projections that the economy could shrink as much as 10% this year. Shares of Citigroup, Bank of America, Wells Fargo and Goldman Sachs closed down between 9% and 13%. The S&P 500 financials sector shed 8.2%, closing in correction territory and marking its worst day since mid-March. The S&P 500 lost 5.9%.”

“And Fed officials’ announcement that they had no plans to raise short-term interest rates through 2022 is weighing on financial stocks. Lower interest rates make it more difficult for banks to profit from lending, a key revenue source.”

But the Journal says the thing for bank stock investors to focus on isn’t how low rates are or the steepness of the yield curve. “What matters most for banks is the timing of strength of an economic recovery. That will determine how severe their credit costs turn out to be, the relative safety of their dividends, and when the Fed will ultimately feel comfortable lifting short-term rates off the floor.”

Financial Times

Going public

Quicken Loans, “the largest mortgage lender in America,” according to the FT, “has filed what could be the biggest initial public offering of the year. Quicken has emerged as the top challenger to traditional lenders, becoming the largest mortgage originator ahead of Wells Fargo in 2018, with more than $80 billion in new loans. Last year the company closed nearly $145 billion in mortgages.”

“A public listing would mark a milestone for Dan Gilbert, the group’s founder, a billionaire who owns the Cleveland Cavaliers basketball team and has poured billions of dollars into projects to revitalize Detroit. Goldman Sachs, Morgan Stanley, JPMorgan and Credit Suisse were managing the IPO, said those briefed about the matter.”

The real worry

The outcry against HSBC for siding with China on its new security law for Hong Kong “is based on three questionable assumptions: that the company had a choice in whether to support the law; that its heart is against it; and that it is a British bank,” the FT says. “The real worry is indirect and financial: that the trade and capital flows between east and west that are HSBC’s lifeblood are choked off as the U.S. and China break apart.”

New York Times

Go easy on us

Goldman Sachs is trying to reduce its potential fine and avoid a guilty plea for its role in the 1MDB scandal. “Lawyers for the bank have asked Deputy Attorney General Jeffrey Rosen to review demands by some federal prosecutors that Goldman pay more than $2 billion in fines and plead guilty to a felony charge,” the Times said. “A settlement would resolve Goldman’s place in the nearly five-year federal investigation into allegations of foreign bribery, corruption and money laundering involving 1MDB,” the Malaysian development fund. “Goldman raised $6.5 billion for the fund, earning $600 million in fees.”

“The request, which was made several weeks ago, is not unusual for a high-profile corporate investigation and often comes in the final stage of settlement talks. But it has been a point of pride for Goldman that it has never had to admit guilt in a federal investigation, and the scandal has already been a black eye for the bank. Negotiations have been delayed at times because of the Covid-19 health crisis, but the people said they expected a resolution by early September of the criminal investigation.”

Elsewhere

IT help wanted

Santander said it plans to “hire 3,000 IT professionals worldwide this year to support its digital transformation and improve efficiency, at a time when lenders are focusing on cutting costs,” Reuters reported. “About 1,000 of the new hires will be in Spain, with a particular focus on individuals with a background in science, technology, engineering and mathematics. Santander said the recruits would be in areas including security and operations, artificial intelligence, software development and cybersecurity.”

“As part of a digital drive unveiled in April last year, the euro zone’s second-biggest lender in terms of market value said it would invest 20 billion euros ($23 billion) in technology by 2022.”

Taking the pledge

PayPal said “it was pledging $530 million to support black and minority-owned businesses in the United States and to foster diversity, amid worldwide protests over racial injustice,” Reuters said. “The bulk of the money — $500 million — will be devoted to the creation of an economic opportunity fund that will invest in black and under-represented minority businesses and communities. The funding will be invested through community banks and credit unions serving minority communities or through direct investments.”

We got the message

In his first remarks since activist investor Cerberus “launched a public campaign for change at Germany’s second-biggest bank,” Commerzbank CEO Martin Zielke said the bank is focused on cutting costs. “Zielke, speaking at an online conference, made no mention of Cerberus, but the investor has pointed to a bloated cost structure as among its main grievances.”

“We continue to work on cost management where we see additional potential beyond current plans,” Zielke said.

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