'Uninvestable' bank stocks; JPMorgan Chase hires Vanguard's robo investment chief
Wall Street Journal
“China’s major banks reported their biggest profit drops in more than a decade, as the economic impact of the pandemic led them to take large provisions against potential bad loans. China’s top four banks, which account for more than one-third of the industry’s total assets, all said net profit fell more than 10% year-over-year in the first half.”
“The declines were in line with market expectations. Beijing has told state banks to sacrifice earnings for the benefit of the wider economy and to beef up rainy-day funds, since the emergence of bad debt normally lags behind an economic slump.”
“If 2008 was a heart attack for the world’s banks, 2020 is showing the sector to be both morbidly obese and dangerously addicted to prescription drugs,” an FT op-ed argues. “A repeat of the banking sector coronary of 12 years ago, which the global economic shutdown amid Covid-19 might well have triggered, appears to have been averted. But the central bank interventions that have held down capital costs and helped mitigate customer loan losses — via ramped-up quantitative easing and a further lowering of perennially ultralow interest rates — have had a nasty side effect.”
“Combined with the build-up of plump capital buffers that policymakers have insisted on over the past decade, they have conspired to destroy returns, rendering many banks essentially uninvestable. Short-term loan losses aside, investors have two related concerns. The first is that profitability has been permanently impaired by monetary policy. Investors’ second worry is that distributable returns to shareholders, via dividends or share buybacks, will be doubly constrained — not only by structurally lower profitability, but also by regulatory blocks on payouts.”
Brother, can you spare a dime?
The national coin shortage “seems to be a challenge that ever-divided government, businesses and Americans can unite behind. There’s a new coin task force, complete with its own hashtag: #getcoinmoving. Businesses heavy in coins are helping businesses without. For its part, the U.S. Mint is actually on track to produce more coins this year than it has in almost two decades, having ramped up production to fill the void.”
But “simply making more coins won’t completely solve the problem. Getting coins flowing through the economy once again, the solution will depend on swaying Americans to change new habits developed during the pandemic.”
“With a new policy framework in place, the Federal Reserve will turn to debating possible next steps in the U.S. central bank’s fight against the economic fallout of the coronavirus pandemic, Fed Vice Chair Richard Clarida said on Monday,” Reuters reports. “That discussion is expected to include possible promises by the Fed to link interest rate decisions directly to a return to full employment, and the possible expansion of its monthly asset purchases to further boost the economy.”
“Now that we have concluded the review, I imagine we will be returning to a discussion of potentially refining guidance and our balance sheet communication, but I don’t want to prejudge where that would end up,” Clarida said during an event organized by the Peterson Institute for International Economics in Washington.
But the Fed’s “available tools, such as expanding its monthly asset purchases, aren’t the best methods at this point for ensuring the U.S. economy returns to steady growth, Atlanta Fed president Raphael Bostic said.” Asked specifically about more bond purchases, Bostic said “foremost this is a public health crisis and I think distracting from that reality could get us to a place where we are focusing on the wrong thing.”
“We have signaled pretty clearly that we are going to continue positioning our policy to provide support. But I think there is a risk thinking that the Fed’s tools are the exclusive or the best positioned tools to get the economy into a more stable trajectory,” he said.
JPMorgan Chase “hired the head of Vanguard Group’s robo-adviser to lead its phone and video-based financial advice unit and to oversee its nationwide hiring spree. Boaz Lahovitsky was named head of the U.S. National Branch for Wealth Management, part of the retail bank’s wealth management group which includes financial advisers serving customers by phone or video.”
“Lahovitsky will oversee the hiring of hundreds of new advisers over the next two years to fill out JPMorgan’s call centers and other locations across the country. Lahovitsky joins JPMorgan from Vanguard, where he was head of flagship advice, Personal Advisor Services, the digital automated investment tool Vanguard launched in 2015.”