196.06 0.00 (0.00%)
After hours: 5:35PM EDT
|Bid||194.46 x 800|
|Ask||196.26 x 800|
|Day's Range||194.01 - 197.52|
|52 Week Range||151.70 - 245.08|
|Beta (3Y Monthly)||1.30|
|PE Ratio (TTM)||8.16|
|Earnings Date||Jul 16, 2019|
|Forward Dividend & Yield||3.40 (1.72%)|
|1y Target Est||230.76|
The history of Goldman Sachs spans 150 years, and to celebrate that history, the bank collaborated with noted historical documentary filmmaker Ric Burns to create a 10-part series, chronicling the financial giant from its humble beginnings, to now. 'Goldman Sachs at 150' debuts next Monday on Amazon Prime, and Yahoo Finance has the exclusive trailer
U.S. banks clear first hurdle of Federal Reserve’s annual stress test. Brian Cheung joins the Final Round to discuss the implications and what’s next for the big banks.
Some giants of Wall Street and the up-and-coming new guard of fintech, blockchain, and venture capital are meeting in Montauk, NY to explore and shape the future of finance. That's where Yahoo Finance's Julia La Roche sat down with Adam Dell, the head of product for Marcus by Goldman Sachs. She asked him how Marcus will attract customers and retain them.
Opportunity zones aim to increase investment in underserved areas. The head of Goldman Sachs' Urban Investment Group said they do make a positive social impact.
(Bloomberg) -- One of the most opaque areas of China’s credit markets involves the practice of companies buying their own bonds. That may soon get a lot tougher, contributing to financing difficulties that are already bedeviling the nation’s policy makers.At issue is a sharp increase in scrutiny by financial institutions of the collateral that their counterparties offer up in the repurchase market, a crucial channel for short-term funding. If the debt sold by issuers that indirectly purchased a portion of their own bonds -- which could account for as much as 8% of China’s corporate bonds, according to Citic Securities Co. -- is shunned, that will squeeze liquidity for a swathe of the nation’s businesses.Despite regulators’ actions to prevent any seizing up in the repo market and short-term collateralized lending between banks, some institutions still moved to avoid riskier securities. The moves have showcased the fragility of confidence toward borrowers that lack state backing in a financial system still dominated by state-sector banks.For firms that obtained funding via unorthodox methods, conditions may become particularly challenging. One of those practices is known as structured issuance, where a company will transfer cash to an asset manager to buy a slice of the bonds the company is itself selling. The manoeuvre helps give the appearance of greater demand for its securities and stronger ability to obtain funding. What could make the practice untenable is if asset managers can no longer use those securities held in custody as collateral for repos.“Since some repo transactions have defaulted recently, it is unclear whether companies can continue to borrow money from the structured issuance method, said Meng Xiangjuan, chief fixed-income analyst at SWS Research Co. in Shanghai. “If it stops, some issuers will certainly face difficulties operating their business normally, and their debt-repayment pressure will rise,” she said.CHINA DEFAULT WATCH: Three More Companies Missed PaymentsWhile the practice of self-financing a portion of bond issuance is well known among credit analysts and ratings companies, observers have been loath to name the firms involved, making this a particularly murky part of China’s debt market. Citic Securities, for its part, hazarded a total of about 1.5 trillion yuan ($218 billion) worth of securities outstanding that were sold in part via structured issuance.A shock takeover of Baoshang Bank Co., a city commercial lender linked with conglomerate Tomorrow Group, has had cascading effects. One of the readily quantifiable ramifications has been to raise the funding costs for lower-rated banks, as seen in the rates on their negotiable certificates of deposits.Another impact has been the shock to confidence after regulators warned that Baoshang’s interbank creditors might face losses. They have since had to fight a rearguard action to encourage banks to sustain their interbank and repo operations, and the People’s Bank of China has had to pump liquidity into money markets to avert any systemic upset.Concern became so great that the China Foreign Exchange Trading System, an arm of the PBOC, set up a procedure for the orderly resolution of defaulted repo transactions, pledging to conduct anonymous auctions of the bonds used as collateral -- a move that hides the name of the counterparty that defaulted.“The government has been taking measures proactively to avoid systemic risk” in the interbank market, Goldman Sachs Group Inc. economists including Zhennan Li, wrote in a note Tuesday. Even so, “in coming months, the macro environment looks set to remain complicated, and macro policy more challenging, and we think the probability of a rise of financial stress will remain relatively high,” they wrote.Regulators’ actions have averted a broader surge in premiums for lower-rated borrowers, such as local government financing vehicles that analysts say account for a portion of structured issuance. But strategists remain concerned that the days of such an unconventional fund-raising strategy may be numbered if the securities are no longer accepted as collateral for financial transactions.“In the short run, companies that rely on structured issuance definitely have to sell bonds at higher yields to attract investors,” said Brian Lou, portfolio manager from UBS Asset Management in Shanghai. “Everyone knows the funding chain is really fragile after the Baoshang Bank seizure, and the most important task for institutional investors right now is to allocate assets better and improve risk management.”(Updates the charts.)To contact Bloomberg News staff for this story: Tongjian Dong in Shanghai at email@example.com;Qingqi She in Shanghai at firstname.lastname@example.orgTo contact the editors responsible for this story: Neha D'silva at email@example.com, Christopher Anstey, Lianting TuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- It’s official -- SoftBank Group Corp. is Japan’s most generous employer, at least when it comes to executive pay.Six of the country’s 10 biggest salary packages last fiscal year were offered by SoftBank, according to a report from Tokyo Shoko Research Ltd. SoftBank Group Vice Chairman Ronald Fisher topped the list with 3.27 billion yen ($31 million) in the period ended March 31. Toyota Motor Corp. director Didier Leroy, the highest-paid non-SoftBank executive, ranked No. 5, while Sony Corp. Chief Executive Officer Kenichiro Yoshida was 8th.SoftBank founder Masayoshi Son has a history of paying top dollar to attract high-profile executives. Former SoftBank President Nikesh Arora still holds Japan’s all-time record with the 10.3 billion yen package he received in fiscal 2016, according to the report. Since then, Son’s hunt for global talent accelerated as he launched a $100 billion Vision Fund to invest in the world’s biggest technology companies. SoftBank paid a total of 9.1 billion yen in compensation to six lieutenants last year.Key Insights:SoftBank Group Chief Operating Officer Marcelo Claure ranked second with 1.8 billion yen. Claure, who also heads Sprint Corp. in the U.S., was named EVP in July. He also heads SoftBank’s $5 billion technology fund focused on Latin America. Ken Miyauchi, head of SoftBank’s domestic telecom operation, was third with 1.23 billion yen, followed by Simon Segars, head of its ARM Holdings Plc chip unit, with 1.1 billion yen.Former Goldman Sachs Group Inc. executive and SoftBank Group Chief Strategy Officer Katsunori Sago earned 982 million yen in the sixth place. Rajeev Misra, who heads the Vision Fund, earned 752 million yen.Son’s own salary remained modest at 229 million yen, according to a company filing in May. The billionaire controls a roughly 22% stake in SoftBank, which alone is worth about 2.3 trillion yen.Toyota paid Leroy a little over 1 billion yen. Sony CEO Yoshida made 847 million yen, 6% less than his pay last year.Chip equipment maker Tokyo Electron Ltd. was the most frequent name on the list as nine of its executives made the top 30, earning a collective 5 billion yen. Chief Executive Officer Toshiki Kawai ranked 7th with 925 million yen.To contact the reporter on this story: Pavel Alpeyev in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Edwin Chan at email@example.com, Colum MurphyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg Opinion) -- Dan Loeb wants to split up Sony Corp. to enhance its value. The company isn’t the only household name in Japanese electronics that might benefit from the treatment.Panasonic Corp. shares have dropped more than 40% over the past 12 months after a partnership with Tesla Inc. disappointed; the company forecast earnings will decline; and a restructuring plan put forward last month failed to convince investors. The firm is trading on a multiple of 3.8 times enterprise value to Ebitda, compared with a five-year average of 4.6 times.Loeb’s Third Point LLC has called for a spinoff of Sony’s semiconductor business, aiming to reduce the stock’s so-called conglomerate discount – the situation where a company is valued at less than the sum of the different businesses it owns. It’s an analysis that could equally be applied to Panasonic.Last month, the Osaka-based company released a mid-term plan that will increase its number of divisions to seven from four. Panasonic aims to shift its focus away from the automotive business, which is struggling under the shadow cast by the difficulties in its relationship with Tesla. The electronics maker also announced a series of partnerships and alliances, and estimated restructuring costs of about 90 billion yen ($840 million), according to Goldman Sachs Group Inc.Analysts say Panasonic still doesn’t have a coherent strategy, and investors clearly want more change. So could a breakup be the solution?The answer from a sum-of-the-parts analysis is a clear: maybe. If Panasonic listed all its business segments separately and they traded at the mid-point of their peer-group ranges of between 4 times and 9 times enterprise value to Ebitda, then the combined value would be 2% higher than the company’s current market capitalization of about $20 billion. At the high end of the ranges, Panasonic could increase its value by as much as 32%. At the low end, though, there’s a similar amount of downside.(1)Analysts in Japan have questioned Loeb’s proposal for Sony. While they lauded his effort to improve the company’s valuation, they also cast doubt on whether the activist investor’s proposals were feasible or made strategic sense. A Sony split may unlock value now but, as my Bloomberg Opinion colleague Tim Culpan asked, what’s the vision for the future? As Sony analysts have pointed out, Loeb has reversed course since 2013, when he recommended that the company sell part of its film unit.This uncertainty is precisely where a breakup proposal may make sense for Panasonic, though. Pulling apart its various businesses – grouped broadly under appliances, automotive and industrial systems, connected solutions and eco solutions – would enable investors to put their money where they see value and growth prospects, without being encumbered by laggard businesses.For instance, sales for the connected solutions segment rose 6.9%(2) in the 2019 fiscal year, helped by the Tokyo Olympics in 2020 and growing demand from businesses to help automate tasks. Itochu Techno-Solutions Corp., which competes in a similar business, is trading on a forward price-earnings ratio of 23 times.Panasonic thought the automotive business would drive its profitability over the past three years. Even here, running the unit separately could create more value. Panasonic has teamed up with Toyota Motor Corp. and already has partners other than Tesla. With demand for electric cars and the pace of adoption being reassessed, the company could take time to leverage its technology advantage. In the process, the segment’s rising fixed costs won’t weigh down other more profitable businesses. In fact, investors might give a standalone battery business a higher valuation, as they’ve done with South Korean battery-makers Samsung SDI Co. and LG Chem Ltd.Analysts at Credit Suisse AG downgraded the stock on Friday, noting that they see “no signs of a rebound in earnings in the near term,” and that it was unclear how the company and its profit would look after the restructuring. Earnings at the auto business, where the analysts earlier saw potential for sales growth, is unlikely to improve over the medium term, they said.There are additional reasons why a breakup should be considered. For one, the government is incentivizing spinoffs with tax breaks. Meanwhile, domestic institutional investors are becoming more activist: The rejection rate for takeover defense measures has risen over the past six years to 80.5% from 40%, according to Goldman Sachs. That’s close to the 85% rate for foreign investors.Panasonic has some thinking to do. Loeb, meanwhile, might just have a new target. --With assistance from Elaine He. (1) Sum-of-the-parts analysis for Panasonic is based on FY2019 operating profit for each segment and used the following assumptions:1. Average enterprise value to earnings before interest, taxes, depreciation and amortization for peer group of each segment.2. A range of two times above and below average multiple.(2) Includes exchange-rate effects.To contact the author of this story: Anjani Trivedi at firstname.lastname@example.orgTo contact the editor responsible for this story: Matthew Brooker at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- The first round of the latest Federal Reserve stress tests, released last Friday after the market closed, was well received by Wall Street analysts, who said the results generally topped expectations.Bank of America Corp., PNC Financial Services Group and trust banks BNY Mellon Corp., Northern Trust Corp. and State Street Corp. were seen as relative winners, while the Fed’s harsh view of credit cards led to disappointment for Capital One Financial Corp.All eyes now turn to Thursday’s Comprehensive Capital Analysis and Review, known as CCAR, for banks’ capital plans.The biggest banks were mixed in early Monday trading, with BofA rising as much as 0.4%, Citigroup Inc. gaining as much as 0.2%, Goldman Sachs Group Inc. rallying as much as 1.2%, Wells Fargo & Co. dropping as much as 1% and JPMorgan Chase & Co. up 0.2%.Here’s a sample of the latest commentary:Morgan Stanley, Betsy GraseckAn “easier stress test is a positive for this week’s more important CCAR test,” Graseck wrote in a note. All 11 of Morgan Stanley’s covered banks passed, with Northern Trust, Goldman Sachs Group Inc., State Street, BNY Mellon, and Citigroup screening well versus Morgan Stanley’s capital return expectations. Capital One is most at risk.Citi, Keith HorowitzThe results offer a “green light for higher capital return for most banks,” Horowitz wrote in a note. He forecasts a total payout of 103% versus 97% last year, as banks look to be “on solid footing” on the Dodd-Frank Act stress test (DFAST) results.Citi views State Street Corp., PNC Financial Services Group, Northern Trust Corp., Bank of America Corp. and BNY Mellon Corp. as among those best positioned to exceed Street payouts. The results also imply that Capital One’s total payout will improve, though there’s risk buybacks will trail consensus estimates.Goldman, Richard RamsdenResults were “modestly better than expected,” as loss rates improved across trading and all loan categories, except for card and other consumer lending, Ramsden said in a note. Banks, with the possible exception of Capital One, look to be able to meet consensus estimated payouts.Goldman attributes increased card losses to “higher stress to unemployment relative to last year, as well as higher stress on subprime card due to a Fed methodology change.” Commercial real estate loss rates were most improved, though in-line with the 2016-2017 average loss rate. Trading losses fell across the banks to $80 billion from $105 billion, with State Street and BofA seeing the biggest improvement.Credit Suisse, Susan Roth Katzke“Manageable stress” for large-cap U.S. banks means that “more manageable stress capital buffers should follow,” Katzke wrote in a note. DFAST results indicate banks “have sufficient capacity for expected capital returns.”JPMorgan, Vivek JunejaThe results show an “increase in capital cushion at most of the large U.S. banks, and all of our banks remain well positioned to continue to return sizable amounts of capital.”Bloomberg Intelligence, Alison Williams, Neil Sipes“A solid pass across the largest U.S. banks, including units of foreign banks, in annual Dodd Frank Act stress tests should generally support payout plans, in our view. U.S. banks stressed capital ratios held above required minimums for participating banks. Stressed CET1 ratios were broadly better than in year-ago tests -- with the exceptions being Northern Trust and the U.S. unit of UBS.”Atlantic Equities, John HeagertyThe results “once again underline the robustness of the large U.S. banks’ balance sheets,” Heagerty wrote in a note. BofA “appears to do very well in 2019,” while Goldman also fared better than last year. “With these results, it’s difficult to see any objections arising to submitted capital returns.”KSP Research, Kevin St. PierreThe results were better than expected, with “widespread improvement in minimum CET1 ratios and sizeable cushions to allow for consensus capital return expectations,” St. Pierre wrote in a note.St. Pierre called Wells Fargo, BofA and PNC “relative winners,” as each saw “significant increases in CET1 minimums and large buffers to accommodate above-consensus capital return if they were aggressive in their ask.” Capital One was “the relative loser,” due to the Fed’s harsh view on cards.Recommends buying bank stocks, as they’re “a compelling value,” while cautioning that “investing around CCAR results has been ineffective.”Macquarie, David KonradU.S. banks under Macquarie coverage “performed well,” with higher minimum capital levels in every category except the leverage ratio for Wells Fargo. Lower loan loss rates and trading losses helped to improve capital ratios, while assumed growth rates in RWAs (risk-weighted assets) were lower. Trading and counter-party losses dropped, led by an “abnormally large” decline for BofA.Sees potential upside for Goldman Sachs and PNC with CCAR, while BofA and Wells Fargo “also shine.” Those two have the most excess capital above stressed requirements, and may report the strongest buybacks, with a total payout ratio of 146% for Wells and 112% for BofA.RBC, Gerard CassidyDFAST demonstrated that “under a supervisory severely adverse economic scenario ... the U.S. banking industry’s capital levels can withstand massive losses and still remain above well capitalized levels.”KBW, Brian KleinhanzlThe results were “less stressful than the prior year,” as banks “saw stress losses declining and modest improvements in net income before taxes.” As a result, only one bank, JPMorgan Chase & Co., “seems at risk of not meeting our capital return expectations.”KBW expects “fewer surprises in CCAR results on Thursday, which is a modest positive for the group overall.”Raymond James, David LongLong sees BNY Mellon and State Street as winners, “given the wide spread between their projections and the Fed’s.” He also sees BofA as a winner, as their results pave the way for them to increase the dividend payout closer to peers, and as “stock repurchases remain an attractive use of capital at current levels.”(Updates share trading in fourth paragraph.)To contact the reporter on this story: Felice Maranz in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Catherine Larkin at email@example.com, Steven FrommFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The best returns in a decade for emerging-market bonds just got a further boost as central banks move toward more easing. Now fund managers must navigate trade tensions and geopolitics that could derail the rally.Investors are optimistic after the Federal Reserve signaled it was ready to cut interest rates and the European Central Bank indicated more stimulus may be on the way. But money managers are tempering their outlook with caution on the planned meeting between Donald Trump and Xi Jinping at the G-20 summit this week, and amid tensions in the Middle East.“We are bracing ourselves” for the U.S.-China trade war to continue, said Angus Bell, a senior portfolio manager in emerging-market debt at Goldman Sachs Asset Management, who doesn’t see a resolution to the trade dispute in the near future. The money manager expects “mid-single digit returns” for the rest of the year in EM dollar bonds, he said.Union Investment Privatfonds GmbH says there is the risk that somewhere a human factor will lead to an accident. Tensions between the U.S. and Iran have surged after the downing of a U.S. drone and attacks on tankers. Amid the trade uncertainties, Schroder Investment Management says that in Asia, most investment-grade issuers should be less affected given they aren’t directly exposed to global trade and will benefit from strong Chinese economic policy support.Asia’s strong economic fundamentals also make Japan’s Asset Management One Co. prefer emerging-market credits from the region, which they expect will be more resilient in a risk-off scenario.Even after emerging-market dollar bonds scored a 9% return from Dec. 31, the most for any similar period in a decade, many investors still see them continuing to do well, as monetary easing burnishes the appeal of the higher-yielding assets.Read more: Easy Does It Across Global Central Banks in 2019’s Busiest WeekHere are further views from the investors and analysts:Brett Diment, head of global emerging-markets debt at Aberdeen Standard Investments:“If we see a period of somewhat slower U.S. growth, the Fed cutting rates, but not a U.S. recession, that is generally a pretty good environment for emerging-market fixed income"Expects a de-escalation in frictions as the 2020 U.S. presidential election nears and Trump focuses on re-electionAngus Hui, head of Asian credit and emerging-market credit at Schroder Investment Management:In an environment of lower rates for longer, carry remains important, and Asia investment-grade debt continues to be one of the relatively higher-yielding markets in the IG worldMost high-yield credits in China aren’t directly exposed to global trades and the recent correction offers some interesting entry points, such as in short-dated Chinese property credits Satoru Matsumoto, Tokyo-based fund manager at Asset Management One:Expects local currency IG EM bonds to outperform in second half with large risks surrounding Trump administration and trade disputesCathy Hepworth, co-head of the emerging-markets debt team at PGIM Fixed Income:Some bonds of sovereigns that have bailout packages from the International Monetary Fund pay 7% or more, and are attractive where central banks are stepping in to prop up growthSergey Dergachev, senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt:Indian and Indonesian corporates offer good relative value and election risk is out of the way in both countriesCautious on Mexican and Chinese credit due to headline risk and long-term risk of stress in ties with U.S. Key risks are fears that with so many geopolitical events happening, there could be an “an accident,” for example, in Iran situationWilliam Goh, fixed-income analyst at Lion Global Investors:China’s hardware technology sector has been caught in the cross-hairs of the U.S.-China trade tensions, so prudent to pare back our exposure to the sectorHave been incrementally moving into defensive positions, as trade tensions between the U.S. and China continue; core China state-owned enterprises remain a relative safe haven, welcomed by Chinese onshore investors and some Asian investors Raphael Marechal, head portfolio manager, emerging markets at Nikko Asset Management:“The search for yield is going to be even greater in the second half of the year”“We expect risk appetite to remain excellent for the last six months of the year, so that’s more of a positive for high-yielding assets”Bryan Carter, head of emerging-market fixed income at BNP Paribas Asset Management:Anticipates another 3-5% in returns in the second half for EM dollar bonds, with Fed easing an important tailwind(Updates chart.)\--With assistance from Lilian Karunungan.To contact the reporters on this story: Finbarr Flynn in Tokyo at firstname.lastname@example.org;Kyungji Cho in Seoul at email@example.com;Yumi Teso in Bangkok at firstname.lastname@example.orgTo contact the editors responsible for this story: Andrew Monahan at email@example.com, ;Tomoko Yamazaki at firstname.lastname@example.org, Beth ThomasFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Malaysia's criminal case against U.S. investment bank Goldman Sachs involving $6.5 billion 1MDB bonds will be postponed to September, a court ruled on Monday, after defence lawyers asked for more time to receive instructions from their clients abroad. Malaysian prosecutors had previously issued summonses to three Goldman Sachs units in the United Kingdom, Hong Kong and Singapore, requiring them to respond to criminal charges filed against them over bond issues that the bank had arranged for state fund 1Malaysia Development Berhad (1MDB).
“There is no reason why you need to walk to a branch to do banking," a top Goldman Sachs executive says.
Investing.com - Market watchers will be looking ahead to a meeting between U.S. President Donald Trump and China's President Xi Jinping this week amid hopes for a thaw in trade relations, even if it alters expectations for Federal Reserve rate cuts.
(Bloomberg) -- Goldman Sachs Group Inc. and Morgan Stanley improved on last year’s poor results in the first round of the latest Federal Reserve stress tests, a sign they may have more flexibility to boost payouts to shareholders.In figures posted Friday by the Fed, the pair didn’t come as close to breaching regulatory minimums as they did last year, offering hope they will escape limits on dividends and stock buybacks imposed back then. All 18 banks in the exam demonstrated an ability to withstand a hypothetical financial shock. The second and final round next week determines whether firms win approval to boost capital payouts.Results posted so far show banks are getting better at coping with what’s become one of the most rigorous supervisory efforts: They maintained a collective common equity Tier 1 ratio that was double the regulatory minimum even at the depths of the theoretical recession. Lenders have been building capital for years, and while this year’s exam was harsher on credit-card loans, trading losses were down from last year at four of the five biggest Wall Street firms.Still, when the process wraps up next week, analysts expect big banks to slow the expansion of payouts to shareholders after two years of surging dividends and buybacks.Goldman Sachs and Morgan Stanley were allowed to dip below the required minimums in the second part of last year’s test because some of the decline was a result of one-time charges related to the 2017 federal tax overhaul. After next week’s round, Goldman is expected to modestly reduce its total payout in dollar terms while Morgan Stanley modestly increases it, according to analyst estimates compiled by Bloomberg before Friday’s results.This year, Goldman Sachs’s supplementary leverage ratio fell to as low as 4% in the first round of the Fed’s test, an improvement from 3.1% last year. Morgan Stanley’s ratio was 3.9%, compared with 3.3% last year. To carry out proposals to distribute capital, banks need to remain above 3% by that measure in next week’s test.Taking ‘Mulligan’Lenders are given a chance to adjust and resubmit their cash distribution plans before the second set of results is released June 27. A record number of firms used the so-called mulligan last year to adjust their original payout requests to stay above the minimum requirements.The 12 largest U.S. lenders tested are expected to boost payouts by $5 billion in the next four quarters, after dividends and buybacks jumped by more than $30 billion each of the past two years. Still, the increase means they’ll likely pay out more than 100% of their annual profit.In past years, some banks had initial proposals for payouts reined in after they projected their capital and leverage ratios would hold up better than what the Fed calculated. In some cases, the Fed even took issue with the strength of their capital planning.This year, a half dozen firms including Bank of America Corp. posted internal calculations that were instead lower than the Fed’s, indicating they were even more conservative than examiners. Still, several companies were more optimistic. Morgan Stanley, for example, calculated its leverage ratio would be 1.7 percentage points higher than what the Fed found. Altogether, the 18 banks tested would suffer a $115 billion pretax loss in the severely adverse scenario, the Fed said. That amounts to 0.8% of the banks’ average assets, the same ratio as under last year’s test. Their hypothetical revenue before provisions and trading losses was projected by the Fed to be 2.4% of assets, down from 3% last year.A steeper yield curve foreseen in last year’s scenario helped prop up pre-provision revenues because banks make more money when the gap between short-term and long-term rates widens. The change in assumptions about interest rates this time helped banks book gains in their Treasury portfolios even as it lowered their pre-provision revenues.Credit CardsThis year’s stress scenario featured a harsher hypothetical recession and the worst increase in unemployment used in the tests so far, yet its stock- and bond-market losses were less severe than last year. That helped Goldman Sachs and Morgan Stanley, which derive more of their income from securities trading than lending.Historically, losses tied to credit cards and commercial loans tended to be similar amounts. But this year, losses tied to cards under the central bank’s severely adverse scenario reached $107 billion, outpacing the $73 billion in losses produced by their commercial counterparts.The central bank said credit-card loss rates increased “due in part to the final phase-in of changes to the supervisory credit-card model.” That model changed how Fed treats uncollected interest and fees at the time of default.Foreign BanksFriday’s results also included what would happen to the capital ratios of six foreign banks’ U.S. units under the same scenario. HSBC Holdings Plc’s U.S. arm saw its leverage ratio fall to within a percentage point of the minimum, the narrowest margin in this year’s group. Next week, units of foreign banks also face a qualitative evaluation of their risk management, data-collection capabilities and capital planning. That’s where some of them could trip up.Foreign firms failing the test can’t repatriate profits earned in the U.S. to their parent companies. For Deutsche Bank AG, whose U.S. units have failed the test three times already, a failing grade will be yet another blow to investor confidence as it struggles with restructuring efforts and profitability. The Fed placed the firm’s U.S. arm on a list of troubled lenders last year because of deficiencies in its internal oversight.The exams are in flux because the Fed is working on a rule that will more closely marry the stress testing process with day-to-day capital decisions at the banks. And the agency has tried to make the regime more transparent -- an effort that has accelerated amid President Donald Trump’s deregulatory agenda.As part of that effort, Congress passed a law last year ordering less strict treatment of smaller banks. That prompted the central bank to ease the stress test burden on a dozen regional U.S. lenders and half a dozen smaller foreign banks, which are now tested every other year and weren’t included in this year’s exercise.(Updates with companies’ own projections from the ninth paragraph.)\--With assistance from Jenny Surane and Gregory Mott.To contact the reporters on this story: Yalman Onaran in New York at email@example.com;Jesse Hamilton in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Michael J. Moore at email@example.com, ;Jesse Westbrook at firstname.lastname@example.org, David Scheer, Dan ReichlFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The largest banks in the U.S.—including Morgan Stanley, Goldman Sachs, Bank of America, Citigroup, and JPMorgan—have sufficient capital that would allow them to weather a severe recession, the Federal Reserve said.
The nation's largest banks have enough capital to withstand a severe recession, the Federal Reserve said Friday. The so-called stress tests showed that 18 big banks including Bank of America , JPMorgan Chase and Citi could absorb a cumulative $410 billion of losses, with a global recession and the U.S. unemployment rate rising by more than 6 percentage points, the Fed said. The firms' aggregate common equity tier 1 capital ratio, which compares high-quality capital to risk-weighted assets, would fall from an actual level of 12.3% in the fourth quarter of 2018 to a minimum level of 9.2%. Next week the Fed will say whether the banks can make the share buybacks and dividend payments they want to give to shareholders.
(Bloomberg) -- Slack Technologies Inc.’s trading debut was everything Wall Street wanted it to be: nothing flashy.The company’s advisers anticipate that more firms will adopt the so-called direct-listing model for going public, and give the banks an edge over rivals who have little to no experience in pulling off a listing like Slack’s.There could be five direct listings next year -- or more, depending on how the overall market for public offerings shapes up, said Colin Stewart, global head of technology capital markets at Morgan Stanley. His firm, along with Goldman Sachs Group Inc. and Allen & Co., are the only three companies to have had lead roles on high-profile Silicon Valley direct listings.“This will be something that companies need to consider as part of a toolkit to access the public markets,” Stewart said. “It’s clear that the model is attractive. The question will be on applicability -- how many companies will use it.”While a direct listing tends to pay banks less than a typical initial public offering, the fees are shared among fewer firms -- meaning Goldman, Morgan Stanley and Allen & Co. gain significantly by being leaders in the market. In the case of Slack, that meant at least 90% of the $22 million in fees split among the three banks, people familiar with the matter have said. The banks’ biggest rivals have yet to work on a deal of Slack’s magnitude. And the two mega-banks handled the lion’s share of the trading volumes, according to three people with knowledge of the matter, who asked not to be identified discussing private flows.‘New Model’“It has been very exciting to pioneer this new model alongside our clients, and we expect other clients to increasingly utilize this path when it best achieves their objectives,” William Connolly, co-head of the West Coast financing group and head of technology equity capital markets at Goldman, said in an email.That doesn’t portend a complete overhaul to the model for going public -- there are hundreds of traditional IPOs a year -- but Stewart’s prediction would mean more than double the number of direct listings from the past year. Unlike in an IPO, a company opting for a direct listing isn’t raising money with a sale of new stock. Instead, shares already held by founders and other early investors are simply listed for trading, making those shares easier to sell.Goldman and Morgan Stanley have been in talks with more than a dozen firms considering the direct-listing option, people familiar with the matter have said. They include Airbnb Inc., one of the hottest IPO candidates in the next year. Adding to the encouragement is that Slack’s listing went smoother that Spotify Technology SA’s last year, with the work-collaboration company’s shares staying close to its opening price in the first two days of trading -- an execution win for market makers. A Slack investor who made a recent purchase when the shares were private is up about 43%.IPO OpeningsThat’s roughly the same as standard public offerings, with this year’s technology and communications IPOs opening almost 50% above their offering prices on average, according to data compiled by Bloomberg.Bloomberg Beta, the venture capital arm of Bloomberg News parent Bloomberg LP, is an investor in Slack.While Morgan Stanley, Goldman and Allen & Co. have been most prominent in leading direct listings, other Wall Street giants have been involved in the space. JPMorgan Chase & Co., for example, has led direct listings for companies including Colony Real Estate Credit Inc., which started trading last year.Citadel Securities was picked as the designated market maker for Slack’s trading debut, and its role, along with Morgan Stanley’s as adviser to the market maker, a role the bank created ahead of Spotify’s listing, was applauded by venture capitalist Bill Gurley in a Twitter post Thursday.“Other banks want to position direct listings as ‘exceptional’ or ‘rare.’ MS believes they are 1) a better mousetrap, and 2) can be used broadly,” he wrote.John O’Farrell, a partner at Andreesen Horowitz, one of Slack’s largest early investors, was on the floor of the New York Stock Exchange for the listing Thursday, and stuck around after the crowd faded to shake hands with the market makers. His firm may have reaped $2.6 billion, according to CB Insights. Venture capital firm Accel, which held 24% of Slack as of the stock’s debut, now has a $4.6 billion stake, the research company said.Yet investors may not all cheer the model.Gurley argues that personal relationships, ties to banks and an investor’s brand determine whether it can participate in an IPO, as opposed to the algorithms used in direct listings. In the Slack and Spotify direct listings, large shareholders weren’t promised allocations beforehand. Instead, the highest bidders end up getting the biggest exposure on the first day of trading.“The hand-allocated IPO is archaic and it’s time for it to be a thing of the past,” Gurley said in a phone interview. “In a day and age of a globally connected Internet, it’s very easy for a company to be discovered and for investors to be educated about that company without visiting people one on one.”But that also means investors may have to buy in at a higher price and therefore miss out on the initial IPO pop that many in the market have gotten used to. That could be a tough reality for large investors like Fidelity Investments that are often big buyers in an IPO, and increasingly buying more stock in private markets.Smooth DebutStill, the fact that Slack’s debut went so smoothly may spur different types of companies to choose a listing method that the company described in its regulatory filings as “novel,” said Joe Mecane, head of execution services at Citadel Securities.Slack didn’t have many of the characteristics Wall Street tends to expect for a direct listing, Mecane said. Such companies typically have a well-known brand and a large base of existing shareholders to ensure stock liquidity -- and don’t have an immediate need to raise funds.Unlike Spotify, Slack is seen by many as a business-to-business company and had a more concentrated investor base than that of the music-streaming service. Also, Slack burns a significant amount of cash.\--With assistance from Drew Singer.To contact the reporters on this story: Sonali Basak in New York at email@example.com;Eric Newcomer in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Michael J. Moore at email@example.com, Daniel Taub, Liana BakerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The index enjoyed another week of strong gains after the Federal Reserve indicated that a rate cut would likely occur next month.
Slack (WORK) is the most recent listing, hitting the exchanges today and immediately surging more than 50% from its reference price. Slack has taken a much different approach to make their share available to the general public.
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to...