For years, the US, Japan and India have maintained Malabar military exercises on an annual basis. As the US and Japan are absolutely aligned countries and India is a Washington regional strategic partner, the common objective of the three participants…
Mobile telephony has quickly established itself worldwide as an irreplaceable communication technology. Similar to smoking, however, possible fatal consequences can only become apparent after decades of constantly increased exposure to radiation.
The documentary THANKYOUFORCALLING by Klaus Scheidsteger …
The recession of 2008 and 2009 was bad, but it was nothing like this. Even though this new economic downturn is only a few months old, we are already seeing numbers that we haven’t seen since the worst parts of…
Policymakers at the Federal Reserve, after some initial optimism that the Covid-19 slump would be deep but confined to the second quarter of this year, now seem braced for a more prolonged recession marked by high unemployment and a rising risk of corporate bankruptcies.
Escalating political and health risks in the US and rising optimism about the global economic recovery should keep the dollar sliding over the next few months, according to analysts. Large banks turned bearish on the greenback in late May…
Citigroup Inc reported a nearly 73% plunge in quarterly profit on Tuesday as the bank set aside $5.6 billion to brace itself for a potential surge in loan defaults stemming from the coronavirus outbreak. The New York-based bank reported a profit of $1.32 billion, or 50 cents per share, for the second…
Consumer Prices Soar By Most In 11 Years In June On Rebound In Fuel CostsTyler DurdenTue, 07/14/2020 — 08:37
After three months of ‘deflation’, consumer prices were expected to rebound strongly in June and it did, with headline CPI beating expectations (+0.6% MoM vs 0.5% exp). That is the biggest monthly jump since June 2019…
Both Goods (Ex-Energy) and Services (ex-Energy) CPI growth slowed on a YoY basis…
The driver of the headline beat and surge in CPI was soaring motor fuel costs — up 12% MoM…
Tensions Soar As Trump Admin Could Scrap Audit Deal For US-Listed Chinese Firms Tyler DurdenTue, 07/14/2020 — 08:26
Global stocks slumped on Tuesday as a safety bid appears in the dollar as Sino-US tensions continue to worsen.
There were a couple of significant developments in the overnight session involving China and the US. First, Chinese Foreign Ministry spokesman Zhao Lijian said Beijing would sanction US defense contractor Lockheed Martin for its latest arms deal with Chinese-claimed Taiwan.
The second development is from Reuters, detailing how the Trump administration plans to abandon a 2013 agreement between the US and Chinese auditing authorities, a move that suggests a widespread crackdown on US-Listed Chinese firms sidestepping US disclosure rules is ahead.
The deal allowed the Public Company Accounting Oversight Board (PCAOB) to seek auditing documents in enforcement cases of Chinese companies listed on US exchanges - was considered a breakthrough at the time.
But PCAOB has complained over the years that many of the requests into Chinese firms were ignored.
Keith Krach, the undersecretary for economic growth, energy, and the environment, said, “lack of transparency has prompted administration officials to lay the groundwork to exit the deal soon.”
“The action is imminent,” Krach told Reuters, in an emailed response on Monday. “This is a National Security issue because we cannot continue to afford to put American shareholders at risk, to put American companies at a disadvantage and allow our preeminence of being the gold standard for financial markets to erode.”
Reuters notes an official within the Trump administration and three former White House officials said the termination of the 2013 auditing deal was under careful consideration.
There’s been very little information about withdrawing from the agreement — the discussions so far point to increasing frustrations by the Trump administration over Chinese companies failing to disclose critical financial data.
And maybe the Trump administration has a point, due mostly because in April, Chinese company Luckin Coffee, trading on the Nasdaq, crashed 85% in one day over allegations it fabricated $300 million sales.
The Trump administration has recently pressured pension funds for federal employees to stop investing in Chinese companies for risks that could result in malinvestment — such as what happened to Luckin Coffee.
In June, President Trump demanded the Securities and Exchange Commission (SEC) and PCAOB to recommend new measures within 60 days to protect investors “from the failure of the Chinese government to allow PCAOB-registered audit firms to comply with United States securities laws.”
The Republican-led Senate has passed a bill if approved by the Democratic-led House of Representatives and signed into law would prevent any foreign entity from listing stock on US exchanges unless they had three years of consecutive audits that meet PCAOB standards.
Republican Senator Marco Rubio, a China hardliner and sanctioned by the Chinese government on Monday for his involvement over sanctioning Chinese officials last week for their human rights abuses against minority Uighur Muslims, described the move as “long overdue” and said more measures are needed.
“In addition to terminating this MOU [Memorandum of understanding], which allows Chinese companies to openly defy USS laws and regulations for financial transparency and accountability, we must address the Chinese Communist Party’s exploitation of USS capital markets, which is a clear and ongoing risk to USS economic and national security,” Rubio said in a statement to Reuters.
Hayman Capital’s Kyle Bass said, “The MOU represents a gaping hole in US investor protections while providing the framework for systemic Chinese fraud,” adding that, “It’s unconscionable that the United States continues to allow Chinese companies raising trillions of dollars from US investors to avoid complying with basic USS securities and audit standards.”
Simmering Sino-US tensions could derail the rally in global stocks as the US appears to kick financial decoupling with China into overdrive ahead of elections.
Wells CEO Is “Extremely Disappointed” With First Quarterly Loss Since 2008; Massive Dividend CutTyler DurdenTue, 07/14/2020 — 08:18
While JPMorgan at least had a stellar trading quarter to offset another surge in loan loss reserves (i.e. balance sheet deterioration vs income statement improvement), Wells Fargo just had the ugly balance sheet to flaunt and boy was it ugly.
For the second quarter, Warren Buffett’s favorite bank reported a Q2 loss per share of 66 cents, down sharply from the $1.30 profit a year ago, and far worse than the 13 cent loss consensus estimate. More importantly, this was the first time Wells posted a quarterly loss since 2008,confirming that this is indeed the biggest crisis since Lehman.
And while it was widely expected that the bank would cut its dividend of 55 cents, with the bank saying last month that it would cut the dividend to comply with the new restrictions the Federal Reserve brought on payouts, consensus expected the cut to be to 20 cents per share. Which is why when Wells unveiled that its new dividend would be just 10 cents (from 55 cents previously), it led to even more disgust with — and selling of — one of the worst performing stocks of 2020.
A few other Bloomberg headlines from what was a catastrophic quarter for Wells:
2Q Rev. $17.84B, –17% Y/Y
2Q Net Interest Margin 2.25%, Est. 2.33%
2Q Loans $935.2B, Est. $1T
2Q Net Interest Income $9.9B, Est. $10.32B
2Q Total Average Loans $971.3B, +0.7% Q/Q
2Q Incl $8.4B Boost in Credit Loss Reserve
2Q Efficiency Ratio 81.6%, Est. 70.4%
View of Length, Severity of Downturn Deteriorated
There was more. Consensus also got a kick in the groin after Wells reported that its Q2 provision for credit losses would be a whopping $9.5BN, double the $4.86BN expected, and consisting of $8.4 billion increase in the allowance for credit lossesas well as $1.1 billion of net charge-offs for loans. The provisions were 17 times the amount taken a year agoand double last quarter’s,when we warned the number was not nearly enough.
How did Wells get to this $8.4BN number? Well, the bank first laid out its total allowance for credit losses, which was a paltry 2.19% of the $935BN in loans outstanding, of just $20.4BN, meaning that the full losses will be orders of magnitude higher…
… which then prompted the following frentic discussion, attempting to justify the surge in reserves… which unfortunately will not be nearly enough.
It’s about to get much worse, though, because as Wells conveniently highlighted it has some $146BN in commercial real estate loans, most of which will be impaired in the coming months amid a record delinquency and default wave.
But wait, there’s even more, because as of Q2, JPM also has $32.7BN in total oil and gas loan commitments, of which $12.6BN are currently outstanding.
All this is happening as Wells Net Interest Margin just plunged to the lowest ever as rates are preparing to go negative. And if loan loss reserves send expenses ballooning, the plunge in net interest income to below $10BN — well below the $10.3BN expected — was the cherry on top:
And while Wells — which until recently was the biggest mortgage lender — at least had a solid housing market to fall back on, that’s no longer the case, with mortgage-banking income just $317 million, down from $379 million in 1Q, reflecting higher prepayment assumptions and expected rising costs due to higher projected defaults. Another reason: despite record low mortgage rate, the amount of Mortgage Applications at Wells actually tumbled from the highest in 7 years ($108BN in Q1) to just $84BN in Q2, lower than a year ago.
With all that in mind, perhaps nobody summarized Wells’ dismal quarter better than CEO Charlie Scharf:
“We are extremely disappointed in both our second quarter results and our intent to reduce our dividend. Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.”
Scharf also said the dividend cut to 10 cents, half the consensus estimate, reflected “current earnings capacity assuming a continued difficult operating environment, evolving regulatory guidance, and protects our capital position if economic conditions were to further deteriorate.” Plus, “regulatory commitments” remain the bank’s top priority, Scharf said.
To be sure, the stock was just as disappointed:
What can help the stock here? Probably nothing… except perhaps for Buffett to fully liquidate his entire holdings.
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Here is the full Q2 earnings slideshow (pdf link)