“The visibility on what we’re dealing with is very, very low, because we’re not seeing right now what you would typically expect to see, given a recession,” Jennifer Piepszak, the chief financial officer of JPMorgan Chase, told investors on the bank’s earnings call. “May and June will prove to be the easy bumps in terms of its recovery. And now we’re really hitting the moment of truth, I think, in the months ahead.”
Losses on Main Street loans are dragging on the big banks’ Wall Street earnings.
Among the three firms reporting results, JPMorgan Chase alone saw its revenue surge to a record $33 billion in April, May and June, thanks to gains from its trading business.
The trick for the country’s biggest bank — and its rivals — as the economy tries to claw its way back will be to more than make up in Wall Street activities what it loses on Main Street loans. JPMorgan Chase posted a $4.7 billion profit for the second quarter, about half what it earned in the same period a year ago.
Wells Fargo, for one, did not fare as well. “The bank reported its first quarterly loss, $2.4 billion, in more than a decade and said its revenue fell to $17.8 billion, compared with $21.6 billion during the same period a year ago,” Renae Merle reports. “In a sign of the financial strain facing the San Francisco-based bank, Wells Fargo said it would cut its quarterly dividends to $0.10 per share from $0.51 per share. ‘We believe it is prudent to be extremely cautious until we see a clear path to broad economic improvement,’” Wells Fargo chief executive Charlie Scharf said.
And Citigroup posted a $1.3 billion profit for the quarter, a 73 percent drop from the second quarter last year.
One warning signal is flashing red for the banks as they prepare for steeper loan losses: Home loan delinquencies hit a record high in April. “Some 3.4 percent of Americans became at least 30 days delinquent on their mortgage in April, according to an analysis from CoreLogic,” Andrew Van Dam reports. “The real estate data firm’s figures include about three of four U.S. mortgages, going back to 1999.”
Van Dam notes that the housing market appears to be on much stronger footing now than it was during the mortgage crisis. Though that could change if delinquencies rise and persist, leading to more foreclosures as a 12-month mortgage forbearance program signed into law as part of the $2.2 trillion Cares Act expires.
Losses on credit card debt present the more immediate threat to the big banks — followed by commercial and industrial loans and then those for commercial real estate, says Brian Kleinhanzl, a banking-sector analyst for Keefe, Bruyette & Woods.
Big-bank chiefs are taking a notably grimmer view of the economic outlook than the White House.
President Trump is touting the economy as already roaring back:
And Trump said this in the Rose Garden Tuesday: "Things are coming back, and they’re coming back very rapidly. A lot sooner than people thought. People are feeling good about our country."
White House economic adviser Larry Kudlow continues to project a V-shaped economic recovery, with 20 percent growth in the second half of this year.
But JPMorgan Chase, for one, now expects unemployment to remain in the double-digits through the first half of next year. “This is not a normal recession,” its chief executive Jamie Dimon told reporters on a Tuesday morning conference call. “The recessionary part of this you’re going to see down the road.”
Citigroup chief executive Michael Corbat indicated that the bank is flying blind when it comes to understanding the trajectory of the economy, since it largely depends on the path of the pandemic. “We are in a completely unpredictable environment for which no models, no cycles to point to,” he told investors on the bank’s earnings call. “The pandemic has a grip on the economy, and it doesn’t seem likely to loosen until vaccines are widely available.”
JPMorgan shares posted a minor gain in Tuesday trading, up nearly 0.6 percent; Citigroup stock shed nearly 4 percent and Wells Fargo lost more than 4.5 percent. The banking sector as a whole is down sharply on the year, with the KBW Bank Index losing 36 percent of its value — while the S&P 500 is down less than 2 percent. Investors have soured on the industry, expecting both loan losses and diminished profits, as the Federal Reserve has signaled its intention to keep interest rates near zero for the foreseeable future.
Nevertheless, Oppenheimer analyst Chris Kotowski says the big banks remain in strong position to weather the economic skid. “Banks don’t know any more about where unemployment will be in the fourth quarter this year than you or I do. Everybody says this is unprecedented, and for once the word is correct,” he tells me. “But the reality of the banking industry is that these losses are taken over time; they don’t all come in one quarter. And there are earnings that click in each quarter. If you look at underlying economics, the industry should be able to work through this in a couple of quarters.”
Investors will turn their attention today to quarterly earnings results from Wall Street giant Goldman Sachs and super-regional bank U.S. Bancorp.
Dow futures jump more than 200 points on vaccine news.
Markets continue to rally on Moderna's announcement of progress: “Stock futures rose in premarket trading Wednesday after drug developer Moderna said its coronavirus vaccine produced antibodies in all patients in an early trial, raising hopes for a faster economic recovery,” CNBC's Yun Li reports.
"Futures on the Dow Jones Industrial Average pointed to a nearly 200 point gain at the open. S&P 500 futures and the Nasdaq 100 futures also indicated a positive start to the day."
That followed a bumpy rally on Tuesday. "Technology, health care and industrial companies powered much of the gains, which helped lift the market after a weak start. Bond yields were mostly lower, in a sign of caution in the market,” per the Associated Press. “The S&P 500 rose 42.30 points, or 1.3%, to 3,197.52. The Dow Jones Industrial Average gained 556.79 points, or 2.1%, to 26,642.59.”
Pandemic resurgence weighs on consumer confidence.
Morning Consult's U.S. Index of Consumer Sentiment has dropped 3 percent in a month. “The most likely cause for the recent downturn in consumer confidence is the increase in coronavirus cases,” Morning Consult economist John Leer writes. “Separate polling by Morning Consult reveals that U.S. consumers grew less comfortable engaging in common leisure activities beginning in the middle of June, which corresponds to the most recent slowdown in the rise in consumer confidence. The slowdown turned into a contraction during the first two weeks of July, signaling that the nascent recovery in consumer spending has stalled.”
Latest on the federal response
Pelosi says she would delay August relief to pass stimulus bill.
Major differences remain on what the next bill should include: “House Speaker Nancy Pelosi would delay or cancel her chamber’s August recess to pass another coronavirus relief bill as financial lifelines are poised to expire in the coming days …” CNBC’s Jacob Pramuk reports.
“If Congress cannot act, millions of Americans will face a sudden and sharp drop in income when the $600 per week federal unemployment benefit expires at the end of the month. States will only pay the benefit through July 25 or July 26.”
But the White House is signaling there might be an unemployment compromise: “For months, [Trump] and White House officials have argued the $600-per-week unemployment bonus provides a disincentive to work and should be scrapped so that more Americans return to work as part of the economic recovery. But with the benefits soon set to expire and the economy showing new signs of strain, Trump administration officials have begun opening the door to accepting a narrower version of what Congress previously approved,” Jeff Stein, Andrew Van Dam and Eli Rosenberg report.
“One potential compromise discussed by Republican lawmakers would involve cutting the unemployment benefit from $600 per week to between $200 and $400 per week and making up at least part of the difference by sending another round of $1,200 stimulus payments. … On Monday, Senate Majority Leader Mitch McConnell (R-Ky.) said the next package would include ‘unemployment insurance for those unable to get back to work,’ though did not identify how much aid would be necessary.”
Faulty data raises questions about how many jobs PPP saved.
My Post colleagues dove into the program’s released data, and their analysis uncovered a mess. It “shows that many companies are reported to have ‘retained’ far more workers than they employ. Likewise, in some cases the agency’s jobs claim for entire industries surpasses the total number of workers in those sectors. And for more than 875,000 borrowers, the data shows that zero jobs were supported or no information is listed at all …” Jonathan O’Connell, Emma Brown, Steven Rich and Aaron Gregg report.
“The flaws raise questions about the claims by the Trump administration that 51 million jobs were ‘supported’ by the Paycheck Protection Program (PPP), which has been a rare bright spot for the administration at a time of a surging coronavirus pandemic and a suddenly stalling economic recovery. Many economists credit the program with helping staunch the deep wounds in the job market by offering forgivable loans to small businesses that rehire or keep workers on their payroll.”
- What else they found: “For every loan offered to businesses under the program, the SBA lists a number of ‘jobs retained.’ But in numerous cases, the listed number of jobs retained exceeded the total employment at the company, according to interviews with individual loan recipients. The Post found half a dozen businesses that said they had fewer employees than the SBA reported the businesses had retained. Bankers also said employment figures for hundreds of businesses had been incorrectly reported by the SBA.”
Small business owners say they need more from the PPP. Of those participating in the program, 84 percent say they will run out of funding by the first week of August, a survey by Goldman Sachs's 10,000 Small Businesses finds. And just 16 percent said they were confident they could maintain their payrolls without more government funding.
Trump administration reverses on plan requiring international students to take in-person classes.
Top universities had sued to block the rule from going into effect: “The abrupt reversal, disclosed in a federal court in Boston, came a little more than a week after U.S. Immigration and Customs Enforcement issued an edict that stunned U.S. higher education leaders and students worldwide,” Nick Anderson and Susan Svrluga report.
“In their suit, Harvard and MIT argued that the Trump administration’s action violated the Administrative Procedure Act, which governs how federal agencies make rules. They also claimed the ICE decision was a political move calculated to force universities to reopen campuses and hold classes in person despite the soaring toll of the coronavirus in death and illness. Scores of universities supported their lawsuit, along with more than 70 higher education associations. So did Google, Twitter, Facebook and more than a dozen other tech companies.”
More from the U.S.:
- At least 3,410,000 coronavirus cases have been reported; at least 133,000 have died.
- Dunford signals he won't chair coronavirus panel: “Former Joint Chiefs of Staff chairman Joseph F. Dunford Jr. has removed himself from consideration to chair the Congressional Oversight Commission, a key mechanism created by Congress in March that is supposed to scrutinize coronavirus spending …,” Erica Werner reports. “Dunford’s decision is a major setback for the commission and efforts to find someone to lead it.”
- “Warp Speed” chief can keep investing in pharma firms: Moncef Slaoui, the co-director of Trump's Operation Warp Speed vaccine initiative, "can maintain extensive investments in the drug industry and avoid ethics disclosures while he continues to make decisions about government contracts for promising coronavirus vaccines under a decision this week by the Health and Human Services inspector general,” Christopher Rowland reports.
- Ivanka Trump urges 18 million unemployed to “try something new.” The First Daughter and White House adviser's push is “part of a new jobs initiative designed to tout the benefits of skills training and career paths that don’t require a college degree,” Hamza Shaban reports. “But the effort — complete with a website, advertising campaign and virtual roundtable featuring Apple CEO Tim Cook and IBM chair Ginni Rometty — was swiftly derided on social media as ‘clueless’ and ‘tone-deaf’ given the pandemic, recession and Trump’s own familial employment history.”
- Peter Navarro slams Anthony Fauci in USA Today op-ed. The White House trade adviser's attack on the administration's top infectious disease expert is just the latest example of a Trump official taking open aim at the public health official. “Dr. Anthony Fauci has a good bedside manner with the public, but he has been wrong about everything I have interacted with him on,” Navarro writes.
From the corporate front:
- Delta loses $2 billion on investments in foreign airlines: The airline “spent years amassing equity stakes in foreign airlines from the U.K. to Chile to grow internationally and gain sway over those carriers. The pandemic has upended those plans and is proving costly as financial turmoil hits airlines around the world,” CNBC’s Leslie Josephs reports. “Delta posted a net loss of $5.7 billion for the second quarter, its largest quarterly loss in 12 years. The Atlanta-based airline took $2.1 billion in charges tied to some of those investments in foreign airlines.”
- Automakers grapple with shortage of workers in some states: “General Motors Co. and Ford Motor Co. are continuing to struggle with keeping workers on the job as cases surge nationwide, forcing the auto-making giants to cut shifts, hire new workers and transfer others to fill vacant roles,” the Wall Street Journal's Ben Foldy reports. “The auto industry is among several sectors, from retailers to meatpacking plants, confronted by staffing shortfalls as positive cases and safety concerns keep workers home.”
- Americans are buying guns in record numbers: “Gun sales began rising to unusual highs in March. … The Federal Bureau of Investigation processed 7.8 million background checks for gun purchases from March to June, according to National Shooting Sports Foundation, a firearms industry trade group. In June, background checks for firearms were up 136 percent, compared to a year earlier, according to the trade group, which gives the best proxy for gun sales,” WSJ’s Julie Wernau and Zusha Elinson report.
- Richard Branson secures lifeline for Virgin Atlantic: “Richard Branson’s Virgin Atlantic Airways said it secured a financial package worth about $1.5 billion that will allow it to stave off bankruptcy and provide some breathing room for the British billionaire’s broader effort to stabilize a travel and tourism empire hit hard by the pandemic,” WSJ’s Alistair MacDonald and Benjamin Katz report.
Around the world:
- Sobering economic results from Europe and Asia raise doubts about swift recoveries: “The U.K. economy expanded just 1.8% in May compared with April, a month that saw the country’s deepest contraction on record ... The rebound was feebler than economists had predicted … Singapore—among the first countries to report second-quarter gross domestic product figures—estimated its economy shrank in the period by an annualized 41.2 percent” — despite Singapore's widely praised response, WSJ's Jason Douglas and Feliz Solomon report.
- France to require masks in indoor public spaces: “Wearing masks in enclosed public spaces will become mandatory within the next few weeks in France, where there have been recent signs of a slight pickup in the circulation of the new coronavirus, President Emmanuel Macron said …,” WSJ's Noemie Bisserbe reports.
When superpowers collide
Trump signs bill to punish China over Hong Kong.
Congress unanimously passed the bill last week: “[Trump] signed legislation to punish China over its aggressive actions toward Hong Kong, but he spent little time talking about the issue during a news conference intended to announce the move. Instead, he focused his remarks on attacking presumptive Democratic opponent Joe Biden in a campaign-style event in the White House Rose Garden,” Colby Itkowitz reports.
China threatens to sanction Lockheed Martin: “Beijing did not spell out what these measures would entail, and Lockheed Martin has very little exposure to China. But the announcement, coming just a day after China sanctioned four American officials, represents another salvo in the hostilities between Beijing and Washington,” Anna Fifield reports.
“The State Department last week said it had approved a $620 million deal so that Taiwan could refurbish its Patriot surface-to-air, or PAC-3, missiles and extend their operational life to 30 years. … Lockheed Martin does not appear to have much in the way of operations in China. The company generated 9.7 percent of its revenue in the Asia-Pacific region last year, according to data compiled by Bloomberg News, almost all of it with U.S. allies and partners such as Japan, South Korea and Singapore.”
For tech firms, doing business in Hong Kong is a lot riskier now: “Spooked by a law that takes aim at Hong Kong’s previously unrestricted Internet, tech giants are scrambling for legal and expertise on how to navigate a market that has changed fundamentally,” Timothy McLaughlin and Shibani Mahtani report from Hong Kong.
“Tech firms admit that pausing data requests is a temporary solution — a ‘way to buy time,’ as one employee at a U.S. social media company put it. In grappling with Hong Kong’s new reality, analysts say, companies will have to weigh their approach and values against their interest in the Chinese market, a trade-off that has long dogged Silicon Valley. … Samm Sacks, a senior fellow at Yale Law School’s Paul Tsai China Center, added that technology companies must adjust to the reality that the ‘one country, two systems’ framework under which Hong Kong was supposed to largely govern itself is ‘no longer a backstop and doesn’t get them out of dealing with China.’”
Britain bars Huawei from its 5G networks: “Britain will bar new deployments of Huawei equipment in its fledgling high-speed 5G network, the government said Tuesday, delivering a major blow to the Chinese technology giant and a significant win for the Trump administration, which has been pressing allies to shun the firm,” Ellen Nakashima and William Booth report.
“The British announcement marks a significant moment in the movement away from China in the global 5G competition, especially among advanced democracies increasingly concerned that the company’s ties to the Communist government create unacceptable security risks. … Now, with Britain joining the anti-Huawei fold, all ‘Five Eye’ members of the world’s most powerful intelligence-sharing alliance — Britain, the United States, Canada, Australia and New Zealand — or wireless carriers in their countries, have effectively excluded or are moving to exclude Chinese firms from their 5G networks.”
Biden unveils $2 trillion climate plan.
The former president says it would create 1 million jobs: “Joe Biden unveiled a proposal to transform the nation’s energy industry, pledging to eliminate carbon pollution from power plants by 2035 and spend $2 trillion to turbocharge the clean energy economy,” Matt Viser and Dino Grandoni report.
“The plan would significantly reduce the United States’ reliance on fossil fuels, and the 15-year timeline for a 100 percent clean electricity standard is far more ambitious than anything Biden has previously proposed. … The presumptive Democratic presidential nominee proposed upgrading 4 million buildings and weatherizing 2 million homes over four years, which his campaign estimates would create 1 million jobs. Homeowners would be given cash rebates to upgrade home appliances and install more efficient windows. Car owners would receive rebates to swap their old, less efficient cars for newer ones that release fewer pollutants.”
U.S. hospitalizations for covid-19 are approaching their mid-April highs, with Texas, Florida, and California leading the new surge. Via Charlie Bilello of Compound Capital Advisors:
- Goldman Sachs, UnitedHealth Group and Alcoa are among the notable companies reporting their earnings, per Kiplinger.
- Netflix, Johnson & Johnson, Domino’s Pizza, Abbot Laboratories, Bank of America, Charles Schwab and J.B. Hunt Transport Services are among the notable companies reporting their earnings.
- BlackRock and Ally Financial are among the notable companies reporting their earnings.