208.00 +2.44 (1.19%)
Before hours: 5:32AM EDT
|Bid||207.00 x 1100|
|Ask||208.00 x 1100|
|Day's Range||196.83 - 206.32|
|52 Week Range||130.85 - 250.46|
|Beta (5Y Monthly)||1.47|
|PE Ratio (TTM)||11.13|
|Earnings Date||Jul. 15, 2020|
|Forward Dividend & Yield||5.00 (2.43%)|
|Ex-Dividend Date||May 29, 2020|
|1y Target Est||236.08|
Market participants are bracing for the start of what will likely be the weakest corporate earnings season since the global financial crisis, as the coronavirus pandemic and measures to contain it hit business activity especially hard in the second quarter.
The dollar has weakened in early European trade Monday, with investors turning to risk-sensitive currencies amid optimism over the upcoming earnings season even as the Covid-19 outbreak rages on. Goldman Sachs (NYSE:GS) has become a little more optimistic on earnings prospects for the S&P 500 Index this year, lifting its baseline forecast for S&P 500 earnings per share in 2020 to $115, up from a prior estimate of $110. The World Health Organization reported a record 230,370 new cases in 24 hours on Sunday.
(Bloomberg Opinion) -- China is building tens of thousands of 5G base stations every week. Whether it wins technological dominance or not, domestic supply chains may be revived and allow the country to maintain – and advance — its position as the factory floor of the world, even as Covid-19 forces a rethink in how globalization is done. By the end of this year, China will have more than half a million of these towers on its way to a goal of 5 million, a fast climb from around 200,000 already in use, enabling faster communication for hundreds of millions of smartphone users. By comparison, South Korea has a nearly 10% penetration rate for 5G usage, the highest globally. The much-smaller country had 115,000 such stations operating as of April.The towers are part of a raft of projects that the State Council announced last week to boost industrial innovation under the “New Infrastructure” campaign aimed at furthering “the deep integration of the Internet of Things” and the real economy. With an aim of spending $1.4 trillion by 2025, the aggressive buildup toward a more automated industrial landscape will give China a renewed advantage where it already dominates: manufacturing. The coronavirus shut down factories and industrial sectors, triggering a rethink of supply chains – away from China. What analysts are calling “peak” globalization and the rise of factory automation could shift production to higher-cost countries in North America and Southeast Asia. It will take a while, but the global dependence on China will come down, the thinking goes. Still, with trade ravaged by Covid-19, other countries and telecom operators will struggle to match China’s spending.For China, there’s an opportunity to clear the way to forcefully implement its industrial policy agenda, without interference from criticism over subsidies and unfair competition. The so-called Central Comprehensively Deepening Reforms Commission, headed by President Xi Jinping, has approved a three-year plan to give state-owned enterprises yet more sway in the economy.Beijing’s ambitious programs are still in the construction phase. Macro base stations are the nuts and bolts of building out 5G networks, and will exceed their 4G predecessors by almost 1.5 times. Capital expenditure could peak at $30 billion this year, according to Goldman Sachs Group Inc. analysts, up from $5 billion last year. Beijing wants more local governments and companies to get involved. Each station costs around 500,000 yuan ($71,361) and has a long value chain that includes electrical components, semiconductors, antenna units and circuit boards. The vast number of companies spawned by the project are all contributing to China’s push to get ahead. For the industrial complex, the onset of 5G will enable greater connectivity between machines and much more data transfer and collection. Fifth-generation technology is expected to have a big impact through increasingly efficient and automated factory equipment, and tracking the movement of inventory and progress of production lines and assets. Manufacturing is expected to account for almost 40% of 5G-enabled industry output, according to Bernstein Research analysts.From sensors and data clouds, to chips and collaborative robots and computer-controlled machinery, a whole universe of little-known Chinese companies is coming to the fore. Memory chip maker Gigadevice Semiconductor (Beijing) Inc. has ridden the trend, as has Yonyou Network Technology Co., China’s version of Salesforce.com Inc. For some of these companies, government subsidies are a significant part of earnings, as my colleague Shuli Ren has noted. Stock prices have surged in recent months for firms like Shennan Circuits Co., which makes printed circuit boards, and Maxscend Microelectronics Co., a manufacturer of radio frequency chips. Some are seeing their market capitalization values balloon by billions of dollars as Beijing has upped the ante on new infrastructure. To be sure, it isn’t hard to imagine a hinterland speckled with ghost towers and base stations in coming years as China's propensity to overbuild beyond any reasonable capacity kicks in. The past shows that questions of quality will arise when too many sub-par manufacturers crop up, incentivized by the state’s largesse. Nonetheless, this is the technology of the not-so-distant future, and building up the basic infrastructure isn’t misguided. As Covid-19 absorbs the world’s attention, Beijing’s steady focus on implementing this industrial policy may make China the manufacturer of parts that most countries will need – soon. In other words, it will yet again become the factory floor, mastering the production of all things 5G.This 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/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- New Jersey Governor Phil Murphy and Democratic legislative leaders have agreed on a plan for the state to borrow as much as $9.9 billion to cope with revenue losses from the coronavirus outbreak.The Assembly had approved a bill in June authorizing at least $5 billion in borrowing backed by tax collections, but Senate President Stephen Sweeney had held it up, seeking more legislative input. Under the agreement among Murphy, Sweeney and Assembly Speaker Craig Coughlin, a four-member commission -- two senators and two assembly members -- would have to approve each request to borrow with a majority vote.The Senate intends to act on an amended measure next week. The bill would then return to the Assembly for concurrence before reaching Murphy’s desk. Both houses are controlled by Democrats.Murphy, 62, a first-term Democrat and retired Goldman Sachs Group Inc. senior director, has said that New Jersey faces “Armageddon” without legislative authority to borrow, as well as federal aid. The borrowing in part would rely on general-obligation bonds and the Federal Reserve’s Municipal Liquidity Facility, according to Sweeney and MurphyRepublicans said the plan would lead to tax increases. They threatened a legal challenge, citing the state constitution’s ban on this kind of financing for revenue needs; Murphy has said he is confident in an emergency clause.Federal SupportThe authorized borrowing amount, $9.9 billion, is 98% of the estimated $10.1 billion revenue shortage projected through June 2021. Including coronavirus-related expenses combined, Murphy said, the state could be short $20 billion -- about equal to the state’s total income-tax and corporation business-tax collections in fiscal 2019.“It does not obviate the need for federal cash,” Murphy said of the borrowing plan at a Trenton news conference.Sweeney, New Jersey’s highest-ranking state lawmaker, had said in recent weeks he needed to know which taxes would rise, and by how much, to repay the bonds before posting the bill. But he said his thinking has changed.“Before we talk about higher taxes we are going to have to talk about reforms,” Sweeney said in an interview. Encouraging school districts to regionalize -- as some had been studying for years prior to the novel coronavirus outbreak -- would be one way to bring savings, he said. Wall Street ratings companies also want to see spending cuts, he said.Senator Declan O’Scanlon, a Republican from Little Silver, said the potential borrowing set a new standard for poor fiscal moves.“That’s exactly why borrowing schemes like this must be approved by the public,” O’Scanlon said in a statement. A colleague, Senator Sam Thompson of Old Bridge, said taxpayers would shoulder bond payments for 35 years. Sweeney said he had renewed confidence in a $500 billion state and local government stimulus bill sponsored by U.S. Senator Bob Menendez, a New Jersey Democrat. Republican congressional leaders have balked at the effort, which would give states like New Jersey money to plug budget holes, but Sweeney said that may change now that the virus is spreading rapidly in some Republican-led states.“With more red states in, it’s not just a blue issue -- it’s a United States issue,” Sweeney said.‘Revenue Raisers’In a Bloomberg Television interview on Thursday, Murphy said to expect unspecified “revenues raisers” -- typically, tax increases -- in the budget he presents to the legislature for the nine-month spending year that starts Oct. 1.“We did not get into any discussions on revenues,” Murphy said, referring to the pending Senate borrowing authorization bill. “It’s too early to tell on taxes.”New Jersey’s state credit is rated the second-worst behind Illinois carrying an A3 rating by Moody’s and A- by S&P and Fitch. The state has about $44 billion in bonded obligations, as of June 30, 2019, according to the state’s debt report released in April.Most of New Jersey’s outstanding debt isn’t issued by the state itself, but rather state-run entities including the New Jersey Economic Development and the New Jersey Transportation Trust Fund authorities. Those bonds are backed by state revenues that are subject to appropriation by the legislature.Murphy’s planned borrowing would be backed by the state’s full faith and credit pledge and repaid with general fund revenue, a type of debt that under ordinary circumstances is subject to voter approval. About $1.8 billion, or 4.6%, of New Jersey’s bonds are general obligations, according to its most recent debt report.(Updates with Sweeney comments starting in second paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
As big banks gear up for earnings season, many investors are anticipating the worst quarter for the banks since the financial crisis. Yahoo Finance’s Brian Cheung joins The Final Round panel to break down the details.
Starting a hedge fund with more capital and scoring top first-year returns point to higher chances of survival in the often risky business, Goldman Sachs Group Inc said in research released on Friday. Goldman, which has helped launch and finance thousands of hedge funds, said almost all newcomers survive their first year but that only 62% of all funds remain in business after five years. The "break even point after which less than half of managers ... remain up and running seems to lie somewhere between 6 and 7 years," said Goldman's Hedge Fund Survivorship 2020 report released to clients.
An initial public offering from Alibaba's Ant Group by year-end would give equity capital markets in Hong Kong a timely boost after a new security law cast in doubt the city's future as a global financial centre, analysts said on Thursday. With new deals worth $4.17 billion in the first half, Hong Kong's exchange accounted for 7.6% of the global IPO market, though down from a share of 11%, and deals worth $7.91 billion, in the same period last year, Refinitiv data showed. The fall in value ranked Hong Kong as the fourth most active exchange after the Nasdaq, mainland China's new Star Market and the Shanghai stock market.
(Bloomberg Opinion) -- Rishi Sunak, Britain’s chancellor of the exchequer, delivered another steroidal burst of government spending on Wednesday. As the man writing fat checks at a time of disruption and uncertainty, Sunak has become so popular that it’s now obligatory to include the words “potential future prime minister” whenever his name is mentioned. He enjoys a 92% approval rating among Conservative Party members, which is more what you’d expect in Belarus than in Britain’s rough-and-tumble political world.He has a pedigree to rival any other front-rank Tory. His platinum-plated CV includes stops at Oxford University, Stanford and Goldman Sachs. The son of immigrants, he’s married to the daughter of a billionaire. A policy wonk in sharply tailored suits, he also has an encyclopaedic knowledge of Star Wars trivia and is considered a nice guy. He’s exhibited both the right temperament for the moment (unflappable, focused, collegial) and a flair for the fiscal splurge that is unconstrained by his previous hawkish orthodoxies.“We entered this crisis unencumbered by dogma and we will continue in this spirit,” he said on Wednesday.Yet winning acclaim for chucking cash at anyone who asks for it is the easy part. At some point, possibly around the time of the autumn budget, people will want to know how he means to pay for his largess. Boris Johnson’s Conservatives can sound almost identical to Keir Starmer’s Labour Party in their determination to protect working people’s interests, but will that remain the case if Sunak wants to hike taxes at some point? His slew of spending pledges is a bet that the government can put a floor under the economic damage done by the coronavirus, without creating structural deficits that burden future generations or fostering a dependency culture that Conservatives deplore. Sunak is trying to soothe Tory fears by presenting his blowout as a series of time-limited targeted interventions.Naturally enough, his immediate priority is jobs. Britain’s furlough scheme, which props up 9 million jobs, is due to do be wound down from August, when employers will have to shoulder more of the burden. That’s expected to result in a great shedding of jobs, particularly in sectors such as hospitality and travel.Wednesday’s “summer economic update” included as much as 30 billion pounds ($38 billion) of new spending, on top of the previous 160 billion pounds of direct support for the Covid-hit economy and 123 billion pounds of subsidized state loans and deferred taxes. It was directed especially at younger people, who are disproportionately affected by the shutdowns: The beleaguered hospitality industry, which accounts for about 10% of total employment, gets special support. Value-added tax for the sector was cut to 5% from 20% and Brits have even been given government-funded discounts to dine out Monday through Wednesday. There was also a nod to the problem of getting furloughed staff back to work: Across the economy, employers who bring these workers back onto the payroll will receive a 1,000-pound bonus. While Sunak says Britain has implemented one of the most generous pandemic responses in the world, its fiscal interventions were equivalent to about 4.8% of GDP before Wednesday’s announcement, according to the Bruegel think tank, putting it behind Germany and the U.S. and on a par with France.Still, a different stripe of Tory government might have accepted the inevitability of widescale unemployment, as President Donald Trump has in the U.S., and used fiscal policy to provide welfare relief. Sunak insists that his policies are driven by values, not economics.Sunakism — if indeed this is a pitch for future power — claims to have at its core the sanctity and nobility of work. “I will never accept unemployment as an unavoidable outcome,” he told Parliament on Wednesday. At the same time, the chancellor doesn’t want to “leave people trapped in a job that can only exist because of a government subsidy.” His policies are predicated on the idea that government can protect some jobs and stimulate the creation of others, while supporting those who fall through the cracks. But these are largely blunt instruments. For example, many people are avoiding restaurants for safety reasons, and others may find it hard to get a table. A VAT cut doesn't solve either problem.At each turn, Sunak has been careful to underscore the extraordinary nature of the circumstances. Like the furlough scheme, all of the other new measures are meant to be temporary and have an immediate effect. But few people who get a steroid injection stop after just one. When so many people are dependent on the state for their livelihoods, there is powerful pressure to maintain the flows of cash.Given the blow to the economy, some of the forecasts on joblessness post-Covid are dire, and Johnson has promised to look after those former Labour voters who delivered him victory in December’s general election. It won’t be easy to turn off the taps.The Sunak approach raises three important questions. First, will his carefully targeted measures limit the Covid damage and revive the British economy? Second, how will they be paid for? And third, what are the long-term consequences for Britain’s political landscape and the shape of its economy?For now, only the first question matters. Sunak has put off the financing conundrum until the autumn budget. It’s hard to see how some tax increases can be avoided, although this is a government that has committed itself to reducing the tax burden where it thinks that might stimulate the economy.As for the third question, a new doctrine of conservatism appears to be emerging that accepts the state as a prime actor during a crisis but tries to avoid the perils of chronic French-style interventionism. Sunak has called on the British people to have the “patience to lie with the uncertainty of the moment” so they could find “a new balance between safety and normality.” That balance may be more elusive than he thinks.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Therese Raphael is a columnist for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Yahoo Finance’s Brian Cheung joins Zack Guzman break down new analysis from the Wall Street journal that shows how big banks may get billions in fees from PPP loans.
Goldman (GS) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
(Bloomberg Opinion) -- The Berkeley Center for Law and Business held its annual “fraud fest” a few weeks ago — virtually, of course — and there was a new item on the agenda. Along with the usual panels about whistle-blowers and short sellers, the organizers added a panel titled “Fraud and Covid-19.” “The pandemic is the perfect storm for fraud,” one of the panelists said, and who can doubt it? The federal government hastily pushed hundreds of billions of dollars out the door in the largest bailout in U.S. history with only the most vague requirements for recipients; bankers working from home doled out those billions to small businesses; regulators loosened rules to help institutions get through the crisis. As my colleagues Timothy L. O’Brien and Nir Kaissar noted recently, “the White House has made it easier for government insiders to obtain bailout loans from the Small Business Administration, creating a raft of conflicts of interest.”That certainly sounds like a recipe for financial fraud. “A crisis is like the fog of war,” said Thomas Curry, the former comptroller of the currency during President Barack Obama’s administration. “Banks redirect resources to critical areas and neglect other risks that bite you down the road.”Before becoming comptroller, Curry was on the board of the Federal Deposit Insurance Corporation. It was from that perch that he watched the financial crisis unfold — and became one of the financial regulators frantically trying to keep the U.S. financial system from melting down. The government ultimately gave the big banks billions in bailout loans and other forms of support, such as buying their toxic securities. But once the crisis was averted, Congress, regulators, and the press all began to dig into scandals that were previously unnoticed: the abuse of subprime mortgages by the big financial players; the craven behavior of the credit-rating companies; the willingness to mislead investors who bought those toxic securities, and so on. According to the boutique investment bank Keefe, Bruyette & Woods, banks were fined a staggering $243 billion for their misdeeds during the financial crisis. (Bank of America leads the pack with $76.1 billion in fines.)Those fines inflicted some pain, but they weren’t the most consequential result of the financial misdeeds that were exposed. The larger issue was the enormous resentment and anger they generated in a broad swath of the country. People on both sides of the political divide were furious that the big banks were being saved despite bad behavior that helped create the financial crisis. Meanwhile, millions of bank customers lost their homes to foreclosure. The financial crisis and its aftermath helped bring about the Tea Party and Occupy Wall Street movements and helped pave the way for Donald Trump’s presidency.So here we are again, in the middle of another crisis, only this one is being overseen by an administration that doesn’t seem to care much about corruption or fraud. Early on, Trump removed Glenn Fine, the acting Pentagon inspector general, from taking charge of a group that was supposed to monitor the pandemic relief effort, replacing him with someone more to his liking. Nobody is monitoring the White House’s involvement in procuring N-95 masks and other scarce personal protective equipment. And only on Monday did the Treasury Department finally release the names of companies that received PPP funds. Guess what? One recipient was the law firm of Kasowitz Benson Torres, where one of the name partners, Marc Kasowitz, has represented Trump for years. The firm received between $5 million and $10 million, according to the New York Times.As for the banks, the SBA has put them in a terrible spot, giving them the responsibility of hastily vetting the hundreds of thousands of businesses seeking PPP funds. Even with the best of intentions, it is inevitable that scam artists found ways to bilk the banks out of PPP loans. Indeed, prosecutors have already arrested a handful of executives for doing so.The larger issue is that, just like in 2008, regulators aren’t focused on preventing misconduct. Instead, their focus is on making sure banks have the ability to lend — even if it means loosening rules that were designed to make banks safer. In late March, for instance, the Federal Reserve relaxed several lending rules, including one that measured counterparty credit risk. And in early April it loosened capital requirements. “The Fed has been trying to say to the banking community that in this crisis environment we don’t want the constraints we normally put on you. We don’t want to hamper your ability to lend to clients,” said Gary Cohn, the former Goldman Sachs executive who served as Trump’s first chief economic adviser.What’s more, Cohn said, banking is not a business that is meant to be conducted from home. “Banks need people to be working together in a cooperative fashion and watching and listening to each other,” he told me. “That is what the Fed would call a first line of defense: Overhearing conversations, looking at presentations, or looking at the way you talk to a client. Or calling a compliance officer – ‘Can you guys look at this?’ When people are sitting in their bedrooms,” he added, “there is no one there to look over their shoulder.” Bankers operating on their own is a recipe for trouble.When the pandemic finally ends, there are going to congressional investigations, newspaper exposes and special commissions all taking a look back at what happened to the trillions of dollars the federal government spent to keep the economy from collapsing. Indeed, if the Democrats sweep the White House and Congress, the reckoning could well begin even before the virus has been conquered. (Can you just imagine Elizabeth Warren as chair of the Senate Banking Committee?)For starters, they’ll want to know whether bankers siphoned off money to their friends, whether they threw people who should have been granted mortgage forbearance out of their homes and whether money meant for small businesses wound up helping any of the president’s businesses. Banks will be especially vulnerable because they were the villains during the last crisis. If significant bank misconduct is uncovered during a Covid-19 post-mortem, said Stephen Scott, the founder of Starling Trust Sciences, a risk-management company, “there will be pitchforks.” The country is much more polarized than it was in 2008, and much angrier, too. If it turns out that the billions of dollars intended to help out-of-work Americans was diverted by fraud, it will make the aftermath of the financial crisis look like a picnic.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Top Chinese energy firms have mandated investment banks Morgan Stanley and Goldman Sachs to act as advisors for multi-billion dollar deals transferring key oil and gas pipeline assets into a national energy infrastructure giant, four sources said. Overseen by a government vice premier, underlining the project's importance for Beijing, Beijing aims to complete the asset transfers and start operation of the new entity - valued by industry analysts at more than $40 billion - by the end of September, oil industry officials said. The mandates come after China announced in late 2019 that it would establish an entity known as National Oil and Gas Pipeline Company by combining pipelines, storage facilities and natural gas receiving terminals operated by China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec Group) and China National Offshore Oil Company (CNOOC).
The S&P 500 eased on Tuesday, a day after the benchmark index logged its longest streak of gains this year as investors weighed the risk of a sharp jump in new coronavirus cases nationwide hindering a rebound in economic activity. The Nasdaq, on the other hand, claimed another record high, boosted by shares of technology heavyweights Microsoft Corp and Apple Inc. The Dow Industrials dropped 0.8%, weighed down by cyclical stocks including Goldman Sachs and Boeing Co. Large parts of the country reported tens of thousands of new coronavirus infections.
The S&P 500 was little changed on Tuesday a day after the benchmark index logged its longest streak of gains this year, as investors weighed expectations of an economic recovery against risks from a sharp jump in new coronavirus cases nationwide. The tech-heavy Nasdaq, on the other hand, claimed another record level, boosted by shares of Microsoft Corp and Apple Inc while the Dow Industrials dropped 0.7% weighed down by Goldman Sachs and Boeing Co. Bank stocks, whose performance is linked to the outlook for the economy, dropped 2.5%.
(Bloomberg Opinion) -- As the U.S. deals with social unrest and the focus on fairness and equality grows, many public and private leaders have asked a simple question: “How can we do better?” It’s a fair question, one which got me thinking about the public finance sector, long considered among the most diverse and inclusive areas in investment banking. While this sector has seen many positive developments over the 30-plus years since I started my career on Wall Street, there is clearly much work to do.As of late, my phone has been ringing off the hook with calls from other chief executives wanting to know what they can do better when it comes to promoting diversity and inclusion. We have heard this narrative before, yet never with this great a sense of urgency. Some major banking institutions have gone beyond simple lip service and begun to hold leaders directly accountable for diversity goals and objectives. Major cities such as New York, Chicago, Atlanta and Washington have been consistent leaders in not just a broad commitment to inclusion, but have gone the extra mile to ensure equality as well. They have made the deliberate choice of involving minority- and women-owned business enterprise banking firms, and other diverse professional-services firms, in leading and meaningful roles. This is not just about offering small monetary compensation to appear inclusive. These cities further a broader mission of building trust, respect and reputation in these firms — in an industry where those characteristics mean everything. It has been through the responsibility shown by many entities in the public sector that we have started to see real change trickle into other areas of finance, such as corporate banking and the buy-side of the industry. Institutions and organizations in other areas should be commended as well. They include sub-sectors such as transportation, water and sewer, housing and K-12 education. However, one sector has had a poor and often erratic record with regard to inclusion and diversity: higher education. It is a disappointing irony that an industry whose institutions have often been the most vocal promoters of tolerance, inclusion and diversity, should be one so lacking in the tangible promotion of those values within the financial industry.The higher education sector has issued a record volume of debt since the Covid-19 shock began in March — over $12 billion. While some major universities and colleges have an open-door policy in terms of inclusion and equity for professional-services providers, others have been shockingly closed, seemingly inconsistent with their core mission. For example, in the mighty Ivy League, only Penn, Princeton, Columbia and Cornell regularly have minority- and women-owned firms in their bond underwriting syndicates, along with other professional-services providers for bond transactions. Harvard, Yale, Brown and Dartmouth rarely, if ever, have such companies. Almost none have included minority law firms. We’ve seen much the same disappointment at other prestigious institutions, including the Massachusetts Institute of Technology, Johns Hopkins, the California Institute of Technology, Notre Dame and Boston College, to name a few.Harvard says its mission is to educate its citizens into leaders of our society. Yale takes it one step further: Its mission is to educate leaders who serve "all sectors of society." I suspect Yale didn’t apply that principle to its $1.5 billion transaction priced in early June, one in which the school used no minority-led law firms and just three major firms — Barclays Plc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. — for its underwriting syndicate. And remember, Yale is located in New Haven, Connecticut, a city where almost two-thirds of the residents are people of color.But this is not just about the Ivy League or private schools. Ohio State has beaten Michigan eight straight years in football, and it appears that the Buckeyes beat the Wolverines in the inclusion area as well. Michigan issued almost $1 billion in debt recently and failed to include a single minority-owned law firm or underwriter. Whereas Ohio State recently executed a $187 million transaction that did include a minority underwriter — it joins fellow Big Ten members Northwestern and Purdue, which have also recently completed deals with minority- and women-owned businesses in their transaction teams. Unfortunately, Michigan State, Indiana, Nebraska and Penn State have not, and each executed transactions that exceeded $500 million. We have seen similar inconsistencies out west. The University of Southern California, the University of California Regents, the Cal State System and the Universities of Washington and Colorado have been very inclusive. On the other hand, Stanford, Arizona, Arizona State, Oregon and Oregon State have lacked minority participation. Elsewhere, major systems that should be commended for their inclusion policies include the University of Texas, Texas A&M and the Universities of Massachusetts and Connecticut. Institutions such as Temple, the University of Chicago and Kent State deserve solid marks as well. Some of the least inclusive schools have been in southern states. Georgia Tech, Emory, Duke, North Carolina, North Carolina State, Vanderbilt and Wake Forest have not used minority firms. These are institutions which have never failed to be inclusive on the gridiron or hardwood, but this “inclusivity” would seemingly stop at professional services.More broadly, in the municipal and not-for-profit sectors — which in many respects are not dissimilar from the nation as a whole — there has been much progress, but much work remains. Many of our municipal issuers understand this and have been inclusive and equitable, with positive results. New York City’s first deal after the onset of Covid-19 was senior-managed by a minority firm, to spectacular results. The State of Ohio recently did the same for an $800 million taxable and tax-exempt transaction that generated over $360 million in much-needed budgetary and cash-flow savings. Finally, many minority- and women-owned business enterprise firms have formed partnerships with large banks to provide additional liquidity to universities. The argument that an institution only uses so-called “credit banks” is no longer valid. Minority- and women-owned firms have time and again shown the capability to provide outstanding execution on some of the largest and most complex financial transactions in the country. It is time that grand American institutions such as Harvard, Yale, Stanford, Duke, Michigan and the like give their coveted stamps of responsibility and trust to minority firms that can help universities build a capital structure worthy of their academic prowess.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Jim Reynolds is the chairman and chief executive of Loop Capital.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Transparency and public trust are essential to effective bank regulation. These guiding principles were severely compromised in the years leading up to the 2008 financial crisis. Instead of simple, straightforward metrics of bank solvency, capital requirements became an exercise in gamesmanship. Regulators deferred to banks’ own opaque and incomprehensible models of risk to determine how much capital they needed, deeming them “well-capitalized” when the banks were anything but. Reforms adopted after the crisis wisely added simpler, objective capital standards, complemented by stress tests that publicize whether large banks have sufficient capacity to weather severe economic conditions.Unfortunately, last month’s confusing and vague pronouncements by the Federal Reserve of this year’s stress test results undermined those principles. Instead of reassuring the public, they have created more uncertainty as to the strength of the banking system.Much criticism has centered on the failure of the Fed to publish bank-specific results under its “enhanced sensitivity analysis,” which took into account worsening economic scenarios caused by the Covid-19 pandemic. The stress scenarios the Fed had announced in February were not as severe as the path the economy is on now. But the Fed only published bank-specific results under February’s now essentially irrelevant assumptions.Less noticed, but we feel equally important, was the failure of the Fed to publish an enhanced sensitivity analysis using a simpler, more reliable measure of financial strength called the leverage ratio. Instead, the Fed relied solely on banks’ “risk-based ratios,” which seek to measure capital adequacy in relation to judgments about the riskiness of banks’ assets. Risk-based ratios failed spectacularly in the lead up to the financial crisis as large banks took huge, highly leveraged stakes in securities and derivatives tied to mortgages because they and their regulators deemed those assets low risk.After the crisis, global consensus emerged that regulators should backstop risk-based capital rules with leverage ratios, which proved to be more reliable indicators of solvency during the financial crisis. For the largest banks, these supplemental leverage ratios require a minimum of 5% equity funding for the banking organization, and 6% for subsidiaries insured by the Federal Deposit Insurance Corp.A review of the bank-specific results published by the Fed using February’s pre-pandemic assumptions shows that some large banks would be operating with thin capital margins even under those more benign scenarios. For instance, Goldman Sachs’s supplemental leverage ratio dipped as low as 3.5%; Morgan Stanley, 4.5%; JPMorgan Chase, 5.1%. Unfortunately, we don’t know how these and other large banks will fare under the more-distressed conditions caused by the pandemic. The Fed’s enhanced sensitivity assessment only disclosed aggregate risk-based ratios. These ranged from 9.5% for a “V-shaped” recovery to 7.7% for a more severe “W,” with the bottom 25th percentile of banks going as low as 4.8% in a “W” scenario. Leverage ratios are typically less than half of banks’ risk-based measures. Indeed, a major concern about risk-based ratios is that they imply capital levels greater than they actually are. Thus, it is likely there were a number of banks with stress leverage ratios below 3% in the Fed’s sensitivity analysis, far too thin to keep them lending and solvent without government support.The failure to disclose leverage ratios in the pandemic sensitivity analysis is consistent with the Fed’s rulemaking in March to eliminate leverage requirements from their stress tests. Unfortunately, it is not the only step regulators have taken to marginalize leverage ratios. They have also allowed large banks to remove “safe assets” such as Treasury securities and reserve deposits from the supplemental leverage ratios calculation. But the relatively low requirements were calibrated based on the assumption that they would apply to all of a banks’ assets, including safe assets as well as risky exposures such as uncleared derivatives and leveraged loans. Removing safe assets without raising the required ratio will eventually lead to significant reductions in capital minimums, according to regulators’ estimates: $76 billion for banking organizations and more than $55 billion for their insured subsidiaries.Regulators have said this step was necessary to “support credit to households and businesses.” But this is hard to reconcile with their refusal to request suspension of bank dividend payments. (They did finally impose a modest cap, which will still permit most banks to continue paying dividends at their first quarter levels.) Retaining that capital would give banks the ability to expand support for the real economy without weakening their capital position. FDIC-insured banks paid $30 billion in dividends to their holding companies in the first quarter. If that $30 billion had stayed on banks’ balance sheets, it could have supported nearly a half trillion dollars in additional capacity to take new deposits and make loans.Moreover, we challenge whether this change will further its stated goal to increase Main Street lending. It will instead create incentives to reduce lending. A number of banks will most likely need to improve their capital ratios as a result of the Fed’s continued stress assessments. But to do so, they can simply cut back on loans, which have relatively high risk-based capital requirements, and shift into U.S. Treasuries, which now have no capital requirements. They will be able to boost their risk-based ratios without having to curb dividends or issue new equity.Regulators have said removing Treasury securities and reserve deposits from the leverage ratio calculation is temporary, but bank lobbyists are expected to seek legislation making it permanent as part of the next stimulus package. Banking advocates are also pushing regulators to finalize pending changes to the supplemental leverage ratios which would reduce required capital at the eight largest FDIC-insured banks by $121 billion, or 20% on average. If the banking lobby is successful, we fear there won’t be much left of meaningful leverage restrictions.Bank capital funding requirements are not unnecessary red tape as bank lobbyists try to portray them. They are essential to financial stability. Studies show that highly capitalized banks do a better job of lending than highly leveraged ones, especially during economic stress. The previous financial crisis demonstrated how unreliable risk-based ratios can be and the need to backstop them with overarching leverage constraints on large financial institutions. Greater reliance on simpler, transparent leverage ratios was central to regaining public trust in the solvency and resilience of the banking system. Their demise will force the public to rely on the Fed’s and big banks’ complex and nontransparent risk models. Bank capital levels will once again become an insiders’ game.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Sheila Bair was chair of the Federal Deposit Insurance Corp. from 2006 to 2011.Thomas Hoenig was vice chair of the Federal Deposit Insurance Corp. from 2012 to 2018.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Yahoo Finance’s Brian Cheung joins Zack Guzman to discuss how Goldman lowered its U.S. GDP forecast and CBO's latest projections on economic growth.
S&P Global Ratings Global Chief Economist, Paul Gruenwald joins the On the Move Panel to discuss the latest on COVID-19 and the impact of the virus on the economy and the GDP.
(Bloomberg Opinion) -- It doesn’t take much imagination to see the Federal Reserve supporting the stock price of Apple Inc.The central bank’s Secondary Market Corporate Credit Facility recently released details about its “Broad Market Index,” which is a roadmap for which individual bonds it will buy for its portfolio after changing the rules to avoid forcing issuers to certify they’re in compliance with the Coronavirus Aid, Relief, and Economic Security Act. Just looking at the 13 companies with weightings of at least 1%,(2)which collectively make up almost one-fifth of the index, a few things stand out. First, there are six automobile companies, with subsidiaries of Japan’s Toyota Motor Corp. and Germany’s Volkswagen AG and Daimler AG as the three largest issuers overall. In fourth is AT&T Inc., the largest nonfinancial borrower due in no small part to its $85.4 billion takeover of Time Warner Inc. Then there’s Apple. As a reminder, it’s the largest U.S. company by market capitalization at $1.57 trillion, edging out Microsoft Corp. and Amazon.com Inc. Its shares have easily rebounded from the selloff caused by the coronavirus pandemic, rallying 24% so far in 2020. Yes, Apple has about $100 billion of debt outstanding, but it’s also known for having one of the largest cash piles in the world. It’s so big, in fact, that the company could repay all its obligations and still have roughly $83 billion left over.With so much cash, that naturally raises the question: Why does Apple take on debt in the first place?In each of Apple’s past three dollar-bond sales, in November 2017, September 2019 and May, the company said it would use proceeds at least in part to repurchase common stock and pay dividends under its program to return capital to shareholders. In total, the company has doled out more than $200 billion since the start of 2018. It’s easy to see why company leadership would see it as too cheap not to borrow. Apple has the second-highest investment-grade credit ratings from Moody’s Investors Service and S&P Global Ratings, allowing it to issue $2.5 billion of 30-year bonds in May that yielded just 2.72%. Its $2 billion of three-year debt, within the Fed’s maturity range, priced to yield less than 0.85%.Luca Maestri, Apple’s chief financial officer, said during the last quarter’s earnings call that the company has more than $90 billion in stock buyback authorization left, adding that it plans to continue the same capital allocation policy going forward.Obviously, cash is mostly fungible for large enterprises, and any number of American companies in recent years surely issued bonds for reasons other than buybacks and also repurchased shares. Goldman Sachs Group Inc. estimated some $700 billion of shares were acquired by U.S. companies in 2019, which would make them the biggest net buyer of equities.Still, Apple openly using debt sales to help finance share repurchases puts the Fed in a somewhat awkward position. Chair Jerome Powell has consistently framed questions about its secondary-market facility in the context of supporting the central bank’s full employment mandate. Workers are “the intended beneficiaries of all of our programs,” he said in a hearing last month. It’s possible Americans “are able to keep their jobs because companies can finance themselves.”And yet, the Fed’s secondary-market facility comes with no strings attached. In fact, as I noted last month, its maneuver to create Broad Market Index Bonds circumvented the CARES Act requirement that any company must have “significant operations in and a majority of its employees based in the United States.” Rather than focus on the American worker, the stated goal is to “support market liquidity for corporate debt,” and, by extension, keep borrowing costs down for creditworthy firms. So there’s every reason to expect that Apple can and will issue bonds again in the near future, at an even cheaper rate, to fund stock buybacks and dividends. That, in turn, would most likely support share prices.That shouldn’t sit well with many people. Even President Donald Trump, who has used the stock market as a barometer of his economic policies, has signaled a preference for capital projects over buybacks. On March 20, just before the S&P 500 Index fell to its lowest level of the Covid-19 selloff, he lamented that companies used the money saved from his 2017 tax cut to repurchase shares rather than build factories. He said at the time that he would support a prohibition on buybacks for companies that receive government aid.“When we did a big tax cut and when they took the money and did buybacks, that’s not building a hangar, that’s not buying aircraft, that’s not doing the kind of things that I want them to do,” Trump said. “We didn’t think we would have had to restrict it because we thought they would have known better. But they didn’t know better, in some cases.” The Fed’s strategy for buying corporate bonds is passive enough that few would equate it to receiving direct assistance from the federal government. The same can’t be said about the central bank’s Primary Market Corporate Credit Facility, which as of last week is open for business. Companies that want to place bonds directly with the Fed must certify that they have “not received specific support pursuant to the CARES Act or any subsequent federal legislation” and “satisfy the conflicts-of-interest requirements of section 4019 of the CARES Act.” As my Bloomberg Opinion colleague Matt Levine described in detail last week, there’s a huge amount of paperwork for issuers, and the Fed has the right to demand its money back if the forms are wrong and companies use funds for unapproved reasons.In all likelihood, these constraints will turn almost every company away from the Fed’s primary-market facility. Instead, finance officers will reap the benefits of the central bank’s broad secondary-market interventions to issue new debt to private investors at rock-bottom rates and with no such rules, as they have for the past three months. And Wall Streeters will be happy with business-as-usual in the credit markets.To put it plainly one more time: The Fed didn’t have to loosely interpret the law to create this index of corporate debt. It was already following through on its pledge to buy exchange-traded funds and had a system in place for companies to become eligible for individual purchases. It chose this third route, encouraging headlines like “Buying Corporate Bonds Is Almost Easy Money, Strategists Say.” What could go wrong?Now that it’s scooping up individual bonds issued for share buybacks without any stipulations, policy makers should be asked again why this program is the right way to go about supporting the recovery. The truth is likely that corporate America needs low-cost debt to survive. Apple and its shareholders are more than happy to tag along for the ride.(1) The Fed's facility has not yet purchased debt from all the companies in the index, at least according to its disclosure, which only covers the$429 million in bonds it bought on June 16 and 17. Its largest purchases were Comcast Corp., AbbVie Inc. and AT&T Inc.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- During a Grand Prix competition on an Azerbaijan track in June, Alexander Albon, a Formula One driver on the Red Bull Racing team, downshifted along a steep curve then accelerated into a straightaway. But something was wrong: His internet was lagging. “I can’t race like this,” he said to his engineer.Albon took off his headphones. The 24-year-old driver stood up from the black gaming chair in his house and tried to fix the glitchy internet connection that was hurting his time. Earlier this year, with the coronavirus pandemic spreading around the planet, Formula One canceled 10 races and moved the action online, launching an esports series called the Virtual Grand Prix. The pro drivers who chose to participate raced against each other on F1 2019, a popular video game made by the British publisher Codemasters, and streamed their gaming exploits live on Twitch, a video platform owned by Amazon.com Inc. More than half the F1 grid took part in the series. Beginning on Friday, July 3, the popular motorsport will return to the actual racetrack, kicking off its delayed 2020 season with the Austrian Grand Prix, the first of eight confirmed races. According to Frank Arthofer, F1’s global head of digital media and licensing, the 2019 season had the youngest grid in the sport’s history. This year’s roster will likewise feature several young drivers, such as Albon, who are as comfortable live-chatting with fans on Twitch as they are blazing down roads in Monte Carlo. All of which is by design. At a time of declining TV ratings, the virtual races are part of Formula One’s broader efforts to lure in a new generation of fans. “You’ve really seen the driver’s personality show through virtual racing,” said Arthofer. “That’s one of the really exciting elements of it. You get a feel for the characters behind the visor that you don’t get when they’re in Formula One cars necessarily.”When billionaire John Malone’s Liberty Media Corp. acquired F1 for $4.4 billion in 2017, the sport’s TV viewership was already in decline. According to Goldman Sachs, Formula One’s overall TV audience shrank by two-fifths between 2008 and 2017. Last year, total viewers decreased by a further 3.9%, according to a study by Statista researcher Christina Gough.To try to reverse the trend, Formula One is ramping up its outreach to fans on social-media networks and streaming services. Pivotal Research Group analyst Jeffrey Wlodarczak said that young, digitally savvy racers—such as Charles Leclerc, a 22-year-old driver for Scuderia Ferrari, who has 3.2 million followers on Instagram and 489,000 on Twitch—can attract new fans to the sport. Wlodarczak said the Netflix documentary series “Formula 1: Drive to Survive,” which gives viewers behind-the-scenes access to all 10 F1 teams, has also helped the sport connect with a younger audience. The online charm offensive appears to be gaining traction. Since March 16, the Virtual Grand Prix has generated some 94 million video views, including 22 million on live streams, according to F1. The sport’s overall social-media engagement is up 30% year over year. Back on the virtual roads of Azerbaijan, after fighting through the technical difficulties, Albon finished in second place. On Twitch, fans sprinkled the chat zone with green “GG” stickers. Translation: “good game.”Afterward, Albon jumped on Discord, an online platform popular with gamers, and spoke to George Russell, a 22-year-old British racer with team Williams, who would go on to win the entire Virtual Grand Prix. Last year, during his rookie season, Russell had finished in last place in the actual 2019 Formula One season.Now, he is the motorsport’s virtual champion. “I mean, I got more publicity from winning an esports race than I got from any single Formula One race last year by coming around at the back of the grid,” Russell later told Sky Sports F1. As the streaming session wound down, Albon proposed that he and the other drivers play another video game just for fun, even if had nothing to do with racing. But the virtual crowd wasn’t ready to give up the racetrack action just yet. Their suggestion: time for some Nintendo Mario Kart. For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Goldman Sachs came out with a note saying that making mask wearing mandatory could prevent a 5% hit to GDP. Yahoo Finance’s The Final Round panel discusses how the private sector has been left regulating mask wearing in the United States.