Expect a grilling on the Hill.Credit…Sarah Silbiger/The New York Times
Abortion, overdraft fees and savings rates
This morning, the heads of the nation’s seven largest banks are in Washington for two days of testimony, starting in the House. More than a decade after bank C.E.O.s were in the hot seat during the financial crisis, many of the same issues remain.
JPMorgan Chase, Bank of America and Citigroup are bigger than ever, with nearly $10 trillion in assets between them — about 50 percent more than five years ago. Jamie Dimon of JPMorgan, according to his written testimony, plans to say that regulations have made banks play it too safe with capital requirements, putting them at a disadvantage against foreign competitors. (Reality check: China’s largest bank, ICBC, made $2 billion in profit in its last fiscal year. JPMorgan, the largest in the U.S., made $48 billion.)
C.E.O.s are likely to face some tough questions. There will be talk of an economic downturn and whether banks can make it through a recession without needing bailouts. More contentious moments could center on climate change and abortions — plus some old favorites such as overdraft fees.
Abortions and climate change: The C.E.O.s are likely to get grilled by both Democrats and Republicans. Republicans are likely to go after banks for paying expenses for employees seeking reproductive care in states that have recently banned abortions. Democrats are likely to ask banks why they aren’t doing more to fund lower-emission sources of energy.
Overdraft fees: A memo released by the House Financial Services Committee before today’s hearing noted that several big banks have taken steps to reduce fees and make overdraft penalties fairer. “It’s a service, but you can question whether the fees are a lot,” said David Konrad, a stock analyst who follows the big banks at Stifel Financial’s KBW. Still, banks were now “better positioned” on the issue, he said.
Savings rates: Bank C.E.O.s are likely to face questions as to why they are not passing on the benefits of the recent rise in interest rates to cash-strapped consumers. The Fed is expected to raise interest rates again today to above 3 percent. The average U.S. savings account still pays 0.17 percent,while inflation sits at 8.3 percent.
HERE’S WHAT’S HAPPENING
Energy prices climb again. Global natural gas prices rose after Vladimir Putin called up more troops to bolster Russia’s struggling offensive in Ukraine, while U.S. gas prices ended a 99-day downward streak this morning.
And countries move to contain their energy crises. Germany nationalized Uniper, once its largest importer of Russian gas, to shore up its energy supply for the winter. The British government plans to cap energy prices for businesses, its latest bid to contain spiraling costs.
European investment in China falls sharply. Just a handful of Europe’s corporate giants are continuing to meaningfully invest in China, reports show, reflecting a waning interest in the huge market. China is facing global trade tensions and economic issues like a slumping real estate market.
Climate change weighs on the U.N. General Assembly. Secretary General António Guterres called for windfall taxes on fossil-fuel companies to combat environmental disaster and help poorer countries. Climate change also featured prominently at the restarted Clinton Global Initiative gathering, which drew the likes of Laurene Powell Jobs and Melinda French Gates.
Uber identifies the group behind its big hack. The ride-hailing company said Lapsus$, which has breached tech companies’ systems seemingly for publicity, appeared responsible for extensive infiltration into its backend. Lapsus$ is especially notable for recruiting teenagers.
What’s really driving inflation?
The Fed is expected to deliver a third straight supersize interest-rate increase today, as it wages its most aggressive fight against inflation since the 1980s. If you want to understand how tough that battle will be, look to cars, writes The Times’s Jeanna Smialek.
Many companies — including in the automotive industry — have been able to raise prices over the past two years, swelling their profitability but also exacerbating inflation. Dealerships are paying manufacturers more for inventory while charging customers higher prices, sending their profits toward record highs.
The Fed is raising rates to make big purchases pricier. The goal is to cool financing and thus demand for things like cars, houses and business expansions, and slow the fastest inflation in four decades. Whether it can do so without inflicting serious pain on the economy will hinge partly on how easily companies surrender their hefty profits, Jeanna writes. If they curb profits to compete for customers, inflation could ebb without the loss of too many jobs. But if businesses prioritize profits, the Fed could be forced to squeeze the economy more drastically.
“There has been a giant shift in bargaining power between consumers and corporations,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “That’s where the next adjustment has to come — corporations have to see some pain.”
Trends in the new-car market illustrate why inflation won’t be easy to tame. Three big forces playing out across sectors are on particularly clear display: Supply chain woes are not resolved; consumer demand is slowing yet remains strong; and companies used to big profits are reluctant to give them up.
Red states push back on a new gun-merchant code
Last week, we reported on credit card giants agreeing to adopt a merchant category code for gun stores, which proponents say could help clamp down on mass shootings. But two dozen Republican state attorneys general are pushing back hard against the move.
A recap: The I.S.O., which sets standards for payment transactions, created the category earlier this month, acting on an application by the union-owned Amalgamated Bank. Supporters of the code say it could help flag suspicious purchases to law-enforcement agencies.
American Express, Mastercard and Visa could face investigations if they proceed, the attorneys general wrote in a letter to their C.E.O.s yesterday. The officials raised several issues, including:
Potential misuse of that sales data, including violations of consumer privacy and blocking constitutionally protected purchases.
A failure to reduce gun violence, since using the merchant codes wouldn’t distinguish between purchases of gun safes and firearms and wouldn’t cover gun purchases at retailers like Walmart. (Andrew suggested a way to address the latter issue last week.)
The gun merchant code arose from “years of pressure from ideologues,” the attorneys general argued, echoing Republican complaints about companies following E.S.G. principles. “Financial institutions that place their desired public policy outcomes ahead of the well-being of their investors do so in derogation of their fiduciary obligations,” they wrote.
It’s unclear how the companies will respond, though Mastercard and Visa have already said they won’t block transactions based only on the merchant code. (A senior Visa executive previously said that the company doesn’t want to become “a moral authority.”)
“One of the most dangerous misconceptions about data — in policymaking terms, at least — is that data is the ‘new oil’: a scarce resource to be hoarded, enriching those who own the most.”
— Nick Clegg, president of global affairs at Meta, arguing that misconceptions about how we handle and value data risk holding back the digital economy.
Yesterday, the investor Chamath Palihapitiya announced he was shutting down two of his special acquisition companies, or SPACs, and returning the money to investors.
The retreat by Palihapitiya, who has built a mini-empire of SPAC funds over the past three years, comes as investor demand has nearly collapsed for these so-called blank check firms. Essentially publicly traded shell funds, they merge with privately held companies and give them their stock listing, taking them public without the hassle or expense of an I.P.O.
But with rising inflation and interest rates and a bear market for risky assets — including the kinds of high-growth, no-profit companies that SPACs gravitate toward — investors have been fleeing blank-check funds. Just two SPACs were launched this month, valued at $195 million, compared with 31 a year ago, according to Dealogic. We’re far from the SPAC peak of March 2021, when 109 blank-check funds, valued at over $36 billion, were announced.
Here’s how much investor interest in these funds has cooled.
THE SPEED READ
Nordstrom adopted a poison pill to protect against unwanted takeovers after a Mexican department-store operator bought a 9.9 percent stake. (WSJ)
Schneider Electric agreed to buy the 40 percent of Aveva, a British software company, that it doesn’t own at a valuation of 9.5 billion pounds, or $10.8 billion. (FT)
Binance and FTX have reportedly bid around $50 million each for Voyager, the bankrupt crypto lender once valued at nearly $4 billion. (WSJ)
Kanye West denied a report that his song library is for sale. (Insider)
Morgan Stanley agreed to pay $35 million to settle accusations by the S.E.C. that it failed to protect customer data by improperly disposing of hard drives and servers. (NYT)
Wall Street banks are reportedly threatening to leave a climate-change alliance led by the former Bank of England chief Mark Carney, over worries about legal liability. (FT)
“Did the U.S. Shortchange Investors $27 Billion?” (Bloomberg Opinion)
Best of the rest
Citadel’s Ken Griffin wants to make Miami into a southern Wall Street, but not everyone is on board. (Bloomberg)
The Golden Globes are returning to NBC and the streaming service Peacock. (NYT)
A dating app for conservatives backed by the billionaire Peter Thiel is reportedly being rejected by female Republicans in Washington. (Daily Beast)
Should you negotiate your way out of a ransomware attack? (FT)
The New York Yankees slugger Aaron Judge is now one home run short of Roger Maris’s record. (NYT)
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