Results from the Federal Reserve’s special coronavirus stress tests, due after the bell, may highlight the primacy of political tensions over the financial health of the nation’s biggest banks.
Though lenders are expected to pass the tests, the Fed is likely to keep a pandemic-induced halt on buybacks and caps on dividends after it extended the unprecedented constraint in October through year-end, according to analysts.
Banks have been under fire as critics argued that allowing capital distributions creates risk during a challenging economic period. However, bank executives including JPMorgan Chase & Co.’s Jamie Dimon have said they have extraordinary amounts of capital and would like to buy back stock.
U.S. banks will probably prove their resiliency, even under the exam’s harsher assumptions, Wells Fargo analyst Mike Mayo said. However, he believes the Fed won’t allow more capital to be returned to shareholders until perhaps the third quarter of 2021. Like other analysts, he says the problem may be with perception by both politicians and the public.
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“Regulators might not want to risk reputations by having banks repurchase stock or increase dividends at a time of rising Covid cases, greater pandemic burden on consumers and businesses, and lingering economic uncertainty,” he wrote in a note to clients.
Mayo added that if he’s wrong about political concerns overriding new buybacks and bigger dividends, then “stocks trading close or below book value would be among the greatest beneficiaries,” like Citigroup Inc. and Bank of America Corp.
Over at UBS, analyst Saul Martinez expects the status quo will be extended, with the Fed keeping existing limitations through at least the first quarter.
“Even if banks perform well and keep capital levels above the minimum threshold in the stress scenarios,” he said that the Fed could justify keeping restrictions by citing rising Covid-19 cases and signs of economic weakness, even with vaccine distribution and effective treatments.
Plus he warned that “criticism from select policymakers could emerge if restrictions are lifted as the Biden administration prepares to take office.”
On the other hand, John Augustine, Huntington Private Bank’s chief investment officer, sees the potential for buybacks as soon as April, particularly as banks may be over-reserved for loan losses. In a phone interview, Augustine said that the “banks are arguably over-capitalized.” He added that a rebound in bank stocks this quarter was likely driven in part by expectations for dividends and share repurchases next year, as the pandemic ebbs with widespread vaccination.
“The Fed may well wait another quarter until Spring 2021 to allow the Covid-19 pandemic to subside,” with the post-vaccine economic landscape helping the outlook, Janney Montgomery Scott’s director of research Christopher Marinac wrote. He suggested that investors should focus any immediate disappointment into thinking about banks growing their capital and tangible book value as they retain more earnings for the next few months.
RBC analyst Gerard Cassidy noted that next year’s stress tests are “around the corner,” with the Fed publishing economic scenarios for what’s known as the 2021 CCAR exam in January. Cassidy expects those economic scenarios will be “more severe” than this year’s had been, which will “likely result in some banks having greater capital depletion.”
Banks stocks slipped for a second day on Friday morning, with the KBW Bank Index shedding 1.1%. The index, hammered by Covid-driven economic woes and low interest rates, has underperformed the broader market this year, with a drop of 17%, versus a 15% rally for the S&P 500. JPMorgan Chase & Co. has fallen 15% year to date, while BofA is down 18% and Citigroup has tumbled 26%.
OTTAWA – Prime Minister Justin Trudeau says the NDP is caving to political pressure from Conservative Leader Pierre Poilievre when it comes to their stance on the consumer carbon price.
Trudeau says he believes Jagmeet Singh and the NDP care about the environment, but it’s “increasingly obvious” that they have “no idea” what to do about climate change.
On Thursday, Singh said the NDP is working on a plan that wouldn’t put the burden of fighting climate change on the backs of workers, but wouldn’t say if that plan would include a consumer carbon price.
Singh’s noncommittal position comes as the NDP tries to frame itself as a credible alternative to the Conservatives in the next federal election.
Poilievre responded to that by releasing a video, pointing out that the NDP has voted time and again in favour of the Liberals’ carbon price.
British Columbia Premier David Eby also changed his tune on Thursday, promising that a re-elected NDP government would scrap the long-standing carbon tax and shift the burden to “big polluters,” if the federal government dropped its requirements.
This report by The Canadian Press was first published Sept. 13, 2024.
Simon Jolin-Barrette, minister responsible for consumer protection, has tabled a bill to force merchants to calculate tips based on the price before tax.
That means on a restaurant bill of $100, suggested tips would be calculated based on $100, not on $114.98 after provincial and federal sales taxes are added.
The bill would also increase the rebate offered to consumers when the price of an item at the cash register is higher than the shelf price, to $15 from $10.
And it would force grocery stores offering a discounted price for several items to clearly list the unit price as well.
Businesses would also have to indicate whether taxes will be added to the price of food products.
This report by The Canadian Press was first published Sept. 12, 2024.
Quebec legislature member Youri Chassin has announced he’s leaving the Coalition Avenir Québec government to sit as an Independent.
He announced the decision shortly after writing an open letter criticizing Premier François Legault’s government for abandoning its principles of smaller government.
In the letter published in Le Journal de Montréal and Le Journal de Québec, Chassin accused the party of falling back on what he called the old formula of throwing money at problems instead of looking to do things differently.
Chassin says public services are more fragile than ever, despite rising spending that pushed the province to a record $11-billion deficit projected in the last budget.
He is the second CAQ member to leave the party in a little more than one week, after economy and energy minister Pierre Fitzgibbon announced Sept. 4 he would leave because he lost motivation to do his job.
Chassin says he has no intention of joining another party and will instead sit as an Independent until the end of his term.
He has represented the Saint-Jérôme riding since the CAQ rose to power in 2018, but has not served in cabinet.
This report by The Canadian Press was first published Sept. 12, 2024.
