Wed, April 24, 2024 at 9:35 AM EDT
Business
Banking crisis lingers as contagion fears take aim at Deutsche Bank
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Shares in Deutsche Bank fell sharply on Friday, as fears about vulnerabilities in Germany’s largest lender sent investors for the exits.
Deutsche Bank shares were off 14 per cent on the German stock exchange, and have now lost a fifth of their value since the start of March.
The drop in the share price on Friday comes amid a steep rise in the cost of financial derivatives pegged to the bank, known as credit default swaps.
Credit default swaps (CDS) are essentially insurance, which pay off if a company defaults on its loans. The higher the price of the insurance, the more likely the market thinks the underlying company is to default.
The price of a five-year Deutsche Bank CDS touched 220 basis points on Friday, up from 142 just two days ago, according to S&P Global Intelligence. That’s the highest level for a Deutsche Bank CDS since 2018.
It is still far short, however, of the price that swaps reached at other banks of late.
Prior to Credit Suisse being bailed out by UBS, the price of its swaps went as high as 1,194, S&P says.
Like Credit Suisse, Deutsche Bank is one of 30 banks considered globally significant financial institutions under international rules, so it is required to hold higher levels of capital reserves because its failure could cause widespread losses.
Worries persist despite ostensibly strong numbers
Fears about Deutsche Bank come despite the lender’s financial results showing capital reserves well in excess of regulatory requirements and 10 straight quarters of profitability. In 2022, the bank made 5.7 billion euros ($8.45 billion Cdn) in after-tax profit.
But the ongoing crisis underway in the global banking system is being partly driven by emotion, and not always fundamentals.
Banks around the world have been gripped by fears after the sudden and unexpected collapse of several U.S. banks.
Although the details are different in each case, the underlying cause of all the problems is sharply higher interest rates, which are a double-edged sword for lenders because they increase the returns from their loans, but sharply reduce the value of their government bond holdings if they are forced to sell them to meet deposit requests.
“Two weeks ago we thought this was kind of an isolated event that began with Silicon Valley Bank and then it spread to First Republic and Signature Bank,” said Peter Tuz, president of Chase Investment Council. “Today it kind of confirmed this is a global issue right now, and nobody knows where it will end. So people are acting with their feet and continuing to sell bank stocks.”
Shares in other European banks were also lower on Friday, but not by as much as Deutsche Bank was. Germany’s Commerzbank was down 8.4 per cent, France’s Société Generale was down 7.2 per cent, Austria’s Raiffaisen was
off 7.5 per cent and the soon-to-merge Credit Suisse and UBS were down 8.6 and eight per cent, respectively.
Deutsche Bank and the German Finance Ministry declined to comment.
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Business
Oil Firms Doubtful Trans Mountain Pipeline Will Start Full Service by May 1st
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Oil companies planning to ship crude on the expanded Trans Mountain pipeline in Canada are concerned that the project may not begin full service on May 1 but they would be nevertheless obligated to pay tolls from that date.
In a letter to the Canada Energy Regulator (CER), Suncor Energy and other shippers including BP and Marathon Petroleum have expressed doubts that Trans Mountain will start full service on May 1, as previously communicated, Reuters reports.
Trans Mountain Corporation, the government-owned entity that completed the pipeline construction, told Reuters in an email that line fill on the expanded pipeline would be completed in early May.
After a series of delays, cost overruns, and legal challenges, the expanded Trans Mountain oil pipeline will open for business on May 1, the company said early this month.
“The Commencement Date for commercial operation of the expanded system will be May 1, 2024. Trans Mountain anticipates providing service for all contracted volumes in the month of May,” Trans Mountain Corporation said in early April.
The expanded pipeline will triple the capacity of the original pipeline to 890,000 barrels per day (bpd) from 300,000 bpd to carry crude from Alberta’s oil sands to British Columbia on the Pacific Coast.
The Federal Government of Canada bought the Trans Mountain Pipeline Expansion (TMX) from Kinder Morgan back in 2018, together with related pipeline and terminal assets. That cost the federal government $3.3 billion (C$4.5 billion) at the time. Since then, the costs for the expansion of the pipeline have quadrupled to nearly $23 billion (C$30.9 billion).
The expansion project has faced continuous delays over the years. In one of the latest roadblocks in December, the Canadian regulator denied a variance request from the project developer to move a small section of the pipeline due to challenging drilling conditions.
The company asked the regulator to reconsider its decision, and received on January 12 a conditional approval, avoiding what could have been another two-year delay to start-up.
Business
Tesla profits cut in half as demand falls
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Tesla profits slump by more than a half
Tesla has announced its profits fell sharply in the first three months of the year to $1.13bn (£910m), compared with $2.51bn in 2023.
It caps a difficult period for the electric vehicle (EV) maker, which – faced with falling sales – has announced thousands of job cuts.
Boss Elon Musk remains bullish about its prospects, telling investors the launch of new models would be brought forward.
Its share price has risen but analysts say it continues to face significant challenges, including from lower-cost rivals.
The company has suffered from falling demand and competition from cheaper Chinese imports which has led its stock price to collapse by 43% over 2024.
Figures for the first quarter of 2024 revealed revenues of $21.3bn, down on analysts’ predictions of just over $22bn.
But the decision by Tesla to bring forward the launch of new models from the second half of 2025 boosted its shares by nearly 12.5% in after-hours trading.
It did not reveal pricing details for the new vehicles.
However Mr Musk made clear he also grander ambitions, touting Tesla’s AI credentials and plans for self-driving vehicles – even going as far as to say considering it to be just a car company was the “wrong framework.”
“If somebody doesn’t believe Tesla is going to solve autonomy I think they should not be an investor,” he said.
Such sentiments have been questioned by analysts though, with Deutsche Bank saying driverless cars face “technological, regulatory and operational challenges.”
Some investors have called for the company to instead focus on releasing a lower price, mass-market EV.
However, Tesla has already been on a charm offensive, trying to win over new customers by dropping its prices in a series of markets in the face of falling sales.
It also said its situation was not unique.
“Global EV sales continue to be under pressure as many carmakers prioritize hybrids over EVs,” it said.
Despite plans to bring forward new models originally planned for next year the firm is cutting its workforce.
Tesla said it would lose 3,332 jobs in California and 2,688 positions in Texas, starting mid-June.
The cuts in Texas represent 12% of Tesla’s total workforce of almost 23,000 in the area where its gigafactory and headquarters are located.
However, Mr Musk sought to downplay the move.
“Tesla has now created over 30,000 manufacturing jobs in California!” he said in a post on his social media platform X, formerly Twitter, on Tuesday.
Another 285 jobs will be lost in New York.
Tesla’s total workforce stood at more than 140,000 late last year, up from around 100,000 at the end of 2021, according to the company’s filings with US regulators.
Musk’s salary
The car firm is also facing other issues, with a struggle over Mr Musk’s compensation still raging on.
On Wednesday, Tesla asked shareholders to vote for a proposal to accept Mr Musk’s compensation package – once valued at $56bn – which had been rejected by a Delaware judge.
The judge found Tesla’s directors had breached their fiduciary duty to the firm by awarding Mr Musk the pay-out.
Due to the fall in Tesla’s stock value, the compensation package is now estimated to be around $10bn less – but still greater than the GDP of many countries.
In addition, Tesla wants its shareholders to agree to the firm being moved from Delaware to Texas – which Mr Musk called for after the judge rejected his payday.
Business
Stock market today: Nasdaq futures pop, Tesla surges after earnings with more heavyweights on deck
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Tech stocks rose on Wednesday, outstripping the broader market as investors welcomed Tesla’s (TSLA) cheaper car pledge and waited for the next rush of corporate earnings.
The Nasdaq Composite (^IXIC) rose roughly 0.6%, coming off a sharp closing gain. The S&P 500 (^GSPC) was up 0.2%, continuing a rebound from its longest losing streak of 2024, while the Dow Jones Industrial Average (^DJI) fell 0.1%.
Tesla shares jumped nearly 12% after the EV maker’s vow to speed up the launch of more affordable models eclipsed its quarterly earnings and revenue miss. That cheered up investors worried about growth amid a strategy shift to robotaxis and the planned cancellation of a cheaper model.
The results from the first “Magnificent Seven” to report have intensified the already high hopes for Big Tech earnings, that the megacaps can revive the rally in stocks they powered. The spotlight is now on Meta’s (META) report due after the market close, as the Facebook owner’s shares rose after the Senate voted for a potential ban on rival TikTok. Microsoft (MSFT) and Alphabet (GOOG) next up on Thursday.
Meanwhile, Boeing (BA) reported better than expected first quarter results before the opening bell with a loss per share of $1.13, narrower than the $1.72 estimated by Wall Street. Shares rose about 2% in morning trade.
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