Business
Fed’s SVB review finds there’s no “I” in “blame”
NEW YORK, April 28 (Reuters Breakingviews) – The death of Silicon Valley Bank is a whodunnit with many perpetrators, according to a review conducted by the Federal Reserve and released on April 28. So many, in fact, that the report makes it hard to point the blame anywhere in particular.
The 114-page post-mortem of SVB, compiled in just over six weeks at the behest of supervisory chief Michael Barr, points out some obvious but undeniable truths. Chief among them: SVB was horribly mismanaged, amassing large deposits from a concentrated base of technology firms, and reinvesting them such that rising interest rates tore its balance sheet to shreds, provoking a bank run.
But this ailing dog of a bank also had a too-long leash, thanks to timid, consensus-seeking supervisors. Staff at the San Francisco Fed, the regional central bank branch that oversaw SVB, were so focused on detail and analysis that they failed to see the big picture, Barr’s report claims. They worried more about what had already gone wrong than what could, and were too slow in acting on their concerns – for example, hoping that strong growth would offset the risks, and focusing on improvements rather than SVB’s continued absolute failings.
The Fed, headed by Jerome Powell, failed institutionally too. As SVB’s assets passed $100 billion it was handed off from one regulatory team to another, resulting in a “cliff effect” as supervisors scrambled to reassess the bank’s risks and controls. For example, it would not have had its first official big-bank stress test until 2024. It didn’t help that Congress had given the Fed discretion to apply lighter regulation to SVB-sized banks. Using pre-rollback rules, SVB would have fallen visibly short of its required liquidity levels by the end of 2022.
If one individual gets subtly thrown under the bus, it’s Barr’s predecessor, Republican appointee Randal Quarles. Supervisors felt pressure to ease the “burden” on firms during his tenure, making them less willing to take tough action. Barr, by contrast, shows no such tendencies. He is already reviewing whether banks require more capital, and mulling tougher rules for large regional banks. There are other sensible ideas, like treating rapid growth as a risk in itself, and more emphasis on “reverse stress tests,” where supervisors think through what it would take to push a firm to the brink.
Spared from the criticism so far is the Fed’s actual leadership. Barr himself only took over in summer of 2022. But the report skirts over the extent to which the Fed’s top staff were aware of risks at SVB. A presentation to the board of governors in February that discussed SVB’s vulnerabilities directly is dismissed as “informational.” And there’s no mention of Powell, who endorsed 2019’s rule rollback and presided over the Fed as Quarles pushed his light-touch supervisory agenda. Culture in an institution goes right to the top. Accountability, in this case, does not.
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CONTEXT NEWS
The Federal Reserve on April 28 released its review of the failure of Silicon Valley Bank, highlighting regulatory and management lapses that contributed to the lender’s collapse in early March.
Vice Chair Michael Barr, who heads supervision of banks at the Fed, said that while SVB was a “textbook case” of mismanagement, supervisors also failed to take forceful enough action.
The 114-page report, compiled in just over six weeks, discusses the “cliff effect” as SVB’s rapid growth saw it pass from one supervisory regime to another, leaving supervisors scrambling to reassess the bank’s risks and controls.
Supervisors at the San Francisco Fed noted issues with SVB’s liquidity, interest-rate risk and governance, but failed to “fully appreciate” risks like SVB’s reliance on a concentrated base of depositors from the technology and venture capital sectors, it concludes.
Staff reported that they faced pressure to reduce the regulatory burden on firms, and felt a “shift in culture and expectations” under Barr’s predecessor Randal Quarles, according to the report.
(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
Business
TC Energy cuts cost estimate for Southeast Gateway pipeline project in Mexico
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:TRP)
The Canadian Press. All rights reserved.
Business
BCE reports Q3 loss on asset impairment charge, cuts revenue guidance
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:BCE)
The Canadian Press. All rights reserved.
Business
Canada Goose reports Q2 revenue down from year ago, trims full-year guidance
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
Companies in this story: (TSX:GOOS)
The Canadian Press. All rights reserved.
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