US regional banks are still under pressure. This is likely to continue
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Despite recovery from the crisis in 2023, the pain for America's regional banks is not over.
The SPDR S&P Regional Banking Exchange-Traded Fund has fallen about 13% this year. Shares of New York Community Bank fell 71%, shares of Bank OZK fell 16% and shares of Webster Financial fell 11%.
Regional banks reported wide losses in their profits during the first quarter. Net income fell nearly 22% at PNC Financial from last year, 25% at M&T Bank and 24% at U.S. Bancorp. Citizens Financial saw a decline of 38%.
They also saw a decline in their net interest income, a key profitability measure for financial institutions. PNC estimates its net interest income in 2024 will fall between 4% to 5% from last year. US Bancorp lowered its guidance and Citizens Financial “broadly affirmed” its expectations for a decline of between 6% and 9% in net interest income.
The increased interest rates are putting pressure on regional lenders, as it means banks will have to pay more interest on deposits. Although this has also put pressure on larger banks, their larger size has allowed them to better weather the storm. Following the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank last year, big banks also benefited as customers pulled cash from smaller lenders in favor of larger institutions.
The pain is likely to continue. Steady inflation, a hot job market and a strong economy have investors getting their hopes up about when the Federal Reserve will cut rates. Fed Chairman Jerome Powell said on Tuesday that the rate cut would be later than expected. Markets are now speculating that the first cuts may not come until September.
“Given the strength of the labor market and the progress so far on inflation, it is appropriate to give restrictive policy more time to work and let the data and emerging outlook guide us,” Powell said at an event hosted by the Wilson Center.
In March the central bank closed the bank term funding program, which was set up to help lenders meet their liquidity needs after the regional banking turmoil last year. Sheila Bair, former chair of the Federal Deposit Insurance Corporation, said she believed Congress should reinstate another program, the Transaction Account Guarantee, which was in place during the financial crisis.
“I'm concerned about a handful (of regional banks),” Baer told CNBC on Tuesday. “The bigger issue is whether a bank failure will cause another blow to uninsured deposits, and I think that's really the biggest challenge facing regional banks at the moment.”
As my colleague Chris Isidore reports, Tesla will ask its shareholders to vote on approving the 2018 pay package that made CEO Elon Musk one of the richest people in the world, but earlier this year A Delaware judge threw him out.
The pay package gave Musk the option to buy 303 million split-adjusted shares of Tesla. Each share is priced at $23.34. at that time a The Delaware Court had rejected the salary package in January, which was valued at $51 billion. But since then, the fall in the value of Tesla shares has reduced its value to $40.7 billion.
In the initial vote in 2018, 73% of Tesla shares not owned by Musk or his brother at the time voted in favor of the package. The company's proxy statement filed with the Securities and Exchange Commission early Wednesday announcing the planned vote said “approval will restore Tesla's stockholder democracy.”
Delaware Chancery Court Chancellor Kathleen McCormick ruled in January that Musk and the Tesla board “carried the burden of proving that the compensation plan was fair, and they failed to meet their burden.”
Tesla argued in its filing on Wednesday that the pay package was fair for shareholders because the value of their shares had increased since 2018.
Read more here.
A new study published Wednesday found that record-breaking heat waves, severe floods and severe wildfires caused by climate change have a steep cost: a nearly 19% loss in global income over the next 26 years.
As my colleague Samantha DeLoua reports, the financial chaos won't just affect big governments and corporations. According to the United Nations, even with current climate policies and goals, the world is headed toward about a 3-degree increase in global warming over the next century — and researchers say individuals could bear the economic burden.
In Wednesday's study published in the journal Nature, researchers said financial pain is inevitable in the short term, even if governments step up their efforts to deal with the crisis.
“These impacts are unavoidable in the sense that they are indistinguishable across different future emissions scenarios up to 2049,” Maximilian Kotz and Leonie Wenz, two of the study's researchers at the Potsdam Institute of Climate Impact Research, told CNN via email.
However, he says immediate action to mitigate climate change could prevent some damage in the long term.
Stanford University professor and environmental researcher Noah Diffenbaugh said the economic damage from climate change will take different shapes. Not only can repairs to damaged property resulting from extreme weather events be costly, but elevated temperatures can also impact agriculture, labor productivity, and even cognitive ability in some cases.
Read more here.
