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German car giants and Asian battery kings: a match made in Hungary

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  • German, Chinese and S.Koreans head to Hungary
  • They dominate auto investment and subsidies
  • Orban’s Hungary keen to court foreign business

BERLIN/BUDAPEST, Dec 13 (Reuters) – German automakers and Asian battery suppliers are getting together in Hungary in a multi-billion-dollar marriage of convenience to drive their electric ambitions.

The companies are flocking to central Europe, where Viktor Orban’s government is defying Western wariness of China and offering generous benefits to host foreign operations and stake Hungary’s claim as a global centre for electric vehicles (EVs).

Investment in the Hungarian auto industry is being dominated by three countries – Germany, a champion carmaker, plus China and South Korea, EV battery leaders way ahead of European rivals.

Companies from those three countries have accounted for 29 out of the 31 cash subsidies handed out by Hungary for major investments in its auto and battery sector over the past decade, according to a Reuters analysis of government data that shows the scale of German, Chinese and Korean convergence there.

“Cathodes, anodes, separators, assembly lines, the full battery supply chain is here,” said Dirk Woelfer of the German-Hungarian Chamber of Commerce in Budapest. “This is a foot in the door to Europe.”

Recipients of such subsidies included the likes of German automakers BMW (BMWG.DE) and Mercedes-Benz (MBGn.DE), and battery makers such as China’s BYD and Korean rival Samsung SDI (006400.KS). The median subsidy level has been 15% of investment.

In total, Hungary has received over 14 billion euros ($15 billion) in foreign direct investment into its battery sector alone in the past six years, according to government figures.

Major investments are broadly classed as those worth over 5-10 million euros, varying with factors such as jobs created.

State incentives and the opportunity for automakers and battery suppliers to work next door to each other is proving a strong pull, according to interviews with about 20 industry players and consultants in Germany, Hungary, China and South Korea.

China’s CATL (300750.SZ), the world’s No. 1 EV battery maker, and Korean battery giants SK Innovation (096770.KS) and Samsung SDI, all told Reuters that the planned proximity to German carmakers was a key factor in their decisions to invest in Hungary, as well as being able to source separators and other components there.

CATL is investing $7.6 billion to build Europe’s largest battery plant in Hungary. This plant and the $2.1 billion BMW factory will both be sited in the city of Debrecen, which is attracting an ecosystem of suppliers, ranging from makers of brakes and battery cathodes to industrial machinery.

Mercedes-Benz is converting its factory in Kecskemet to produce electric cars, while Volkswagen’s (VOWG_p.DE) Audi is making cars and electric motors in Gyor.

Such big business could present a boon for Prime Minister Orban’s government as the country faces its toughest economic environment in more than a decade, with inflation running above 20%, the economy slowing and EU funds in limbo.

Yet the Hungarian EVs project also faces stiff obstacles, according to many of the industry insiders.

One key concern is the huge demands that massive battery plants will place on the electricity grid, which needs to shift away from fossil fuels towards renewables to meet the net-zero emissions targets of much of the auto industry, the people said.

A lack of specialised workers in Hungary to work in battery cell manufacturing could also drag on capacity, they added.

HIPA, the Hungarian Foreign Ministry agency responsible for attracting investments in areas ranging from batteries and cars to logistics, did not respond to Reuters queries about the EV industry.

‘CHINA’S MADE GOOD STEPS’

Hungary’s welcome to Asian battery makers might jar with concerns expressed by Brussels and Berlin about the perils of Europe becoming too dependent on China and other foreign powers, particularly in technologies central to the green transition.

Still, for now, the need to ramp up EV output leaves the European auto industry little choice but to source from Asian players, said Csaba Kilian of Hungary’s automotive association.

“I absolutely agree that European manufacturers should have their own sources … but it’s a competition, and China has made good steps,” he added. “There is a learning curve.”

Europe should have a EV battery manufacturing capacity of 1,200 gigawatt hours (GWh) by 2031 if current plans come to fruition, outstripping expected demand of 875 GWh, Benchmark Mineral Intelligence (BMI) estimates. But of that 1,200 GWh, 44% will be provided by Asian companies with factories in Europe, ahead of homegrown firms on 43% and U.S. pioneer Tesla (TSLA.O) with 13%, according to a Reuters calculation based on BMI data.

The prospects for developing a battery sector in Germany have been set back by record energy there as a result of the loss of Russian gas, according to autos consultants at Boston Consulting Group and Berylls Strategy Advisors.

Hungary offers a comparatively stable energy system bolstered by nuclear energy, as well as high subsidies and Europe’s lowest corporate tax rate of 9%.

The entire battery supply chain has come to the country, said Ilka von Dalwigk, policy manager at the European Battery Alliance, launched by the European Union in 2017 to kick-start a homegrown industry.

“Everything is located there. When we look at the forecast for 2025 and 2030, it looks like it will have one of the largest production capacities in Europe,” she added.

“It might very well be that Hungary is in fact the next big battery production cluster in Europe.”

Asked about concerns about reliance on Asia for technology, an EU official said the bloc – which must approve member state subsidies to investors – had a system in place to cooperate and exchange information on investments from non-EU countries that may affect security.

The European Commission is currently in talks with Hungary over the size of the subsidy the country will offer to CATL for building the Debrecen plant, the official added.

‘SENDING THE WRONG SIGNAL’

For some Western companies, setting up shop in Hungary is a tough decision.

German autos supplier Schaeffler said it was on the verge of setting up its primary electric motor plant in Hungary rather than Germany in August because of the appeal of Hungary’s incentives, but decided on Germany for fear of sending “the wrong signal” to Germans who fear a loss of jobs to overseas.

Other industry players expressed a range of concerns over potential pitfalls for the burgeoning Hungarian auto industry as factories ramped up, including the power grid issue.

Batteries, in particular, are highly energy-intensive parts of EVs to produce, requiring high amounts of power for the drying the materials and machine operation.

Hungary’s sources of energy in 2021 comprised 80% fossil fuels, 14.5% nuclear and 3.6% solar, according to a Reuters calculation of data from the BP Statistical Review of World Energy.

The mix spells trouble for carmakers who will soon need to showcase carbon-free credentials across their supply chains under new German and European legislation.

Hungarian Foreign Minister Peter Szijjarto met senior executives from BMW and auto suppliers including Schaeffler and Knorr-Bremse in Munich last month, ahead of the German carmaker announcing it was beefing up its investment in the country.

Topics discussed included plans to improve logistics infrastructure in Hungary and increasing the amount of renewables energy used for the power grid, according to one of the companies that attended.

When BMW first announced its plan to build its Debrecen plant, in 2018, the government committed to spending around 135 billion forints on improving local infrastructure, according to calculations by the German-Hungarian Chamber of Commerce.

On the battery side, CATL told Reuters it was considering developing solar power with local partners in Hungary.

Despite the risks, Alexander Timmer, a partner at Munich-based consultants Berylls Strategy Advisors who has worked on several autos and battery projects in Hungary, said the country presented an appealing package.

“The combination of cost advantages, state subsidies, and closeness to automakers’ plants makes Hungary increasingly attractive to battery producers, he added.

($1 = 397.54 forints; $1 = 0.9483 euros)

Reporting by Victoria Waldersee in Berlin, Gergely Szakacs in Budapest; Additional reporting by Heekyong Yang, Zhang Yan; Editing by Pravin Char

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Business

Exclusive: Goldman Sachs on hunt for bargain crypto firms after FTX fiasco

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LONDON, Dec 6 (Reuters) – Goldman Sachs (GS.N) plans to spend tens of millions of dollars to buy or invest in crypto companies after the collapse of the FTX exchange hit valuations and dampened investor interest.

FTX’s implosion has heightened the need for more trustworthy, regulated cryptocurrency players, and big banks see an opportunity to pick up business, Mathew McDermott, Goldman’s head of digital assets, told Reuters.

Goldman is doing due diligence on a number of different crypto firms, he added, without giving details.

“We do see some really interesting opportunities, priced much more sensibly,” McDermott said in an interview last month.

FTX filed for Chapter 11 bankruptcy protection in the United States on Nov. 11 after its dramatic collapse, sparking fears of contagion and amplifying calls for more crypto regulation.

“It’s definitely set the market back in terms of sentiment, there’s absolutely no doubt of that,” McDermott said. “FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”

While the amount Goldman may potentially invest is not large for the Wall Street giant, which earned $21.6 billion last year, its willingness to keep investing amid the sector shakeout shows it senses a long term opportunity.

Its CEO David Solomon told CNBC on Nov. 10, as the FTX drama was unfolding, that while he views cryptocurrencies as “highly speculative”, he sees much potential in the underlying technology as its infrastructure becomes more formalized.

Rivals are more sceptical.

“I don’t think it’s a fad or going away, but I can’t put an intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman said at the Reuters NEXT conference on Dec. 1.

HSBC (HSBA.L) CEO Noel Quinn, meanwhile, told a banking conference in London last week he has no plans to expand into crypto trading or investing for retail customers.

Goldman has invested in 11 digital asset companies that provide services such as compliance, cryptocurrency data and blockchain management.

McDermott, who competes in triathlons in his spare time, joined Goldman in 2005 and rose to run its digital assets business after serving as head of cross asset financing.

His team has grown to more than 70 people, including a seven-strong crypto options and derivatives trading desk.

Goldman Sachs has also together with MSCI and Coin Metrics launched data service datonomy, aimed at classifying digital assets based on how they are used.

The firm is also building its own private distributed ledger technology, McDermott said.

‘TRUSTED’ PLAYERS

The global cryptocurrency market peaked at $2.9 trillion in late 2021, according to data site CoinMarketCap, but has shed about $2 trillion this year as central banks tightened credit and a string of high-profile corporate failures hit. It last stood at $865 billion on Dec. 5.

The ripple effects from FTX’s collapse have boosted Goldman’s trading volumes, McDermott said, as investors sought to trade with regulated and well capitalized counterparties.

“What’s increased is the number of financial institutions wanting to trade with us,” he said. “I suspect a number of them traded with FTX, but I can’t say that with cast iron certainty.”

Goldman also sees recruitment opportunities as crypto and tech companies shed staff, McDermott said, although the bank is happy with the size of its team for now.

Others also see the crypto meltdown as a chance to build their businesses.

Britannia Financial Group is building its cryptocurrency-related services, its chief executive Mark Bruce told Reuters.

The London-based company aims to serve customers who are eager to diversify into digital currencies, but who have never done so before, Bruce said. It will also cater to investors who are very familiar with the assets, but have become nervous about storing funds at crypto exchanges since FTX’s collapse.

Britannia is applying for more licenses to provide crypto services, such as doing deals for wealthy individuals, he said

“We have seen more client interest since the demise of FTX,” he said. “Customers have lost trust in some of the younger businesses in the sector that purely do crypto, and are looking for more trusted counterparties.”

Reporting by Iain Withers and Lawrence White, Editing by Lananh Nguyen and Alexander Smith

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Business

FX swap debt a $80 trillion ‘blind spot’ global regulator says

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LONDON, Dec 5 (Reuters) – Pension funds and other ‘non-bank’ financial firms have more than $80 trillion of hidden, off-balance sheet dollar debt in FX swaps, the Bank for International Settlements (BIS) said.

The BIS, dubbed the central bank to the world’s central banks, also said in its latest quarterly report that 2022’s market upheaval had largely been navigated without major issues.

Having repeatedly urged central banks to act forcefully to dampen inflation, it struck a more measured tone and picked over crypto market troubles and September’s UK bond market turmoil.

Its main warning concerned what it described as the FX swap debt “blind spot” that risked leaving policymakers in a “fog”.

FX swap markets, where for example a Dutch pension fund or Japanese insurer borrows dollars and lends euro or yen before later repaying them, have a history of problems.

They saw funding squeezes during both the global financial crisis and again in March 2020 when the COVID-19 pandemic wrought havoc that required central banks such as the U.S. Federal Reserve to intervene with dollar swap lines.

The $80 trillion-plus “hidden” debt estimate exceeds the stocks of dollar Treasury bills, repo and commercial paper combined, the BIS said. It has grown from just over $55 trillion a decade ago, while the churn of FX swap deals was almost $5 trillion a day in April, two thirds of daily global FX turnover.

For both non-U.S. banks and non-U.S. ‘non-banks’ such as pension funds, dollar obligations from FX swaps are now double their on-balance sheet dollar debt, it estimated.

“The missing dollar debt from FX swaps/forwards and currency swaps is huge,” the Switzerland-based institution said, adding the lack of direct information about the scale and location of the problems was the key issue.

Off and on-balance sheet dollar debt

CLOSER

The report also assessed broader recent market developments.

BIS officials have been loudly calling for forceful interest rate hikes from central banks as inflation has taken hold, but this time it struck a more measured tone.

Asked whether the end of the tightening cycle may be looming next year, the head of the BIS’ Monetary and Economic Department Claudio Borio said it would depend on how circumstances evolve, noting also the complexities of high debt levels and uncertainty about how sensitive borrowers now are to rising rates.

The crisis that erupted in UK gilt markets in September also underscored that central banks could be forced to step in and intervene – in the UK’s case by buying bonds even at a time when it was raising interest rates to curb inflation.

“The simple answer is one is closer than one was at the beginning, but we don’t know how far central banks will have to go,” Borio said about interest rates.

“The enemy is an old enemy and is known,” he added, referring to inflation. “But it’s a long time since we have been fighting this battle”.

Market volatility

DINO-MITE

The report also focused on findings from the recent BIS global FX market survey, which estimated that $2.2 trillion worth of currency trades are at risk of failing to settle on any given day due to issues between counterparties, potentially undermining financial stability.

The amount at risk represents about one third of total deliverable FX turnover and is up from $1.9 trillion from three years earlier when the last FX survey was carried out.

FX trading also continues to shift away from multilateral trading platforms towards “less visible” venues hindering policymakers “from appropriately monitoring FX markets,” it said.

The bank’s Head of Research and Economic Adviser Hyun Song Shin, meanwhile, described recent crypto market problems such as the collapse of the FTX exchange and stable coins TerraUSD and Luna as having similar characteristics to banking crashes.

He described many of the crypto coins sold as “DINO – decentralised in name only” and that most of their related activities took place through traditional intermediaries.

“This is people taking in deposits essentially in unregulated banks,” Shin said, adding it was largely about the unravelling of large leverage and maturity mismatches, just like during the financial crash more than a decade ago.

Reporting by Marc Jones; Editing by Toby Chopra and Alexander Smith

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Business

Banking giants and New York Fed start 12-week digital dollar pilot

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NEW YORK, Nov 15 (Reuters) – Global banking giants are starting a 12-week digital dollar pilot with the Federal Reserve Bank of New York, the participants announced on Tuesday.

Citigroup Inc , HSBC Holdings Plc (HSBA.L), Mastercard Inc (MA.N) and Wells Fargo & Co (WFC.N) are among the financial companies participating in the experiment alongside the New York Fed’s innovation center, they said in a statement. The project, which is called the regulated liability network, will be conducted in a test environment and use simulated data, the New York Fed said.

The pilot will test how banks using digital dollar tokens in a common database can help speed up payments.

Earlier this month, Michelle Neal, head of the New York Fed’s market’s group, said it sees promise in using a central bank digital dollar to speed up settlement time in currency markets.

Reporting by Lananh Nguyen; Editing by Chizu Nomiyama

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Business

Musk sells Tesla shares worth $3.95 bln days after Twitter takeover

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Nov 8 (Reuters) – Tesla Inc (TSLA.O) Chief Executive Officer Elon Musk has sold $3.95 billion worth of shares in the electric vehicle maker, according to U.S. regulatory filings, days after he completed his purchase of Twitter Inc for $44 billion.

Musk, whose net worth dropped below $200 billion after investors dumped Tesla stock, unloaded 19.5 million shares between Friday and Tuesday, filings published by the U.S. Securities and Exchange Commission showed.

The latest share sale leaves Musk with a stake of roughly 14% in Tesla, according to a Reuters calculation.

The purpose of the sale was not disclosed.

The latest sale dump comes as analysts had widely expected Musk to sell additional Tesla shares to finance the Twitter deal.

Musk, the world’s richest man, had asserted in April he was done selling Tesla stock. Still, he went on to sell another $6.9 billion worth Tesla shares in August and said the sale was conducted to pay for the social media platform.

Musk, the world’s richest man, had about $20 billion in cash after selling a part of his stake in Tesla, including the sales made last year. This would have required him to raise an additional $2 billion to $3 billion to finance the takeover, according to a Reuters calculation.

Tesla has lost nearly half its market value and Musk’s net worth slumped by $70 billion ever since he bid for Twitter in April.

Twitter and Tesla did not immediately respond to Reuters’ requests for comment.

Musk took over Twitter last month and has engaged in drastic measures including sacking half the staff and a plan to charge for blue check verification marks.

The billionaire pledged to provide $46.5 billion in equity and debt financing for the acquisition, which covered the $44 billion price tag and the closing costs. Banks, including Morgan Stanley (MS.N) and Bank of America Corp (BAC.N), committed to provide $13 billion in debt financing.

Musk’s $33.5 billion equity commitment included his 9.6% Twitter stake, which is worth $4 billion, and the $7.1 billion he had secured from equity investors, including Oracle Corp (ORCL.N) co-founder Larry Ellison and Saudi Prince Alwaleed bin Talal.

Musk had tried to walk away from the deal in May, alleging that Twitter understated the number of bot and spam accounts on the platform. This led to a series of lawsuits between the two parties.

Reporting by Akriti Sharma in Bengaluru and Hyunjoo Jin in San Francisco; Editing by Sherry Jacob-Phillips

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Business

Banks forced to hold on to Twitter deal debt, sources say

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NEW YORK, Oct 21 (Reuters) – The banks providing $13 billion in financing for Tesla CEO Elon Musk’s acquisition of Twitter Inc (TWTR.N) have abandoned plans to sell the debt to investors because of uncertainty around the social media company’s fortunes and losses, people familiar with the matter said.

The banks are not planning to syndicate the debt as is typical with such acquisitions, and are instead planning to keep it on their balance sheets until there is more investor appetite, the sources said.

The banks, which include Morgan Stanley , Bank of America , and Barclays Plc (BARC.L), declined to comment. Representatives for Musk and Twitter did not immediately respond to requests for comment.

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Musk agreed to pay $44 billion for Twitter in April, before the Federal Reserve started raising interest rates in a bid to fight inflation. This made the acquisition financing look too cheap in the eyes of credit investors, so the banks would have to take a financial hit totaling hundreds of millions of dollars to get it off their books.

Also preventing the banks from marketing the debt was uncertainty around the deal’s completion. Musk has tried to get out of the deal, arguing Twitter misled him over the number of spam accounts on the platform, and only agreed to comply with a Delaware court judge’s Oct. 28 deadline to close the transaction earlier this month. He has not revealed details on Twitter’s new leadership and business plan, and many debt investors are holding back until they get more details on that front, the sources said.

The debt package for the Twitter deal is comprised of junk-rated loans, which are risky because of the amount of debt the company is taking on, as well as secured and unsecured bonds.

Rising interest rates and broader market volatility has pushed investors to stay away from some junk-rated debt. For example, Wall Street banks led by Bank of America suffered a $700 million loss in September on the sale of about $4.55 billion in debt backing the leveraged buyout of business software company Citrix Systems Inc.

In September, a group of banks canceled efforts to sell about $4 billion of debt that financed Apollo Global Management Inc’s deal to buy telecom and broadband assets from Lumen Technologies after failing to find buyers.

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Reporting by Anirban Sen and Shankar Ramakrishnan in New York; Additional reporting by Sheila Dang, Abigail Summerville and Matt Tracy; Editing by Josie Kao

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Business

Wall Street rallies after BofA results, UK reversal

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  • Bank of America, BNY benefit from rising interest rates
  • Growth stocks jump as Treasury yields fall
  • Goldman Sachs up on report of major business overhaul
  • Dow up 1.86%, S&P 500 up 2.65%, Nasdaq up 3.43%

NEW YORK, Oct 17 (Reuters) – U.S. stocks kicked off the trading week on Monday with a rally after Britain reversed course on an economic plan, while Bank of America was the latest financial company to post solid quarterly results, which lifted optimism about the corporate earnings season.

Britain named Jeremy Hunt finance minister, and he immediately dispelled many of Prime Minister Liz Truss’ fiscal measures, which had unnerved markets in recent weeks.

Bank of America Corp (BAC.N) shares surged 6.06% as the lender’s net interest income was buoyed by rising interest rates in the quarter, even though it added $378 million to its loan-loss reserves to buttress against a softening economy.

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Fellow financial Bank of NY Mellon Corp (BK.N) also benefited from higher interest rates, and its shares climbed 5.08%.

Overall, higher rates boosted interest incomes for lenders in the third quarter, giving investors hope the current earnings season will be able to hurdle a lowered bar of expectations. The earnings growth estimate for the quarter is 3%, according to Refinitiv data, down from 4.5% at the start of the month and 11.1% on July 1.

“In a fragile market like this, any type of good news in the margin can go a long way,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management in Boston.

“There is better sentiment around what is happening in the UK, financials earnings are being supported by a number of factors, better net interest margins are one key element, higher rates are going to be good for the banks so Q3 earnings maybe are looking a little less bad than feared, I would put it, maybe not necessarily better than feared.”

The S&P 500 banks index (.SPXBK) was up 3.48%, while each of the 11 major S&P 500 sector were higher.

The Dow Jones Industrial Average (.DJI) rose 550.99 points, or 1.86%, to 30,185.82, the S&P 500 (.SPX) gained 94.88 points, or 2.65%, to 3,677.95 and the Nasdaq Composite (.IXIC) added 354.41 points, or 3.43%, to 10,675.80.

U.S. equities remain mired in a bear market, after struggling through September, historically a tough month. Analysts said to better stock valuations entering what is traditionally a stronger period for stocks were also supporting Monday’s rally. Aggressive Federal Reserve interest rate hikes could be a stumbling block though.

Valuations have come down sharply but still above the 20-year average

“Right now the Fed owns the market, Fed policy is the key driver, they are implementing the most aggressive tightening in the shortest amount of time that we have seen in our generation and it is important to remember that Fed policy, it works with a lag,” said Roland.

Data on manufacturing in the New York region was weaker than expected, adding fuel to expectations a pivot by the Fed may be on the horizon.

Shares of Goldman Sachs (GS.N), which will post results on Tuesday, advanced 2.24% following reports of a plan to combine its investment banking and trading businesses.

Major megacap growth stocks like Apple Inc (AAPL.O), Meta Platforms Inc (META.O), Amazon.com (AMZN.O) and Tesla Inc (TSLA.O) all rallied, helping to lift the S&P 500 growth index (.IGX) by 3.42%, its biggest daily percentage jump since July 27.

Tesla Inc (TSLA.O), Netflix (NFLX.O) and Johnson & Johnson (JNJ.N) are among companies expected to report results later in the week.

Volume on U.S. exchanges was 10.65 billion shares, compared with the 11.52 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 4.79-to-1 ratio; on Nasdaq, a 2.98-to-1 ratio favored advancers.

The S&P 500 posted no new 52-week highs and 2 new lows; the Nasdaq Composite recorded 83 new highs and 146 new lows.

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Reporting by Chuck Mikolajczak; Editing by David Gregorio

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Business

Goldman plans major reorganization to combine key units -source

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LONDON/NEW YORK, Oct 16 (Reuters) – Goldman Sachs (GS.N) is planning a major reorganization to combine its biggest businesses into three divisions with its investment banking and trading businesses being merged into a single unit, a source familiar with the matter told Reuters.

The plans are expected to be announced on Oct. 18 alongside Goldman’s third quarter earnings. Marcus, Goldman’s consumer banking business, will be absorbed into the wealth unit, the source said, confirming an earlier Wall Street Journal report.

A spokesperson for Goldman Sachs declined to comment.

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This is the biggest shakeup since the company’s investor day in early 2020 when it outlined plans for four core units: investment banking, global markets, consumer and wealth management and asset management.

“It’s a head scratcher,” said Mike Mayo, a banking analyst at Wells Fargo. “Right now, there are more questions than answers for Goldman Sachs as it relates to this potential restructuring.”

The move comes as the Wall Street titan seeks to boost its income from fee-based businesses and cut its reliance on volatile trading and investment banking revenues. The changes also signal Marcus, the consumer unit, is being relegated after Chief Executive Officer David Solomon expressed big ambitions to build a mainstream digital bank.

“This may be a way to put Marcus to the back burner as a way to de-emphasize its importance as an investment opportunity,” Mayo said.

Solomon, who became CEO in 2018, has sought to expand Goldman’s footprint in retail banking since his early days at the helm.

But the consumer banking unit that launched in 2016 has struggled to gain traction and suffered from delays. Marcus has yet to launch a checking account that was scheduled for this year. At mid-year, the bank internally forecast that Marcus’ losses would accelerate to more than $1.2 billion in 2022, for cumulative losses of more than $4 billion, Bloomberg reported. Goldman declined to comment on the loss.

Solomon has said the business could generate revenue of over $4 billion by end of 2024.

Net revenue in the consumer-banking unit grew by 23% to $1.49 billion in 2021, reflecting higher credit card and deposit balances, the bank said in its annual report.

Marcus offers digital banking products such as loans, savings and certificate of deposits. It also provides credit cards via a partnership with Apple Inc (AAPL.O).

The consumer business serves more than 14 million customers and had more than $100 billion in deposits with over $16 billion in cards and loans balances, the bank has said.

GOLDMAN SACHS’ OVERHAUL KEEPS MANAGEMENT “ON ITS TOES”

The combined investment banking and trading group will be overseen by Dan Dees and Jim Esposito, who are currently global co-heads of Goldman’s investment banking, and Ashok Varadhan, now co-head of its global markets division, according to Bloomberg.

Marc Nachmann, the bank’s global co-head of the global markets division, will move to help run the combined asset- and wealth-management arm, the report said.

Marcus will become a part of the asset and wealth management unit, the report added.

“This is a way for Goldman Sachs to keep its management team on its toes and to reinforce the intensity that defines Goldman,” Mayo said.

Such an organizational overhaul of the bank comes shortly after its global job cuts in September that could have impacted hundreds of bankers.

In the second quarter, Goldman reported a 48% slump in profit that beat forecasts as fixed-income and commodities trading surged.

Like its Wall Street rivals, the bank is expected to report a sharp drop in third-quarter net profit as investment banking revenue was badly hurt by a slump in dealmaking.

Goldman is expected to deliver a net profit of $2.77 billion in the third quarter, according to analysts’ forecasts compiled by Refinitiv, down from $5.38 billion a year earlier.

Given the tough operating environment, Goldman is closely re-examining all of its forward spending and investment plans to ensure the best use of its resources, Barclays said in a recent report.

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Reporting by Pamela Barbaglia in London, Lavanya Ahire and Akriti Sharma in Bengaluru, Selena Li in Hong Kong, Saeed Azhar in New York; Editing by Sherry Jacob-Phillips and Muralikumar Anantharaman

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Business

Wall Street banks’ profits slide as economic clouds loom, some beat forecasts

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Oct 14 (Reuters) – Profits slid at Wall Street’s biggest banks in the third quarter as they braced for a weaker economy while investment banking was hit hard, but investors saw a silver lining with some banks beating estimates.

JPMorgan Chase & Co (JPM.N), Morgan Stanley (MS.N), Citigroup Inc (C.N) and Wells Fargo & Co’s (WFC.N) showed a slide in net income after turbulent markets choked off investment banking activity and lenders set aside more rainy-day funds to cover losses from borrowers who fall behind on payments.

“We’re in an environment where it’s kind of odd,” said JPMorgan Chief Executive Officer Jamie Dimon, who said that while the bank was “hoping for the best, we always remain vigilant and are prepared for bad outcomes.”

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Central banks globally have been battling surging inflation which is expected to cause an economic slowdown. The Federal Reserve has raised the benchmark interest rate from near zero in March to the current range of 3.00% to 3.25% and signaled more increases.

Rising rates tend to buoy bank profits, but the broader risk of an economic downturn sparked by high inflation, supply-chain bottlenecks and the war in Ukraine could weigh on future earnings.

On a conference call, Dimon said U.S. consumers remained strong and he wasn’t predicting a recession but “there are a lot of headwinds out there.”

Money that people have in their checking accounts will “deplete probably by sometime midyear next year” while they are contending with headwinds like inflation, higher rates and higher mortgage rates, he cautioned.

Banks set aside more money in preparation for a hit from a potential economic slowdown. JPMorgan set aside $808 million in reserves, Citi added $370 million to reserves and Wells had a $385 million increase in the allowance for credit losses.

Still, shares of JPMorgan and Wells Fargo gained strongly, up 2.5% and 3.7% respectively while Citi gained 1.2% as the profit falls were not as deep as feared.

JPM also said it hopes to be able to resume stock buybacks early next year, although other banks were less bullish with Citi saying buybacks continue to be on hold and Wells Fargo saying it continues to be prudent about buybacks.

“JPMorgan delivered a solid set of results, from top to bottom,” Susan Roth Katzke, an analyst at Credit Suisse, wrote in a note. “At least equally as important is the evidence of preparedness to manage through whatever turn the macro takes; expect the latter to be in focus.”

JPMorgan reported a 17% drop in third-quarter profit to $9.74 billion, although that was less than had been feared. Wells Fargo posted a 31% decline to $3.53 billion but it also beat expectations. And Citi reported a 25% drop to $3.5 billion which also beat expectations.

“Most of these banks are making more spread income now than ever because of the change in interest rates,” said Chris Marinac, Director of Research at Janney Montgomery Scott. “And this was the first quarter where you had the full effect of the Fed, because the Fed increased a little bit in May.”

Signage is seen at the JPMorgan Chase & Co. New York Head Quarters in Manhattan, New York City, U.S., June 30, 2022. REUTERS/Andrew Kelly

JPMorgan said net interest income rose 34% to a record $17.6 billion, up 34%.

“Generally banks obviously seem to be benefiting from a higher rate environment, and we’ve obviously seen banks able to earn, in terms of revenues, on higher interest rates,” said Eric Theoret, global macro strategist at Manulife Investment Management.

Marinac said investors would want to see banks build reserves at this point in the economic cycle.

“They’re bracing for a hard landing, because they’re building the reserves,” said Marinac. “But that’s not necessarily a bad thing.”

While a number of the banks managed to beat expectations, Morgan Stanley reported a 30% slump in profit to $2.49 billion which missed estimates. Its shares fell 5%.

Morgan Stanley’s earnings showed that investment banking revenue more than halved to $1.3 billion with declines across the bank’s advisory, equity and fixed income segments.

Reuters Graphics

James Gorman, Chairman and Chief Executive Officer of Morgan Stanley, said his firm’s performance was “resilient and balanced in an uncertain and difficult environment.”

Corporations’ interest in mergers, acquisitions and initial public offerings dried up, particularly hitting banks strong in investment banking. Global M&A lost ground in the third quarter with volumes in the United States plummeting nearly 63% as the rising cost of debt forced companies to postpone big buyouts.

While banks were optimistic they could weather the likely tougher economy ahead, some observers were concerned about the long term outlook for growth.

“Against the backdrop of economic headwinds, the solid earnings reports from this morning will quickly pass into the rearview mirror,” said Peter Torrente, KPMG US National Sector Leader for Banking and Capital Markets. “Worries of inflation, which shows little sign of slowing down, are casting a long shadow on future outlook.”

Torrente said while banks’ revenues reflect the benefit of rising interest rates and persisting loan demand, the buildup in loan loss provisions also reflects the uncertainty in the road ahead.

“Next quarter and beyond, credit risk, loan growth, and deposit balances will be key areas to monitor in the banking industry,” Torrente said.

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Reporting by Saeed Azhar and Lananh Nguyen and Davide Barbuscia in New York, Noor Zainab Hussain, Niket Nishant, Mehnaz Yasmin, Sweta Singh and Manya Saini in Bengaluru
Writing by Megan Davies
Editing by Lananh Nguyen, Mark Potter, David Gregorio and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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Stocks ease as Ukraine attacks and rate outlook spark flight to havens

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  • MSCI global index drops for a fourth day
  • Russian bombings across Ukraine fuel nervousness
  • Markets braced for high core U.S. CPI, earnings season

LONDON, Oct 10 (Reuters) – Global shares dropped on Monday after Russian missiles pounded cities across Ukraine and as renewed concern about the economic outlook sent investors into safe-haven assets such as the dollar and bonds.

Any belief that the Federal Reserve will shift to a softer stance towards monetary policy was extinguished on Friday by data that showed US unemployment fell in September, pointing to a persistently tight labour market.

The dollar held steady against a basket of currencies, while a number of market-based measures of investor risk nervousness showed another increase.

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The Russian missiles killed civilians and knocked out power and heat in cites across Ukraine in apparent revenge strikes after President Vladimir Putin declared a blast on Russia’s bridge to Crimea to be a terrorist attack. read more read more

“I had wondered if markets were looking at the situation in Ukraine and thinking this was moving us toward an end – which was what the first reaction was to the progress that the Ukrainian army had made in the summer. That reaction is no longer happening and this is clearly seen as just an increase in tension, rather than the end of anything,” Societe Generale’s head of currency strategy, Kit Juckes, said.

“We’ve got geopolitical tensions and we’re still on track towards tighter monetary policy in the States and the concern is still by the time they finished tightening, will they have tightened too much and leave the economy looking pretty vulnerable?,” Juckes added.

The MSCI All-World index (.MIWD00000PUS) was last 0.4% lower, down for a fourth day in a row. The pan-European STOXX 600 (.STOXX) fell 0.2%, having skimmed one-week lows, while the FTSE 100 (.FTSE) fell 0.4%.

S&P 500 futures fell 0.3%, while those on the Nasdaq lost 0.4%.

Wall Street sank on Friday after the upbeat payrolls report cemented expectations for another large rate hike. read more

Futures imply a more than 80% chance of rates rising by 75 basis points next month, while the European Central Bank (ECB) is expected to match that and the Bank of England to hike by at least 100 basis points. ,

CORE MEASURE

U.S. consumer inflation is expected to have moderated to an annual 8.1%, but the core measure is forecast to have accelerated to 6.5% from 6.3%. The U.S. CPI data is due on Thursday.

“Whether one number should be the basis for huge swings in markets, it seems inevitable that a notable miss on core on either side could bring about big moves in trading over the coming weeks, so stand by,” Deutsche Bank strategist Jim Reid said.

Minutes of the Fed’s last policy meeting will also be published this week and could offer a steer on rate-setters’ thinking about the likely path of monetary policy.

BONDS GAIN

Although U.S. inflation and the Fed’s response to it remain front and centre of investors’ minds, euro zone government bonds got a boost from the pickup in investor risk aversion.

German 10-year Bund yields , which serve as the region’s benchmark, were steady around 2.195%, while the more sensitive 2-year Schatz fell 7 bps to 1.795%.

Adding another note of caution was a 2% drop in Chinese blue-chip stocks (.CSI300) following a survey that showed the first contraction in services activity in four months. read more

Corporate earnings also kick off on Friday, with JPMorgan, Citi, Wells Fargo and Morgan Stanley reporting results.

The dollar index rose 0.2% to 113.06 , leaving the euro down 0.3% at $0.9707 and the yen flat at 145.465, a whisker away from the recent 24-year high of 145.90 that prompted Japanese intervention.

Sterling fell 0.2% to $1.1066 , after the Bank of England announced a surprise decision to shore up the gilt market ahead of the end of an emergency bond-buying programme on Friday and the government brought forward the publication of independent budget forecasts. [nL8N31B0VI] read more

Oil fell for the first time in a week, as investors took profit on last week’s 11% rally after a deal on supply reductions by OPEC+.

Brent fell 0.6% to $97.30 a barrel, while U.S. crude dropped 0.5% to $92.14 a barrel.

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Additional reporting by Wayne Cole; Editing by Diane Craft, Ana Nicolaci da Costa, Ed Osmond and Andrew Heavens

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