|Bid||24.51 x 800|
|Ask||24.64 x 900|
|Day's range||24.55 - 24.78|
|52-week range||20.44 - 25.17|
|Beta (5Y monthly)||1.63|
|PE ratio (TTM)||8.93|
|Forward dividend & yield||1.02 (4.13%)|
|Ex-dividend date||12 Feb 2020|
|1y target est||N/A|
(Bloomberg Opinion) -- The most obvious symptom of coronavirus’ spread in the energy sector is the slumping oil price. The less obvious, but equally serious, signs can be found in the financing market for oil and gas producers.Exxon Mobil Corp., that haven of havens in oil, just saw its dividend yield spike above 6% for the first time since the merger that formed the modern company more than 20 years ago. If you want true stability among Big Oil in stormy seas these days, you have to go to Saudi Arabian Oil Co., or Saudi Aramco, which yields a mere 4.2% (prospectively). Then again, the remarkably subdued price moves and turnover in Aramco’s stock amid the turmoil rather underscores how its IPO was quarantined already from the wider world long before that behavior caught on elsewhere. Exxon’s fall from grace is roughly inversely correlated with its counter-cyclical investment binge; the sort of thing that worked better with investors when they (a) trusted oil majors to spend money wisely and (b) trusted oil demand to never stop going up. It will be interesting to see if the messaging on strategy has shifted at all when Exxon faces analysts in 10 days’ time.The really vulnerable crowd, however, is those oil and gas producers who had compromised their immunity with excessive leverage, exposure to natural gas or both. As I wrote here in November, E&P stocks with higher debt have performed notably worse than less encumbered peers since last spring. Coronavirus’ impact on commodity prices and sentiment in general has exacerbated that. Since the start of the year, low leverage stocks in my sample are down about 16%; not great, but better than the very-high leverage index, which has fallen more than 40%.The really eye-catching action is in the bond market. The rush to safety in Treasuries has widened an already gaping risk premium on high-yield bonds for energy issuers. The option-adjusted spread for the ICE BofA U.S. High Yield Energy Index ended Friday at 772 basis points. That’s up from 650 points at the start of 2020. But another way to look at it is that the gap between the energy index’s spread and the spread for the broader CCC-rated bond index — the junkiest end — has narrowed sharply. Indeed, this spread-of-the-spreads is now narrower than at any time since early 2016, the very depths of the oil crash:Besides the echoes of that earlier panic in today’s market, the structure of the sector plays a part. In terms of face value, almost a fifth of the energy high-yield index — which is the biggest sector of the overall index — is rated triple-C or less. That segment of the market is highly concentrated in relatively few issuers, with the top five accounting for roughly half the market value, according to CreditSights. That, er, upper echelon is dominated by the truly suffering oilfield services sector, with issuers such as Transocean Inc. and struggling gas-weighted producer Chesapeake Energy Corp., whose stock hasn’t traded above a buck since early November.Meanwhile, single-B issues account for roughly another 40% of the index. While this segment is less concentrated, the biggest issuers consist of oilfield services again, gas-heavy producers and midstream names such as Genesis Energy LP, which, as an aside, slashed its dividend in late 2017 to save cash but now sports a higher yield than before that (see this for some history).This is a target-rich environment for a curve ball like coronavirus. While oil dominates, keep an eye on natural gas, which had been hit hard by the mild winter already. Benchmark prices are below $2 in the late February, and they are only that high because of the escape valve of liquefied exports. Now coronavirus is leading some buyers to refuse cargoes. If that spreads, then the effect will move quickly back up the chain to crash prices further in a U.S. market where the flaming flares of west Texas illuminate the glut in depressingly literal terms.There was some relief in energy circles last week, and not just because virus-related fears had subsided. Several Permian-focused E&P companies, such as Diamondback Energy Inc. and Pioneer Natural Resources Corp. reiterated plans for bigger payouts, signaling they were sticking with newfound strategies of drilling less and rewarding shareholders with more cash. Monday serves as a reminder that the hole, dug over the course of years, is deep. A broad shift in the sector’s mindset, while welcome, has come late and under duress. And the duress is intensifying. To contact the author of this story: Liam Denning at email@example.comTo contact the editor responsible for this story: Mark Gongloff at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- As U.S. stocks tumbled on Monday, hit by mounting coronavirus fears, analysts also flagged the possibility that investors haven’t been taking Bernie Sanders seriously enough, after the Vermont senator’s surprisingly broad support in the Nevada caucuses Saturday. Sectors with exposure to the progressive Democratic candidate, including managed care companies and the biggest banks, underperformed in early trading. Centene Corp. and UnitedHealth Group ended last week lower and were the biggest decliners in health care on Monday, with both sinking more than 7%. The KBW Bank Index shed as much as 3.5%, the most since August, and fell to the lowest since late October, with Bank of America Corp. and Citigroup Inc. briefly dropping more than 4%.Here’s a sample of the latest commentary:Cowen, Jaret Seiberg“It appears to us that Sen. Bernie Sanders is not just solidifying his position but also could be a bigger threat to President Trump in the general election than the market appreciates,” Seiberg wrote in a note. “That would represent a major threat to financials and housing as Sanders has the most punitive agenda for these sectors given his plans for taxes and regulation.”Beacon Policy Advisors“In a politically polarized country where President Trump still remains underwater in his approval, the market is severely underestimating the chances of Sanders winning the presidency, and thus his potential impact on numerous companies and industries,” Beacon wrote in a note.Vital Knowledge, Adam Crisafulli“Sanders is very likely to become the Democratic nominee and he’s very likely going to lose in November,” Crisafulli wrote. However, he said that “investors should be altering their odds modestly as Bernie’s Nevada performance suggests he’ll be a more potent candidate than previously thought.”Sanders, he added, “appeals to many of the same disaffected groups that helped push Trump over the edge in certain critical states, suggesting Sanders may be a more competitive Electoral College candidate than Hillary was.” And Trump becomes “eminently beatable if the stock market and/or economy falters in the months preceding the election and this could become a self-fulfilling prophecy (as Bernie’s prospects improve, the fear of a Sanders presidency will weigh on economic activity and the stock market, helping to further fuel his odds).”Even so, Crisafulli said that “the economy is healthy, and this will matter more than anything.” Investors should keep in mind, he said, that Trump has a “major economic stimulus card in his back pocket in the form of existing tariffs – he could simply lift all the China trade restrictions should the market and/or economy falter further.”AGF Investments, Greg Valliere“The extent of Sanders’ win on Saturday in Nevada stunned party operatives,” Valliere wrote.“It would take quite a wild card to defeat Trump, but there’s a serious one that is impossible to handicap.” That’s the coronavirus, he said, as the “U.S. is not invulnerable.”“The risks on the coronavirus are clearly downside risks for everyone, including Trump,” he said. “Not even a very accommodative Federal Reserve could bail out Trump if Sanders somehow succeeds in blaming Republicans for being unprepared for a pandemic.”Compass Point, Isaac BoltanskyInvestors will be forced to reassess their assumptions that Trump would be heavily favored if Sanders “continues to gain both momentum and delegates,” Boltansky wrote. In particular, he flagged Sanders’ strength with Latino voters, which is a “promising signal.”“A progressive White House would weigh on health insurers, big tech, education services companies, M&A advisories, fossil fuel businesses, for-profit prisons, and large banks/PE firms,” he said. On the other hand, a progressive president may be good for Puerto Rico banks, workforce/manufactured housing companies like UMH Properties Inc., childcare providers such as Bright Horizons Family Solutions Inc. and “lower price-point” homebuilders, he said.KBW, Brian Gardner“Bernie Sanders’ surprising big win this past weekend in Nevada suggests that he might be in a stronger position to win the Democratic nomination than previously believed, and since Super Tuesday follows South Carolina so closely, Mr. Sanders might build unstoppable momentum,” Gardner wrote.At the same time, he said that the reason markets hadn’t so far reacted to Sanders’ surge was that he’s seen as unlikely to win and that he could “open the door for Republicans to retake the House and keep the Senate.” KBW thinks some centrist House Democrats who were elected in 2018 in swing districts may be in jeopardy, and a Sanders candidacy may make it tough for Democratic Senate candidates in Arizona, Georgia, and North Carolina. “The combination of Mr. Sanders’ history of embracing socialism and Mr. Trump’s strong approval ratings on the economy make Sanders’ chances of winning in November weak,” he said.Jefferies, Jared HolzJefferies health care strategist Holz recommended taking profits in healthcare services after Sanders’ victory in Nevada.“The prudent move is reducing exposure” in areas like managed care, which are most exposed to ideas like Sanders’ Medicare for All push, Holz wrote. The group, which includes UnitedHealth Group, Anthem Inc., Humana Inc. and Centene, has rallied from October lows, but heightened concern around universal healthcare agendas argue in favor of paring back positions in the sector.Goldman Sachs, Asad HaiderHealth-care stocks “could now be entering a noisier period” after Sanders’ spike in popularity following last week’s Democratic debate, Haider said in a note late Friday. Sector investors are now focused on the extent to which the Vermont senator can hold the widening gap against other candidates on Super Tuesday, he said.Nomura Instinet, Matthew HowlettSanders winning the Democratic nomination would boost the chances the Trump administration will end the conservatorship of Fannie Mae and Freddie Mac ahead of the November election, Howlett wrote earlier.He recommends clients buy Fannie Mae and Freddie Mac common stock ahead of the Democratic convention. “It may sound counterintuitive, but we believe Bernie Sanders (who is coming off a strong showing Saturday and continues to increase his lead in the polls), as the Democratic nominee for president greatly increases the chances the GSEs will be released from conservatorship prior to any potential change at the White House in Jan. 2021,” Howlett said.A Sanders nomination would probably “motivate the current administration to act more with a sense of urgency,” and to finish tasks needed to prevent a new administration from reversing their moves, he said.Fannie common stock fell as much as 6.7%, the most since mid-December; Freddie slid as much as 5.1%, also the most since mid-December.\--With assistance from Bailey Lipschultz and Cristin Flanagan.To contact the reporter on this story: Felice Maranz in New York at email@example.comTo contact the editors responsible for this story: Catherine Larkin at firstname.lastname@example.org, Scott Schnipper, Steven FrommFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Brian Moynihan has been the CEO of Bank of America Corporation (NYSE:BAC) since 2010. First, this article will compare...
(Bloomberg) -- Warren Buffett sought to justify the importance of his $248 billion stock portfolio, saying the investments are more than just “dalliances” with the companies he takes stakes in.The billionaire investor spent a portion of his annual shareholder letter, released Saturday, detailing how an accounting difference between his stock picks and his outright business takeovers creates a “standout omission” in Berkshire Hathaway Inc.’s financial results. The conglomerate’s equity investments will produce capital gains that are at least equal to Berkshire’s share of the individual companies’ retained earnings, Buffett argued.“Overall, the retained earnings of our investees are certain to be of major importance in the growth of Berkshire’s value,” Buffett said in the letter. For its equity investments, “only the dividends that Berkshire receives are recorded in the operating earnings we report. The retained earnings? They’re working hard and creating much added value, but not in a way that deposits those gains directly into Berkshire’s reported earnings.”The value of Buffett’s equity portfolio last year increased about 44%, helped by the best year for Apple Inc. stock since 2009 and gains on holdings such as Bank of America Corp. and Coca-Cola Co. His own Berkshire shares didn’t fare quite as well, posting their worst annual underperformance relative to the S&P 500 Index in a decade.Buffett has been hunting for ways to deploy his $128 billion cash pile to generate higher returns, but has struggled to find a massive deal amid “sky-high” prices. He ended up taking another path in 2019, spending a total of $5 billion on repurchases and being an overall net buyer of the stocks of other companies.Berkshires stock investments shouldn’t be seen as “dalliances to be terminated because of downgrades by ‘the Street,’ an earnings ‘miss,’ expected Federal Reserve actions, possible political developments, forecasts by economists or whatever else might be the subject du jour,” Buffett said in the letter. The equity stakes represent “an assembly of companies that we partly own and that, on a weighted basis, are earning more than 20% on the net tangible equity capital required to run their businesses.”Click here for live commentary and analysis of Buffett’s television interview with CNBC, starting Monday at 6 a.m. ETHere are five other takeaways from Buffett’s annual letter and Berkshire’s fourth-quarter earnings report:1\. Berkshire Gives Preview of Life After BuffettBuffett waited until the very last page of his annual letter to reveal a big change: Investors will be hearing more from top lieutenants Ajit Jain and Greg Abel. The pair, seen as the top contenders to eventually replace Berkshire’s 89-year-old CEO, have often remained behind the scenes, tending to Buffett’s vast collection of businesses. But a quirk of last year’s annual Berkshire meeting, during which Jain and Abel both answered some shareholder questions, will become more formalized at the 2020 event.Buffett said in the letter that he had received suggestions that Jain and Abel “be given more exposure at the meeting. That change makes great sense.” He gave no further clues about his eventual replacement, and no indication that he or Charlie Munger, his 96-year-old business partner, would step away any time soon.Jain and Abel are “the clear-cut front-runners,” said Matthew Palazola, an analyst at Bloomberg Intelligence.2\. Buffett Spends Record $2.2 Billion on BuybacksThe Oracle of Omaha kicked his stock-buyback program into high gear, spending $2.2 billion on repurchases in the last three months of 2019, the most ever in a single quarter -- and said he’s looking to buy even more.Berkshire, which loosened its repurchase policy almost two years ago after being stymied on the dealmaking front, has since taken a cautious approach to buybacks, acquiring only $6.3 billion of stock. Even with the increase in repurchases, Berkshire’s pile of cash hovered close to a record.The repurchases should make it easier for Buffett’s eventual successor to make additional buybacks, according to Tom Russo, who oversees more than $10 billion, including Berkshire shares, at Gardner Russo & Gardner LLC. “I wanted them to have no uncertainty, for whoever succeeds both Charlie and Warren, that the share buyback is a perfectly legitimate and highly valued tool to deliver growth in intrinsic value on a per-share basis,” Russo said.3\. Berkshire’s Earnings Hurt by Insurance LossesBerkshire’s operating earnings fell to $4.42 billion in the fourth quarter, down 23% from a year earlier, driven by underwriting losses at its namesake reinsurance group, which was hurt by typhoons in Japan, wildfires in California and Australia, and widening losses at its business writing retroactive reinsurance contracts.Buffett’s company did better with its BNSF railroad, which posted a 3.8% gain in profit, just shy of record earnings in the previous three months, as a decline in expenses helped counter falling revenue across shipments of products such as coal, consumer items and agricultural goods.A bigger problem for the conglomerate is Kraft Heinz Co., which counts Berkshire as its largest shareholder and had a tumultuous 2019, with writedowns, management shakeups and downgrades to junk. Berkshire carries its Kraft Heinz investment on its balance sheet at $13.8 billion, a figure unchanged since 2018’s fourth quarter, even as the market price of the stake dropped to $10.5 billion at the end of last year.4\. Buffett Chides CEOs for Wanting Cocker SpanielsBuffett often uses his annual letter to talk not just about Berkshire, but also the wider corporate environment. This year, Buffett, who’s served as a director at 21 publicly traded firms over the years, used a portion of his missive to complain that too many companies seek board members who won’t challenge a CEO’s decisions.“When seeking directors, CEOs don’t look for pit bulls,” Buffett said in Saturday’s letter. “It’s the cocker spaniel that gets taken home.”Buffett’s discussion of corporate-governance issues also touched on board diversity. Goldman Sachs Group Inc., which counts Berkshire as an investor, said last month that it won’t take a company public unless there’s at least one board member who’s not a white male. Adding female directors “remains a work in progress,” Buffett said in this year’s letter. At his company, three of the board’s 16 members are women.5\. Buffett Avoids U.S. Politics in Letter to InvestorsBuffett stayed out of the political fray in this year’s letter. He didn’t mention the words “election,” “Trump,” or any Democrat running for president.The billionaire has trod carefully over the years as the U.S. has become more politically polarized. His 2019 letter focused on overall prosperity in the U.S., saying that America’s success over the decades has been achieved in a bipartisan manner.Buffett has been known to campaign for candidates, including Democrat Hillary Clinton in the 2016 presidential election. He’s said more recently, though, that he prefers not to use his position at Berkshire to promote his political views -- or to impose his political opinions on Berkshire’s business activities.To contact the reporter on this story: Katherine Chiglinsky in New York at email@example.comTo contact the editors responsible for this story: Michael J. Moore at firstname.lastname@example.org, Daniel Taub, James LuddenFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Warren Buffett stayed out of the political fray in his annual letter to investors.The billionaire didn’t mention the words “election,” “Trump,” or any Democrat running for president in the letter released Saturday.Buffett has trod carefully over the years as the U.S. has become more politically polarized. His annual letter in 2019 focused on overall prosperity in the U.S., saying that America’s success over the decades has been achieved in a bipartisan manner.Buffett’s been known to campaign for candidates, including Democrat Hillary Clinton in the 2016 presidential election. He’s said more recently, though, that he prefers not to use his position at Berkshire to promote his political views -- or, conversely, to impose his political opinions on Berkshire’s business activities.That’s meant that he’s avoided having Berkshire take a position on contentious topics such as gun control, even as Bank of America Corp. -- which counts Berkshire as its largest investor -- said almost two years ago that it would stop lending to companies that make assault-style guns used for non-military purposes.Buffett wrote in 2013 that although he voted for Barack Obama the previous November, 10 of the 12 daily newspapers that Berkshire owned at the time endorsed the Republican candidate, Mitt Romney. In the 2015 letter, written during the 2016 election campaign, Buffett said candidates “can’t stop speaking about our country’s problems” but that their downbeat views on the U.S. were “dead wrong.”The son of a four-term Republican U.S. Representative has voted for more Democrats than Republicans over the the past 30 years, he said last year.He attended fundraisers for both Clinton and Obama ahead of the 2008 Democratic primaries.While he’s yet to publicly endorse for November’s election, Buffett said in early 2019, ahead of any campaign announcement, that he would support Michael Bloomberg if he ran for president.(Bloomberg is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)To contact the reporter on this story: Katherine Chiglinsky in New York at email@example.comTo contact the editors responsible for this story: Michael J. Moore at firstname.lastname@example.org, Ros Krasny, Matthew G. MillerFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Analysts say the Morgan Stanley and E-Trade tie-up is a matter of survival in a brokerage industry crushed by technology-driven trends in retail investing.
(Bloomberg) -- Bank of America Corp.’s lawyers came through big for their client last year when they whittled down a U.S. case over precious metals spoofing.Justice Department prosecutors wanted to bring criminal charges, but bank lawyers asked for none and prevailed. Prosecutors named Bank of America throughout the draft settlement document but not in the final version.Details of wrangling between bank lawyers and the Justice Department are usually tightly guarded. The previously untold story of the talks are on point now that another big global bank, JPMorgan Chase & Co., is poised to conduct its own negotiations with the Justice Department over alleged manipulation of precious metals futures. For JPMorgan, the Bank of America deal sets a low baseline for penalties in the relatively new area of enforcing market-manipulation cases.Over several months of haggling last spring, lawyers for Charlotte, North Carolina-based Bank of America argued that senior officials hadn’t been involved in any manipulation and the bank’s overall compliance culture was strong, according to several people who requested anonymity to describe the talks. The lawyers also pointed out that the handful of previous spoofing investigations of banks had resulted in civil rather than criminal settlements.Bank representatives ultimately persuaded the U.S. to back off from a resolution that would have required its Merrill Lynch subsidiary to show up in court and admit to criminal conduct. The bank’s lawyers also prevailed on Justice Department prosecutors to excise multiple appearances of the Bank of America’s name from a draft of the settlement, according to two of the people.Spokesmen for the Justice Department and Bank of America declined to comment.JPMorgan arguably faces deeper peril. U.S. authorities have alleged that traders there engaged in an eight-year conspiracy through 2016, spanning desks in New York, London and Singapore, to move gold and silver futures prices to their advantage by placing orders they didn’t intend to execute. Six current and former employees have been charged, including the bank’s global head of base and precious metals trading. Prosecutors are looking to build a criminal case against the bank itself, Bloomberg has reported. JPMorgan declined to comment.JPMorgan’s Role in Metals Spoofing Is Under U.S. Criminal ProbeThough each spoofing case is unique, the Justice Department has identified these inquiries as important to ensure the integrity of financial markets. Several traders have pleaded guilty to spoofing in recent years, and regulators have reached civil settlements with four banks.Bank of America was the first to face potential criminal charges. The case began in 2018 when prosecutors in Chicago charged two former Merrill Lynch commodities traders with spoofing over several years when Merrill was owned by Bank of America.Two-Tier PlanBy early last year, U.S. prosecutors had internally arrived at a two-tiered resolution, according to the people familiar with the matter. The plan was to charge the Merrill Lynch unit but agree not to prosecute, provided the unit adhere to an improved compliance program -- a so-called deferred prosecution agreement. The parent company would enter into a non-prosecution agreement. The action would be accompanied by a fine of $15 million to $30 million.Like most companies dealing with Justice Department investigations, the bank turned to a Washington lawyer with industry expertise and government connections. Reginald Brown heads the banking practice at one of the bank’s outside law firms, WilmerHale. A veteran of the George W. Bush White House, Brown has cultivated ties to officials in Democratic and Republican administrations.Brown and his legal team met with Robert Zink, head of the Justice Department’s fraud section, and one of his deputies to discuss the government’s proposed resolution. Brown argued that Bank of America’s relatively clean history with the Justice Department, combined with evidence that the spoofing misconduct was confined to a few traders long gone, merited a favorable outcome.He and his legal team also considered the prospect of a deferred prosecution, with its criminal charge hanging over the bank, to be an unwarranted punishment for Merrill.Zink listened but didn’t make any deal. Brown then sought a meeting with one of Zink’s superiors, and ended up getting an audience with John Cronan, principal deputy assistant attorney general to Brian Benczkowski, the chief of the Justice Department’s criminal division. Such requests are often part of the back-and-forth between the government and corporate defense attorneys.After the Cronan meeting, the bank’s lawyers asked for and received an audience with Benczkowski. Like Brown, Benczkowski served in the Bush administration, as an official in the Justice Department.Before Brown met with Benczkowski, fraud section prosecutors softened their position, according to one of the people, telling their chief that they would be willing to accept a deferred prosecution with Merrill Lynch only, and not involve the parent company.Settlement MatrixFor the Benczkowski meeting in mid-May, Brown brought along David Leitch, Bank of America’s general counsel, a veteran of both Bush administrations.The legal team showed officials a matrix of U.S. bank prosecutions and settlements over a decade. The spoofing conduct at Merrill, they argued, was limited to a few traders and the potential damages were small -- in contrast with what they said was far more pervasive misconduct at other banks accused of manipulating interest and currency rates.The legal team also pointed out that Bank of America, unlike competitors including JPMorgan, had not been forced to take any guilty pleas in the aftermath of the financial crisis during the Obama administration. A criminal charge, even one that would likely get withdrawn as part of a deferred prosecution agreement, would impact the bank and create a reputational issue, they said.The argument ultimately prevailed. Leadership in the criminal division downshifted to a non-prosecution agreement with Merrill.In June, Merrill Lynch signed the non-prosecution pact and agreed to pay a $25 million fine to the Justice Department. Merrill admitted that the conduct was unlawful and amounted to commodities fraud but no charges were brought against it.Although the deal required Bank of America to continue to cooperate with prosecutors in any cases against individuals, the bank’s name was scrubbed from the settlement that had been drawn up. It appeared a couple times in the attachments accompanying the agreement. The final settlement refers to two entities, Merrill Lynch Commodities Inc. (“MLCI”) and its parent, “MLCI Parent.”Bank of America didn’t keep its name out of the proceedings altogether, however. The Justice Department press release announcing the deal identified the bank by name as Merrill’s parent.The department credited the bank for its cooperation in the matter and for its internal compliance program. At the time of the agreement, the bank cited its cooperation and added that it was “disappointed by the conduct of the former Merrill Lynch Commodities employees.”To contact the reporters on this story: Greg Farrell in New York at email@example.com;Tom Schoenberg in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Jeffrey D Grocott at email@example.com, ;Winnie O'Kelley at firstname.lastname@example.org, Steve DicksonFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Bank of America Community Development Banking (CDB) provided a record $4.88 billion in loans, tax credit equity investments, and other real estate development solutions, surpassing last year’s record of $4.7 billion. CDB delivers innovative financing solutions to help create affordable housing for individuals, families, seniors, students, veterans, the formerly homeless, and those with special needs. These efforts are part of the company’s commitment to deploying capital to address global issues outlined in the United Nations Sustainable Development Goals (SDGs).
(Bloomberg) -- Indonesia’s central bank cut its benchmark interest rate after a three-month pause, and lowered the growth forecast as the spread of the coronavirus threatens the outlook for Southeast Asia’s biggest economy.Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to 4.75% Thursday, joining a string of other central banks around the region that have eased policy in recent weeks to counter the impact of the virus. Nineteen of the 31 economists in a Bloomberg survey predicted the central bank’s move while the rest saw no change.Indonesia is yet to record a single case of the deadly virus but officials have become increasingly worried about a slump in trade and tourism after China shut factories to contain the outbreak and both countries restricted travel. Bank Indonesia’s resumption in rate cuts after four reductions last year comes on top of a fiscal boost from the government to cushion the economy, which was already slowing last year because of the U.S.-China trade war.The central bank on Thursday lowered its forecast for global growth to 3% from 3.1%, and sees the domestic economy expanding 5%-5.4% this year compared to a previous range of 5.1%-5.5%.Bank Indonesia will “keep a close watch on global and domestic economic developments in utilizing an accommodative policy mix space,” Governor Perry Warjiyo said, signaling the latest cut may not be the last in the current easing cycle. The board remains concerned about a hit to trade and investment from the virus, he said.Foreign exchange revenue from tourism was likely to fall by $1.3 billion, the governor said, adding that provisions related to the macroprudential intermediation ratio would also be adjusted in a bid to boost lending by commercial banks. The central bank also cut its 2020 forecast for credit growth to 9%-11% from 10%-12% previously.The yield on Indonesia’s 10-year government bonds was little changed after the decision, while the rupiah was headed for its biggest drop in more than two weeks.“The new 2020 growth forecast of BI still looks optimistic to me considering the risks from COVID-19,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “I’m therefore keeping my forecast that BI cuts again by another 25 basis points in the second quarter as growth disappoints, and we’re still not seeing clear indications of more fiscal support.”Finance Minister Sri Mulyani Indrawati said Wednesday the virus outbreak will curb growth and put government revenue under pressure. The Trade Ministry has also warned of a deeper hit to exports, which already slumped in January, putting the current account deficit at risk.“The growth outlook is weak. We have a 5.1% figure but we have highlighted the risk of growth testing the 5% level in the first half of the year,” said Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore. “We see the policy rate at 4.5% by mid-year,” he said.While inflation has so far remained subdued, coming in at 2.7% in January, supply disruptions in China are pushing up some food costs, like garlic, which surged almost 70% in Jakarta in just one week.A relatively stable currency provides the central bank with sufficient room to ease policy now. The rupiah, which has weakened in recent weeks, is still up about 0.7% against the dollar since the start of the year, making it the best-performer in Asia.(Updates with market reaction in seventh paragraph)\--With assistance from Rieka Rahadiana and Yoga Rusmana.To contact the reporters on this story: Karlis Salna in Jakarta at email@example.com;Arys Aditya in Jakarta at firstname.lastname@example.org;Eko Listiyorini in Jakarta at email@example.comTo contact the editors responsible for this story: Nasreen Seria at firstname.lastname@example.org, Karthikeyan Sundaram, Thomas Kutty AbrahamFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Federal Reserve officials indicated they could leave interest rates unchanged for many more months amid concerns about a persistent undershoot of their inflation goal, potential room to further boost employment and risks stemming from the coronavirus and trade.Minutes of the Jan. 28-29 Federal Open Market Committee meeting, released Wednesday in Washington, showed that several officials might support a mild overshoot of the 2% inflation target, indicating they see little need to pre-empt rising prices. What’s more, new shocks such as the coronavirus are more likely to keep prices subdued as global demand weakens.“Several participants suggested that inflation modestly exceeding 2% for a period would be consistent with the achievement of the committee’s longer-run inflation objective and that such mild overshooting might underscore the symmetry of that objective,” according to the minutes.The Fed’s preferred price measure rose 1.6% last year, and central bankers have failed to achieve their target on a sustainable basis since the target was announced in 2012.“There are a few doves on the committee that are implicitly saying they want to do a make-up strategy,” where a central bank compensates for undershoots with overshoots on inflation, said Joseph Song, senior U.S. economist at Bank of America Corp. in New York.The bank forecasts the Fed will maintain the federal funds rate in its current range of 1.5% to 1.75% through 2021. However, “most participants think that the insurance cuts they did last year will put the economy in a place where inflation will pick up again,” he said.Futures traders maintained expectations for the Fed to lower interest rates at least once this year, pricing in about 40 basis points of easing by the end of December. The 10-year Treasury yield were little changed at 1.56%, while the Bloomberg dollar index and the S&P 500 held gains.The U.S. economy began 2020 on solid footing with payrolls rising by 225,000 in January. The jobless rate edged up to 3.6%, still near a half-century low, while average hourly earnings climbed 3.1% from a year earlier. The coronavirus has raised questions about global growth, including the potential for spillovers affecting the U.S.Fed Chairman Jerome Powell told lawmakers in semi-annual testimony last week “it’s too uncertain to even speculate” on how the outbreak would impact the economy or if it could present a “material change” to the outlook, though he said the impact on China should be “substantial.”U.S. central bankers are counting on household consumption -- aided by low interest rates -- to sustain growth and help lift inflation back to the 2% target.Officials saw consumption spending as likely to remain on a firm footing, “supported by strong labor-market conditions, rising incomes, and healthy household balance sheets.”Elsewhere in the minutes, policy makers grappled with a variety of issues: Inflation ranges as a tool to achieve their 2% target, how to adapt policy to combat financial-stability risks, and how they would wind down ongoing repurchase agreement and Treasury-bill purchases.Repos, BillsThe staff official in charge of open-market operations told policy makers that in the second quarter, reserve conditions would “support slowing the pace of Treasury bill purchases.”U.S. central bankers are buying $60 billion of bills per month to boost reserve balances and plan to continue the operation into the second quarter. They are also conducting term and overnight repurchase agreements at least through April to offset seasonal demands for payments and cash.Within their ongoing framework review, officials held their most substantive discussion to date about the possibility of transforming their inflation target into a range. The review began in early 2019 and is meant to assess whether the Fed has the right tools and strategies to deal with persistently low interest rates and low inflation.The committee considered inflation ranges based on three concepts: an “uncertainty” range, meant to communicate how wide inflation outcomes might vary and still be considered consistent with the target; an “indifference” range, emphasizing that policy need not respond to deviations within the range; and an “operational” range that could be used when officials wanted inflation to favor one side.\--With assistance from Jordan Yadoo, Christopher Condon and Benjamin Purvis.To contact the reporter on this story: Craig Torres in Washington at email@example.comTo contact the editors responsible for this story: Margaret Collins at firstname.lastname@example.org, Ana Monteiro, Scott LanmanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Bank of America (BAC) have what it takes? Let's find out.
(Bloomberg) -- Having suffered the worst economic performance in a decade last year, Mexican Finance Minister Arturo Herrera sees reasons to be more optimistic about Latin America’s second-largest economy in 2020.In his first sit-down interview with English-language media this year, Herrera says that after almost a decade of expansion since the global financial crisis, last year’s 0.1% contraction was more natural and in line with disappointing economic activity worldwide. Now, things are looking better.His argument goes: inflation and debt levels are in check, the peso is stable, and the troubled state oil company known as Pemex has halted a production decline. The main boost for the country comes from the ratification of the reworked North American free trade agreement.“The Mexican economy’s performance is very different with this agreement,” he told Bloomberg News at the National Palace in Mexico City on Monday. “This is one of the great advantages we have now.”Production chains may invest more in North America based on the certainty created by the treaty, known as USMCA, especially as competitors in Asia are beset by trade wars and a health crisis, he said.Read More: USMCA Ratification More Relief Than Opportunity For MexicoHerrera’s ministry has even kept its 2% growth forecast for the year, although he won’t say whether that will change when it reports a preliminary budget proposal to congress in April.His optimism isn’t fully shared by Mexico watchers. Economists have been steadily reducing the country’s 2020 growth estimates to an average of just 1% from 1.7% six months ago, with Bank of America Corp. even forecasting an expansion as little as 0.5%.Growth in 2020 may be stronger than 2019 due to the recent stabilization in oil output and some recovery in construction, but it won’t return to levels of recent years, said Alonso Cervera, chief Latin America economist at Credit Suisse Group AG in Mexico City, who forecasts a 0.7% expansion.“I’m not too hopeful of a strong recovery, and neither is the market,” Cervera said. “The main issue behind the weakness in the Mexican economy is gross fixed investment, which is a function of fiscal austerity on the public sector side and subdued confidence in the private sector.”Gross fixed investment, which includes company spending in factories and machinery, ran down last year to levels not seen since the 2009 global crisis.Inflation, RatesHerrera says that an area that is likely to provide more stimulus is monetary policy: Subdued inflation and peso stability mean Mexico “clearly” has room to keep cutting interest rates.“I’m not the only one saying it. It’s something that’s said by the Western Hemisphere director of the International Monetary Fund,” Herrera said.Banco de Mexico has been lowering its policy rate since August as declining oil output and uncertainty over President Andres Manuel Lopez Obrador’s policies stalled the economy. Even after reducing the key rate by 1.25 percentage point since August, Mexico has one of the highest inflation-adjusted interest rates in the world.Analysts expect the bank to cut borrowing costs by another half percentage point in the rest of 2020, ending the year at 6.5%.Alejandro Werner, the Western Hemisphere director of the IMF, said last month that Mexico has “significant space” to keep cutting interest rates to bolster growth, noting that other Latin American countries have reduced borrowing costs recently.Herrera said his ministry is informally polling banks and companies on their financing choices, including asking why several bond sales this year have been issued in dollars rather than pesos. He said some have responded that the market is too concentrated in a few large pension funds known as Afores, leaving less space for local issuances.Read More: Zero-Growth Year Is Price AMLO Pays for Mexican ‘Transformation’Inflation ended 2019 at 2.83%, the second-lowest December rate in the 2000s. It has rebounded slightly to 3.24% last month, but is still within the central bank’s target range of 3%, plus or minus one percentage point.The strength of the Mexican peso, which on Monday reached its highest intraday level in almost a year and a half, is explained by factors including the government’s fiscal responsibility and the nation’s relatively high interest rates, Herrera said.He also reiterated the government’s commitment to a “stable” and “flexible” currency. The peso is the best performing major currency against the dollar so far this year.“It’s very risky for somebody to start playing with the exchange rate policy,” he said. “It has cost Mexico a lot of work to understand this and we’re very respectful.”(Updates with comment from analyst in eighth paragraph and ministry’s informal poll in 16th paragraph.)To contact the reporters on this story: Nacha Cattan in Mexico City at email@example.com;Eric Martin in Mexico City at firstname.lastname@example.orgTo contact the editors responsible for this story: Daniel Cancel at email@example.com, ;Juan Pablo Spinetto at firstname.lastname@example.org, Matthew Bristow, Jiyeun LeeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Bank of America (BAC) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.
The Hemisfair Conservancy and Bank of America, together with San Antonio Mayor Ron Nirenberg and former U.S. Secretary of Housing and Urban Development Henry Cisneros, today announced the largest grant at Hemisfair to date.
(Bloomberg) -- Bernie Sanders’s narrow New Hampshire primary win is bolstering investor perceptions that either President Donald Trump is well-positioned for re-election or a moderate Democrat may yet emerge as the nominee.Either of those scenarios would be positive for the stock market, analysts said on Wednesday. The S&P 500 rose as much as 0.6%, notching a new record in early trading, with gains driven largely by easing concern about the spread of the coronavirus.Big banks, which are viewed as facing risks from a progressive Democrat, outperformed the broader market, with the KBW Bank Index up as much as 1.4%. Top index gainers included Bank of America Corp. and Citigroup Inc. The Health Care Select Sector SPDR Fund, known by its ticker XLV, which is also viewed as exposed to left-leaning candidates, rose as much as 0.6% to the highest since Jan. 22.Here’s a sample of the latest commentary:Raymond James, Ed Mills“The lack of a Sanders surge/the increasing likelihood of a brokered convention will be viewed as market positives,” Mills wrote in a note. Markets still see “this election as Trump’s to lose,” he said.Sanders will “need to consistently win greater than 50% of the vote in upcoming contests -- which is possible, but less likely with multiple other viable candidates,” Mills added. “A potential nightmare scenario for Democratic unity would be a Sanders plurality but the nomination going toward another nominee,” which would exacerbate the 2016 tensions of when Sanders supporters felt the party had tilted the nomination towards Hillary Clinton, Mills warned.Vital Knowledge, Adam CrisafulliSanders’s victory “will be seen as a knee-jerk positive for markets (given he is considered the ‘easiest’ opponent for Trump to face) BUT keep in mind that Sanders and Warren combined for just ~35% of the vote, down nearly 10 points from ~44% in Iowa,” Crisafulli wrote. That suggests “voters are shifting away from the far left-wing of the party.”Veda Partners, Henrietta Treyz“Sanders won but lost more,” Treyz wrote in a note, as his “margin of victory was so disappointing and his support so meaningfully reduced from 2016 levels that the narrative going into Nevada (Feb. 22) and California (March 3) will likely be that he’s a candidate on the decline instead of one on the rise.”“Sanders needs the moderate wing of the Democratic party to implode or to eke out a tenuous delegate win in the next few months in order to be the party nominee in July,” she said. “The path forward for him looks weak in our view and we continue to believe that while he has a strong base of supporters, he also has a ceiling, which last night indicated, could be even lower than we’d anticipated.”Treyz still sees only a moderate Democratic candidate as capable of ushering in enough new senators to flip the Senate. “Without that, a Democratic president would be forced to act via the relatively limited scope of executive orders and tariff policy,” which would mean no tax cuts or increases would be passed in 2021, nor would massive Medicare for All-style proposals. She also continues to see increased deficit spending, likely on infrastructure, no matter who’s elected in 2020.KBW, Brian Gardner“If Sanders is the Democratic nominee and polls show a reasonable chance of him winning the election, then we expect a sharp market sell-off, especially for financials,” Gardner wrote. Investors have so far discounted Sanders’s chances; however, “at some point investors might reassess this scenario and it is not, in our view, priced into the market.”If polls in the fall show Trump in a strong position, a “favorable” market reaction is likely, even though there’s no clear economic agenda for his second term, Gardner said. Trump’s re-election would ensure the 2017 tax cuts are secure and that “regulatory easing will not be reversed,” he said.A second Trump term may also bring “some cleaning up of unfinished business,” he said, including ending Fannie Mae and Freddie Mac’s conservatorship, addressing equity market structure issues, and the Department of Labor completing work on a fiduciary rule mirroring the Securities and Exchange Commission’s best interest standard, he said.If a centrist Democrat like Amy Klobuchar, Pete Buttigieg or Michael Bloomberg appeared poised to win, Gardner would expect a “mild sell-off in equity markets.” As those candidates haven’t promoted anti-Wall Street or broad student loan forgiveness plans, Gardner sees major financial services policy changes as unlikely.Cowen, Chris Krueger“It looks increasingly like we will be going to Milwaukee without a nominee,” Krueger wrote, adding that “Sanders won New Hampshire. It was a much tighter medal stand and Bernie was way off his 2016 margin, but a win is a win.”AGF Investments, Greg ValliereSanders’s win wasn’t “impressive,” Valliere wrote. At the moment, “he’s the shaky front-runner.” Valliere also sees a contested — or brokered — convention looming for the Democrats.“All of this is exceedingly good news for Donald Trump, who will benefit because one huge chunk of Democrats — angry leftists or disenfranchised moderates — may be inclined to sit out the November election if the party’s nominee is the product of a brokered convention,” he said.Pangaea Policy, Terry Haines“There is no Democratic ‘moderate/centrist lane,”’ Haines wrote. “Investors shouldn’t fall for the line Beltway Democratic establishment types are telling themselves, that in the aggregate ‘moderate/centrists’ overall are doing better than ‘progressives.’”Haines said that Democratic primary voters are at least 70/30 progressive, the November electorate won’t view the eventual Democratic nominee as moderate/centrist; and “markets will react negatively if any Democratic nominee looks like he or she has a decent shot of beating Trump.”He added that Mitch McConnell is the “most important U.S. politician” for markets, as McConnell is the “emblem of the Republican Senate bulwark holding the U.S. back from an all-Democratic Washington and a significant negative market correction.” He sees the Senate as “very likely to remain Republican majority, but if markets get even a sniff that Majority Leader Schumer might be on the cards, look out below.”Height Capital Markets, Clayton AllenSanders’s “narrow win last night (in a state he carried handily in 2016) suggests that his appeal may not be as widespread as some suggest,” with “several opportunities for more moderate candidates to ultimately claim victory,” Allen wrote.“The moderate lane of the party still has a larger vote share than the progressive lane, leaving a clear path for a consensus moderate,” he said.Beacon Policy Advisors“The Nevada caucus is well-positioned for Sanders, who draws strength from labor and Latinos (groups with which neither Buttigieg nor Klobuchar have inroads),” Beacon wrote.(Disclaimer: Michael Bloomberg is seeking the Democratic presidential nomination. He is the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.)To contact the reporter on this story: Felice Maranz in New York at email@example.comTo contact the editors responsible for this story: Catherine Larkin at firstname.lastname@example.org, Richard Richtmyer, Jennifer Bissell-LinskFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Bank of America today announced the launch of Financial Life BenefitsTM, a suite of workplace benefits and solutions designed to help meet the near- and long-term financial needs of our corporate clients’ employees. Through this offering, Bank of America brings together traditional financial benefits – including 401(k)1, health care savings2, equity compensation1, and non-qualified deferred compensation plans1 – with a corporate employee banking and investing offering that can help address employees’ everyday needs through spending and savings solutions from Bank of America and investing solutions powered by Merrill.
(Bloomberg Opinion) -- The billionaire Agnelli family is being tempted with the possibility of exiting the reinsurance industry with a sack of cash. Who wouldn’t succumb? The only question is whether the $9 billion approach for their PartnerRe business can be turned into a real deal, and what to do with the proceeds if a transaction happens.French mutual insurer Covea has approached the Agnelli-controlled investment company, Milan-listed Exor NV, about buying Partner Re, Bloomberg News revealed this weekend. At the mooted price, a transaction would be at a roughly 50% premium to the business’s last reported tangible book value of $6.1 billion, but less than 20% above its valuation in Exor’s last annual results. That suggests the final price could be higher. Analysts at Bank of America Merrill Lynch reckon $10 billion would be fairer, noting that European peers trade at a 70% premium to tangible book value.Such an exit would be a good outcome for the Agnellis. PartnerRe was acquired for $6.9 billion in early 2016. It’s hard to see how holding on could deliver the same payback in the near future. This is a specialized industry and PartnerRe’s future surely lies in teaming up within the sector, rather than staying within a diversified investment company.Whether Covea is the appropriate partner remains to be seen. It’s not hard to guess what motivated its approach. Covea is a mutual insurer with stacks of excess capital and no shareholders to distribute it to. M&A is the natural means to put that financial resource to work. This partly drove a failed takeover approach for reinsurer Scor SE in 2018 — along with the risk that Scor, capitalized at 6.9 billion euros ($7.6 billion), might itself do a deal with PartnerRe.Covea has no shareholders to object to it overpaying, but its board and regulators need to be sure of the strategic and financial logic of a jumbo acquisition. Its core business is conventional general insurance. Reinsurance would bring diversification, but also a fresh test for Chief Executive Officer Thierry Derez.In normal times, Derez might get the benefit of the doubt. But the Scor debacle has left unfinished business. Scor is suing him for breach of trust (he was on the target’s board prior to the approach). The French insurance regulator has reportedly criticized the very public row. It has written to Covea seeking improvements to its governance, according to Les Echos. Covea rejects Scor’s allegations as groundless.The French suitor’s ability to close any deal unchallenged is open to doubt, though. An all-share tie-up with Scor remains the obvious alternative for PartnerRe. That would be consistent with Exor’s strategy to make the group a more meaningful rival to the likes of industry giants Munich Re and Swiss Re AG.Still, a generous cash deal would be preferable. It would be more likely to narrow the discount at which Exor shares trade relative to underlying asset value — slightly more than 20%, based on BAML estimates for 2019. The impending special dividend on Exor’s shares in Fiat Chrysler Automobiles NV following the carmaker’s combination with Peugeot SA won’t on its own move the group into a net cash position from its current 2.4 billion euros of net debt.Markets may be expensive right now but that won’t last forever. Building a war chest for opportunistic dealmaking in other sectors makes sense for the Agnellis.To contact the author of this story: Chris Hughes at email@example.comTo contact the editor responsible for this story: James Boxell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Ask just about anyone on Wall Street what worries them the most, and corporate leverage will most likely rank among their top fears. In August, Bank of America Corp. surveyed 224 fund managers with a combined $553 billion in assets and found that a record 50% of them were concerned about excessive debt on company balance sheets. It’s not hard to see why that’s the case. For one, a growing number of well-known U.S. companies are now rated triple-B, potentially just one economic downturn from becoming junk and facing a spike in borrowing costs. But at least that’s more or less out in the open. More ominous is the explosive growth in the market for leveraged loans and collateralized loan obligations. Global regulators haven’t found a way to quantify the threat they may pose to the financial system in a worst-case scenario. At least not yet.The Federal Reserve is apparently ready to take a stab at measuring that risk itself. It announced last week that as part of its annual stress tests, Wall Street’s biggest banks must prove they can withstand a “wave of corporate sector defaults” and outflows from leveraged-loan funds that cause steep enough price declines to flow through into CLO tranches. The scenario anticipates that such a sell-off would also spill over into other types of risky credit and private equity.“This year’s stress test will help us evaluate how large banks perform during a severe recession and give us increased information on how leveraged loans and collateralized loan obligations may respond,” Randal Quarles, the Fed’s vice chairman for supervision, said in a statement. The banks have until April 6 to submit their plans; the results will come out at the end of June.The message from the Fed to Wall Street is quite clear: Leveraged lending is seen as a big risk and now is the time to look carefully through your books to make sure you haven’t missed any potential exposures. The central bank seems to believe it staved off a recession with its three quarter-point interest-rate cuts last year. Chair Jerome Powell’s recent refrain is that the economy and monetary policy are now in a “good place.”In September, though, he warned that the elevated level of corporate debt is “a real issue” and could serve as an “amplifier” of any slowdown. Boston Fed President Eric Rosengren dissented on lowering rates last year in part because of financial stability concerns around “near-record equity prices and corporate leverage.” The special focus on leveraged loans in the 2020 stress tests can likely trace its origins back to these remarks.Yet I wouldn’t hold my breath for significant revelations from this exercise. For one thing, announcing that leveraged lending will be a crucial component of this year’s test creates the appearance that the Fed is tipping off Wall Street in advance of the exam. This kind of transparency is just one of the ways in which the Fed softened its process: It also eliminated the “qualitative objection,” which gave the Fed the power to fail even well-capitalized banks if it judged that their handle on risk wasn’t adequate. Overall, the fact that the Fed’s stress tests are arguably easier than before minimizes how much markets might learn from this go-around. It’s also worth remembering the findings from the Financial Stability Board’s December report on the leveraged-lending market. Here’s what the global regulatory organization that comprises central banks, finance ministries, international bodies and regulatory authorities managed to conclude about stress-testing credit-risk exposure at banks:“There are inherent difficulties in modelling what the impact of a severe yet plausible scenario could be on complex debt products that have been originated under loose credit conditions. Furthermore, the cross-border dimension of the risks may not be fully covered by the stress tests, as interconnectedness is challenging to assess for individual jurisdictions.”As I wrote at the time, this does not inspire much confidence. Quarles just so happens to be the chair of the stability board in addition to the Fed’s regulation chief. It’s a smart move for the Fed to test whether banks can withstand a global recession in which the markets for corporate debt and commercial real estate are hit especially hard. But as the board said, it’s hard to accurately model for the worst case given the unprecedented nature of credit markets in the post-financial crisis era.There’s no harm in trying, though. The stability board report provided interesting figures on banks’ exposure to leveraged loans and CLOs relative to their capital adequacy ratios, for instance. Any additional insight into the leveraged-lending market, and just how intertwined it is with the biggest U.S. banks like JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs Group Inc., would go a long way toward confirming or assuaging investors’ fears. It’s the unknown that’s scary.To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- It is possible that even now, after five years of bruising re-education, Saudi Arabia harbors dreams of finally overcoming the U.S. fracking industry’s cockroach-like grip on life.Unfortunately for Riyadh, coronavirus threatens its own health, so instead of letting rip, it’s talking about further supply cuts. Unfortunately for the frackers, such talk — absent full-throated endorsement from Moscow — still leaves Nymex oil futures pegged at just $50 a barrel. Make no mistake, virus or no, there is a deep malaise in the oil market.Immunity is bolstered best with a healthy (or healthy-ish) balance sheet. On Thursday evening, Parsley Energy Inc. priced eight-year bonds at 4.125%. As exploration and production companies go, Parsley’s leverage counts as relatively OK. It ended September with net debt of just under 1.9 times trailing Ebitda, and Fitch Ratings has it just inside investment grade. It is taking the opportunity to raise longer-dated money with a lower coupon to take out 2024 paper costing 6.25% a year, albeit paying a hefty premium of almost 5% of par to do so.Parsley is a relative rarity. Energy’s high-yield market is largely closed, with the option-adjusted spread on the ICE BofA U.S. High Yield Energy Index back above 700 basis points. The lowest-rated energy credits are utter pariahs, with CCC-rated bonds sporting an average spread of almost 2,000 basis points, according to CreditSights, versus an ex-energy average of about 860 points, which seems almost welcoming by comparison.This split between the sort-of-haves and the most-definitely-have-nots is reflected in stocks too. I wrote back in November about how leverage had become a differentiating factor in an E&P sector coming under increasing pressure. The new year’s bout of fear and loathing has exacerbated that. Here’s how the sector has done, split by levels of indebtedness(1):The message from the stock market, and Parsley’s opportunism, is clear: Any fracker wanting to survive 2020 had best ditch the freewheeling habits of yesteryear and hunker down.(1) The four groups are: as follows. Very high leverage (net debt >3x Ebitda) comprising Antero Resources, Chesapeake Energy, Comstock Resources, EQT, Laredo Petroleum, Oasis Petroleum, Range Resources. High leverage (2-3 x Ebitda) comprising Apache, Callon Petroleum, CNX Resources, Matador Resources, QEP Resources, Southwestern Energy. Moderate leverage (1-2x Ebitda) comprising Berry Petroleum, Centennial Resource Development, Cimarex Energy, Continental Resources, Diamondback Energy, Diversified Oil & Gas, Jagged Peak Energy, Marathon Oil, Murphy Oil, Northern Oil and Gas, Parsley Energy, PDC Energy, SM Energy, SRC Energy, Talos Energy, W&T Offshore, WPX Energy. Low leverage (To contact the author of this story: Liam Denning at email@example.comTo contact the editor responsible for this story: Mark Gongloff at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.For more articles like this, please visit us at bloomberg.com/opinion©2020 Bloomberg L.P.Subscribe now to stay ahead with the most trusted business news source.