First Republic barely hangs on
First Republic is limping into the weekend, days after reporting disastrous first-quarter results. The bank is still working on a lifeline, with some involved saying it is touch and go whether the federal government will assist in some way, DealBook hears.
The precariousness of First Republic is a reminder that the banking crisis that erupted last month isn’t over yet and that a disorderly collapse of the lender could unleash yet more chaos in financial markets.
Time may be running out. Shares in First Republic are up nearly 10 percent in premarket trading, after having jumped yesterday, presumably in hopes that a rescue will emerge. But the bank’s stock is still at about $6, a far cry from the $150 it traded at a year ago.
A fundamental question is still hovering: Will the government force big banks into a rescue deal — which could involve those firms buying First Republic’s loans above market prices but below book value — or seize the troubled lender outright?
Which way the government will go remains uncertain. While officials in Washington are holding “urgent” discussions with potential rescuers, according to Reuters, it’s not clear how much aid the Biden administration will provide.
Closing First Republic would raise more issues. There’s the matter of the bank’s uninsured deposits, including the $30 billion that big banks had already injected as part of an earlier lifeline. (Remember that the F.D.I.C. insures deposits only up to $250,000 each, and many of First Republic’s deposits are well above that.)
It could also disrupt lending, including to the already embattled commercial real estate industry: Landlords are on the hook to refinance $137 billion of office mortgages this year, and nearly half a trillion dollars in the next four years.
New volatility could weigh on the Fed ahead of a crucial meeting next week on interest rate policy. Economists expect the central bank to raise rates by 25 basis points, but fresh strains on the nation’s banks may alter officials’ calculus.
In other banking news: The Fed is expected to issue its long-awaited autopsy on Silicon Valley Bank at 11 a.m Eastern; bank watchers want to know how government officials missed warning signs at the failed lender. The F.D.I.C. will also release a post-mortem on Signature Bank’s collapse.
HERE’S WHAT’S HAPPENING
The eurozone narrowly avoids a recession. G.D.P. for the 20 nations using the euro rose last quarter by 0.1 percent, below most forecasts; lagging consumer demand in Germany was a major factor.
Oil giants continue to profit. ExxonMobil and Chevron reported profits on Friday that solidly beat analysts’ expectations, even as crude prices fell from last year’s heights.
Federal authorities move on a former FTX executive. The F.B.I. on Thursday searched the Maryland home of Ryan Salame, a longtime lieutenant to the collapsed crypto exchange’s chief, Sam Bankman-Fried. It’s unclear what investigators were seeking, but officials have scrutinized Salame and others over political donations reportedly made with FTX customer money.
Ratings for Newsmax jump after the firing of Tucker Carlson. Viewership for the conservative network has surged this week after Carlson was fired from Fox News. Newsmax’s 8 p.m. show, which competed against “Tucker Carlson Tonight,” drew 562,000 viewers on Tuesday; it reported 146,000 last week.
The two faces of tech
Tech earnings season is coming to a close — Apple reports next week — but it’s already possible to draw some conclusions about the state of the industry. The biggest: Big Tech is holding steady or growing, while smaller players are struggling.
Amazon beat analyst expectations for revenue and profit on Thursday, thanks to strong international sales and an uptick for its advertising business, even as companies and consumers globally are tightening their budgets.
The results sent Amazon’s shares up as much as 10 percent in postmarket trading, though they went negative after the company warned of a slowdown in its enormous cloud business.
Amazon also talked up artificial intelligence. Andy Jassy, its C.E.O., said that large-language models and generative A.I. would help transform its cloud business and “virtually every customer experience that exists, and many that don’t exist.” That follows efforts this week by Satya Nadella of Microsoft and Mark Zuckerberg of Meta, Facebook’s parent company, to give investors bullish visions of A.I.’s promise for their businesses.
Shareholders like what they’re hearing from tech giants. The Nasdaq 100, a collection of big-cap tech companies, rallied again on Thursday and is up more than 20 percent in 2023. So far this year, shares in Meta have nearly doubled in price, while those in Amazon and Apple are up about 30 percent.
Many of these businesses had been hurt by a slowing economy and rising interest rates, but their “year of efficiency” focus on cost-cutting, including via layoffs, appears to be paying off with investors.
But other tech companies, especially smaller ones, aren’t faring so well:
Snap reported its first sales decline as a public company, sending its stock down more than 18 percent in premarket trading. There’s a bright side for the parent company of Snapchat: User numbers grew and it lost less money than expected.
The ride-hailing company Lyft, the storage provider Dropbox and the audio chat start-up Clubhouse all announced layoffs.
And Intel reported its fifth consecutive quarter of declining sales and its biggest-ever quarterly loss. Like Samsung, the chip maker has seen global demand for semiconductors evaporate.
Carbon tech captures Washington
New rules for curtailing power plant emissions, expected from the Environmental Protection Agency next month, could help pave the way for one of the buzziest areas of clean-tech investing: carbon capture.
Despite its many critics, carbon capture (the practice of sucking carbon dioxide out of the air) has drawn a flock of investors, including Bill Gates and Elon Musk. It has also become a centerpiece for Big Oil’s decarbonization strategy — which has drawn plenty of skeptics — while uniting lawmakers on the right and left who see it as an attractive policy choice.
Big Energy is bullish on carbon capture. The oil and gas industry spent more than $124 million on federal lobbying in 2022, according to the watchdog group OpenSecrets, with a big area of focus being subsidies for carbon capture. And though none of the nation’s coal- and gas-fired power plants currently use the technology in a significant way, the five biggest spenders have been spotlighting their carbon capture investments recently:
Occidental Petroleum is building out a $1 billion direct air capture and carbon storage project in Texas.
In November, Exxon Mobil partnered with Mitsubishi Heavy Industries on carbon capture for industrial customers.
Chevron has made various investments in carbon capture projects.
Carbon capture has an expanding place in policy. Lawmakers in the Senate and House recently introduced bipartisan legislation to encourage carbon reuse once it’s captured from high-emission products like aviation fuel and construction materials. Last year’s Inflation Reduction Act significantly increased the tax credit for capturing carbon and the Department of Energy plans to award $3.5 billion to plants for direct air capture, spurring investor interest in the sector.
But the new rules could face resistance. Last year, the Supreme Court struck down emissions rules proposed by the E.P.A. under the Obama administration, finding that climate change was a “major question” to be addressed by Congress, not by unelected regulators.
The new regulations have been crafted with that decision in mind but are still likely to face pushback. A spokeswoman for the agency declined to comment on the rules while they are under review, telling DealBook, “We have been clear from the start that we will use all of our legally-upheld tools, grounded in decades-old bipartisan laws, to address dangerous air pollution.”
Is America ceding control of its own companies?
Britain’s blocking of Microsoft’s takeover of Activision Blizzard helped cement the country as a formidable force on the global antitrust stage. But given the Federal Trade Commission’s already public opposition to the $69 billion transaction — and the growing global alignment on competition policy — some are questioning whether and how much American and British regulators coordinated their approaches to the deal.
Among them are Jay Clayton, a former S.E.C. chairman, and Gary Cohn, a former Trump economic adviser and onetime Goldman Sachs president. In a Times Opinion guest essay, the two argued that Britain’s move threatens America’s ability to regulate its own businesses:
If these were isolated examples of abdication of regulatory authority to Europe, we might shrug it off. They are not. Our regulators are all too often deferring to foreign counterparts, citing euphemisms like “international cooperation” and “global regulatory harmonization” while paying short shrift to their obligation to consider domestic consequences in accordance with our laws.
The Europeans are our allies, but they also are our competitors. Shouldn’t we expect European regulation of U.S. matters to favor European interests over the interests of U.S. citizens? What will U.S. regulators say in the future when European regulators, citing the Microsoft and Illumina examples, assert jurisdiction over a U.S.-centric transaction where U.S. and European interests are at odds? What if Chinese regulators make similar assertions?
THE SPEED READ
Deutsche Bank said a plunge in its stock price last month that alarmed customers and trading partners was driven by a “speculative attack.” (FT)
Lawmakers in Canada’s Conservative Party want to block a takeover bid for Teck Resources, a Canadian miner, by the Swiss commodities giant Glencore. (Bloomberg)
Congressional lawmakers are pressing federal agencies to better police stock trading by U.S. officials. (WSJ)
How Trump-era changes to the tax code could hurt corporate America’s R.&D. (Bloomberg Opinion)
Tensions between the U.S. and China are high, but President Biden’s response is reportedly being hampered by a turf war in his cabinet. (Politico)
Best of the rest
“Succession” and other HBO shows will be broadcast in India by a media venture whose backers include … James Murdoch. (FT)
Jerry Springer, whose chaotic talk show set a new standard for tawdriness on American TV, died yesterday. He was 79. (NYT)
A must-watch: President Yoon Suk Yeol of South Korea serenading a White House audience with his rendition of “American Pie.” (NYT)
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