Banks scramble to find leaders equipped for today’s economic realities
Wall Street executives, who came up during the era of easy money, are finding it difficult to run a bank in the current environment of high inflation and interest rates. As a result, some of them, including Citigroup CEO Jane Fraser, are making drastic, expensive, and often unpopular changes to their institutions to help them keep up. Banks are also reshuffling their CEOs and cutting jobs in response to the challenges of operating in today's unpredictable market.
Gas is rapidly approaching $6 in one state
California has seen a rapid increase in gas prices, with the state average reaching $5.76 per gallon, up by 30 cents in the past week alone. Drivers in 11 states now face gas prices of over $4 per gallon, with some areas in Washington and Nevada seeing prices of $5 or higher. Oil prices are at a 10-month high, reaching $93.74 per barrel, driven by aggressive supply cuts by Saudi Arabia and Russia. While the rise in gas prices is hurting consumers, it is unlikely to pose an immediate risk to the US economy, with prices needing to double to $140 per barrel before a recession is inevitable.
ChatGPT mania may be cooling, but a serious new industry is taking shape
A new phase in the development of generative artificial intelligence (AI) is beginning, with a focus on supercharged AI models. Three factors will shape the industry: computing power, with rivals such as Google working on more powerful models; the need for data, with companies signing deals with news and photography agencies, creating synthetic training data, and exploring new forms of data such as video; and money, with model-makers targeting fee-paying businesses and software developers. While OpenAI and Google have an early advantage, the most efficient and innovative approaches could still emerge victorious.
Eight big banks must face US cities' bond collusion claims
A US judge has ruled that American cities can pursue class-action claims against eight banks for driving up interest rates on municipal bonds. The cities of Baltimore, Philadelphia and San Diego have accused the banks of conspiring to raise rates on over 12,000 variable-rate demand obligations from 2008 to 2016, reducing available funding for schools, hospitals, water and power supplies and transportation. The banks involved in the case are Bank of America, Barclays, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Royal Bank of Canada and Wells Fargo.
Cisco taps new M&A firm Tidal for $28 billion Splunk deal
Tidal, a mergers and acquisitions advisory firm established by former Centerview Partners bankers David Handler and David Neequaye, has advised Cisco Systems on its $28bn acquisition of cybersecurity firm Splunk. Tidal was the sole financial adviser to Cisco, while Qatalyst Partners and Morgan Stanley advised Splunk. Handler and Neequaye previously launched Centerview's technology advisory group in 2008. Cisco CEO Chuck Robbins said Tidal did a "great job" and the company had a long-standing relationship with the pair.
Wall Street chief dragged into court battle over Mike Ashley’s trades
Frasers Group, owned by Mike Ashley, is suing Morgan Stanley for €50m ($61m) in damages, claiming the bank “arbitrarily” and “incorrectly” closed out bets on Hugo Boss stock and lost the company millions as a result. Frasers has asked a US judge to order Morgan Stanley CEO James Gorman to produce evidence in a UK lawsuit it is pursuing against the bank. Morgan Stanley demanded $995m from Frasers in May 2021 to back up positions the company had built in the German fashion house’s stock.
Silchester-backed asset management boutique shuts its doors
UK asset manager Sanderson Asset Management is shutting down after over 20 years in business. The boutique firm, backed by Silchester Partners, had struggled to agree on an ownership structure that satisfied all stakeholders and incentivised the next generation of leaders. The decision to close the firm was made despite a rebound in performance this year. Sanderson's flagship Sanderson International Value Fund rose 27.6% in the 12 months to the end of August, compared with the MSCI EAFE Index's 17.9%. The firm's assets have dropped from $12bn at their peak in 2017 to $1.4bn at the end of June.
Apple's iPhone seen gaining market share in India as Pro model demand rises
Apple is expected to increase its share of India's smartphone market with the launch of its high-end iPhone 15 Pro and Pro Max models. The tech giant is projected to account for 7% of all smartphone sales in the country from July to December, up from 5% in the first half of 2023. Apple's suppliers have been expanding their manufacturing operations in India as the company looks to boost sales in the region amid declining demand and regulatory pressure in China. While Apple is the largest player in the premium smartphone market in India, it still has a long way to go before it can match sales in its major markets.
BMO analyst provides a ‘mortgage survival guide’ for Canadian banks
The Globe and Mail
BMO bank analyst Sohrab Movahedi reports that Canadian real estate secured lending (RESL) balances at the "Big 6" banks were up almost 3% year-over-year to $1.7 trillion in Q3/23, below the 10-year compound annual growth rate (CAGR) of approximately 5%. The growth in mortgages was 3% year-over-year to $1.4 trillion, while home equity lines of credit (HELOC) grew 5% year-over-year to $271 billion. Movahedi expects historically low RESL loss rates based on forecasted low unemployment rates. Meanwhile, BofA global strategist Nigel Tupper noted a marginal deterioration in global corporate earnings revisions in September, with consensus earnings expectations softening. The Morgan Stanley Supply Chain Index (MSSCI) contracted slightly in August, with containership rates declining sharply month-over-month but remaining above pre-Covid levels.
FACTBOX Morgan Stanley raises quarterly Brent oil price forecasts
Morgan Stanley has raised its quarterly forecast for Brent oil prices in 2023 and 2024, citing the supply deficit caused by the extension of output cuts from Saudi Arabia and Russia. The bank said that the market deficit will keep oil prices supported around current levels, but prices above $100 a barrel would seem "stretched." Brent futures were trading around $92.50 a barrel on Thursday, after hitting a 10-month high on Tuesday.
Explainer: UAW expands strikes against GM, Stellantis in fight over new contract
The United Auto Workers (UAW) has expanded its strike against General Motors (GM) and Stellantis but said that it has made progress in talks with Ford. The UAW is pushing automakers to eliminate the two-tier wage system, restore pay improvements and retiree benefits cut during the 2008-2009 economic crisis, and restore defined benefit pensions for all workers. The union is also seeking job security guarantees and an end to the use of temporary workers, as well as agreements to represent hourly workers at joint-venture EV battery plants.
Chinese lenders step in to back crude oil pipeline in Uganda
South China Morning Post
Chinese lenders are set to provide over half of the $3bn debt Uganda needs to construct a crude oil pipeline, after financiers from the West withdrew their support, reportedly following strong opposition from environmental groups. Uganda's Ministry of Energy and Mineral Development said it expects to finalise talks with the China Export & Credit Insurance Corporation (Sinosure) and the Export-Import Bank of China (Eximbank) by the end of October to finance the construction of the East African Crude Oil Pipeline (EACOP). Irene Bateebe, the ministry’s permanent secretary, said Sinosure is working with Eximbank to provide funding for the pipeline, which "is the largest portion – above 50% of the debt". The 1,443 km pipeline would transport crude oil from Uganda’s Lake Albert oilfields in northwest Uganda to Tanga in Tanzania on the Indian Ocean where the oil would be sold on to world markets. Besides Chinese lenders, Bateebe said Uganda expects to secure some funding from Saudi Arabia’s Islamic Development Bank and some African banks, including the African Export-Import Bank.