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The Fed’s give and take
It was a day of ups and downs for big American banks, with a lucrative rollback of regulations announced in the morning balanced out by new restrictions on shareholder payouts imposed in the afternoon.
Goldman Sachs’s stock price tells the story. Shortly after the market opened, the Fed and other regulators announced that parts of the so-called Volcker Rule would be relaxed, letting banks invest more freely in hedge funds, private equity and venture capital. Shares in banks like Goldman jumped on the news.
Banks dragged the market higher, buoyed by the deregulatory move. The F.D.I.C. chairwoman, Jelena McWilliams, called the Volcker Rule, a crucial piece of post-financial crisis legislation, “inefficient” and “overly restrictive” in a statement. Fellow regulators issued similar proclamations, while Democratic members of the agencies dissented (but were outvoted). Bank shares climbed to session highs at the close.
Then the Fed spoiled the party. At 4:30 p.m. Eastern, the Fed released the results of stress tests of the country’s largest lenders, assessing their capital cushions under various dire possibilities, including a virus-induced double-dip recession. “The banking system remains well capitalized under even the harshest of these downside scenarios — which are very harsh indeed,” said Randal Quarles, the Fed’s vice chairman of supervision. Goldman cut it close, however, potentially limiting its ability to return capital to shareholders.
• But the Fed banned banks from buying back their own shares in the third quarter, after they had voluntarily agreed to forgo buybacks in the second quarter. The Fed also capped dividends next quarter, restricting them to no more than the amount paid in the second quarter (and potentially less, depending on the strength of earnings to support them).
• In after-hours trading, bank stocks gave up much of their gains.
Today’s DealBook Briefing was written by Andrew Ross Sorkin in Connecticut and Michael J. de la Merced and Jason Karaian in London.
America’s reopening is put on pause
Texas reported a record 6,200 cases on Wednesday. It’s a blow to the state, which was among the first to reopen but is now seeing a flood of infections in many of its major cities. The surge in cases threatens to upend its economy, which had slowly come back from the plunge in oil prices earlier this year.
• Other states are facing that same dilemma. North Carolina and Nevada have both paused their reopening campaigns. Arizona, which now has more cases per capita than any European country ever did, is under pressure to do the same.
Some state leaders are resisting calls to retreat on reopening. “The last thing we want to do as a state is go backward and close down businesses,” Gov. Greg Abbott of Texas said yesterday.
But the soaring number of cases is endangering these states’ recoveries regardless, as consumer confidence gets rattled. Economists at Deutsche Bank cited data showing downward trends in business activity, restaurant bookings and consumer spending in states with the fastest-rising caseloads. “Keeping states open and avoiding the re-implementation of containment measures is not sufficient to eliminate the adverse consequences of negative virus trends,” they wrote.
Jay Clayton still wants a new job
The S.E.C. chairman told House lawmakers yesterday that he would not be withdrawing his nomination to become the next top federal prosecutor in Manhattan, even after the controversy over the firing of the previous holder of that job, Geoffrey Berman.
Mr. Clayton said the move was “entirely my idea.” He told the hearing that his nomination for U.S. attorney for the Southern District of New York was hatched in a June 12 conversation with President Trump and Attorney General Bill Barr. He said he wanted to return to New York after running the S.E.C. in Washington for three years.
He said he could remain independent in the role, despite the controversy over his ties to Mr. Trump, and the manner of Mr. Berman’s ouster from the position. Mr. Trump and Mr. Barr had long been annoyed with the Southern District for its prosecutions of Trump allies like Michael Cohen under Mr. Berman’s watch.
• In an exchange with Representative Katie Porter, Democrat of California, Mr. Clayton was asked whether he could stay independent given that he and the president were “golfing buddies.” He answered, “I absolutely do,” but when pressed on how often he golfs with Mr. Trump, he demurred.
• He also added that he was qualified for the role — despite having never been a litigator or prosecutor — because he oversees 1,300 enforcement lawyers at the S.E.C.
That said, Mr. Clayton acknowledged his long odds of confirmation, especially since New York’s two senators are opposed to his nomination, and tradition gives them a de facto veto on the proposal. “I recognize that the nomination process is multifaceted and uncertain, and it is clear the process does not require my current attention,” he said. “In short, I am fully committed to and focused on my role at the S.E.C.”
Here’s what else is happening
The White House is weighing options for beating Huawei on 5G. The Wall Street Journal reports that the Trump administration is reportedly prodding U.S. companies to consider buying Ericsson or Nokia, the other leaders in 5G wireless technology, or giving the European companies tax breaks and other financial benefits.
Attorney General Bill Barr is unusually focused on the antitrust case against Google. He has engaged a growing number of Justice Department lawyers to advance an investigation into the tech giant, The Times reports, as he has shown a great deal of personal interest and involvement in the matter.
Germany’s oversight of Wirecard is coming under question. E.U. officials are set to ask the bloc’s markets regulator to investigate whether the German financial authority failed to properly supervise the failed payments processor, which filed for insolvency after admitting to missing $2.1 billion in cash.
LeBron James raised $100 million for his media empire. SpringHill, a production company founded by the N.B.A. superstar and his business partner Maverick Carter, secured backing from investors like Guggenheim and News Corp.
More than a billion dollars in coronavirus aid went to dead people. The Government Accountability Office said yesterday that the $1.4 billion mistake arose from bureaucratic errors, including not checking death records.
A growing ad boycott at Facebook
Companies are suspending ad campaigns on Facebook to protest hate speech and misinformation on the platform.
Verizon is the latest to announce that it will stop advertising on Facebook, joining others like Eddie Bauer and Ben & Jerry’s. The backlash is intensifying amid a flurry of misinformation about the protests against racism and police brutality, and ire over Facebook’s less stringent approach to provocative posts from President Trump compared with, say, Twitter.
• Some companies fear for their reputations when advertising on Facebook, which has become a target of public anger for its approach to moderating content.
So what? Although Facebook has acknowledged its “trust deficit” in talks with advertisers, the stream of companies boycotting its enormous platform is far from a flood. As Sara Fischer of Axios notes, it could play out similarly to the 2018 ad boycott of YouTube, which was painful at the time, but didn’t meaningfully dent the site’s position as an advertising powerhouse.
The speed read
• The grocery chain Albertsons priced its I.P.O. at $16 a share, below expectations, and existing investors like Cerberus sold less stock than planned. (WSJ)
• Bain Capital agreed to buy Virgin Australia, which filed for insolvency in April. (Business Insider)
• Amazon reportedly struck a deal to buy Zoox, an autonomous vehicle start-up, for more than $1.2 billion. (FT)
Politics and policy
• The Trump administration asked the Supreme Court to strike down the Affordable Care Act, which would end insurance coverage for as many as 23 million Americans. (NYT)
• Jack Abramoff, the disgraced lobbyist, is set to return to jail for new violations of the Lobbying Disclosure Act — this time, for work done for marijuana and cryptocurrency clients. (NYT)
• The British government has reportedly pledged to invest up to £500 million, or $620 million, in the bankrupt satellite operator OneWeb to build out its own navigation network. (FT)
Best of the rest
• “Banks Should Face History and Pay Reparations” (NYT Opinion)
• A new way to measure economic reopenings: the share of a state’s beer taps open for business. (Axios)
• What’s happening to all the office plants abandoned during lockdown? (NYT)
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