The Fed’s ‘Harsh’ Stress Tests Hit Bank Stocks

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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.


As the U.S. sets records for Covid-19 cases, states that moved quickly to reopen are halting those plans.

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.

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.”

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.

  • Updated June 24, 2020

    • Is it harder to exercise while wearing a mask?

      A commentary published this month on the website of the British Journal of Sports Medicine points out that covering your face during exercise “comes with issues of potential breathing restriction and discomfort” and requires “balancing benefits versus possible adverse events.” Masks do alter exercise, says Cedric X. Bryant, the president and chief science officer of the American Council on Exercise, a nonprofit organization that funds exercise research and certifies fitness professionals. “In my personal experience,” he says, “heart rates are higher at the same relative intensity when you wear a mask.” Some people also could experience lightheadedness during familiar workouts while masked, says Len Kravitz, a professor of exercise science at the University of New Mexico.

    • I’ve heard about a treatment called dexamethasone. Does it work?

      The steroid, dexamethasone, is the first treatment shown to reduce mortality in severely ill patients, according to scientists in Britain. The drug appears to reduce inflammation caused by the immune system, protecting the tissues. In the study, dexamethasone reduced deaths of patients on ventilators by one-third, and deaths of patients on oxygen by one-fifth.

    • What is pandemic paid leave?

      The coronavirus emergency relief package gives many American workers paid leave if they need to take time off because of the virus. It gives qualified workers two weeks of paid sick leave if they are ill, quarantined or seeking diagnosis or preventive care for coronavirus, or if they are caring for sick family members. It gives 12 weeks of paid leave to people caring for children whose schools are closed or whose child care provider is unavailable because of the coronavirus. It is the first time the United States has had widespread federally mandated paid leave, and includes people who don’t typically get such benefits, like part-time and gig economy workers. But the measure excludes at least half of private-sector workers, including those at the country’s largest employers, and gives small employers significant leeway to deny leave.

    • Does asymptomatic transmission of Covid-19 happen?

      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

    • What’s the risk of catching coronavirus from a surface?

      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • How does blood type influence coronavirus?

      A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.

    • How many people have lost their jobs due to coronavirus in the U.S.?

      The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

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.

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 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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