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London (CNN Business)Regulators have made clear that the US banking system is in much better shape than it was during the 2008 financial crisis, and should have enough money on hand to keep lending to customers in support of the economic recovery.
But new restrictions announced by the Federal Reserve underscore the uncertainty of the outlook due to the coronavirus pandemic, with the United States recording a daily high for new cases Thursday amid a surge of infections in states like Texas, California and Florida.What’s happening: The Federal Reserve will require all large banks to suspend share buybacks in the third quarter and will cap shareholder dividends to the amount paid in the second quarter, moves intended to preserve capital, my CNN Business colleague Anneken Tappe reports.
All large banks will also have to resubmit their capital plans later this year to reflect the impact of coronavirus.
“The banking system has been a source of strength during this crisis,” Vice Chair Randal Quarles said in a statement. The goal, then, is to keep it that way.Read MoreThe Federal Reserve’s announcement accompanied its annual stress test, a post-Great Recession effort that runs through adverse scenarios to ensure the health of the banking system.This year, the Fed also tested how banks would fare in three different recession scenarios: a V-shaped, U-shaped and W-shaped recession and recovery. The central bank found that under its most severe scenarios, losses from bad loans would range from $560 billion to $700 billion. It did not release results by individual bank.What it means: The Fed said that even under the most dire circumstances examined, banks “could continue lending to businesses and households, due to the substantial buildup of capital since the financial crisis.” Still, there’s enough ambiguity about the economic outlook for the central bank to feel it needed to intervene.Some think the Fed should have gone further, banning dividends outright. See here: “The banking system will face increasing stress as the pandemic and the related economic disruption continue, and businesses and households face challenges meeting their financial obligations,” Democratic Senators Elizabeth Warren, Sherrod Brown and Brian Schatz said in a letter to Quarles and Fed Chair Jerome Powell this week. “Now is the time to suspend capital distributions across the board to bolster the loss-absorbing capacity of big banks.”One of the Fed’s governors, Lael Brainard — who was confirmed under President Barack Obama — also objected to the fact that banks can continue shareholder payouts.Investor insight: The KBW Bank Index rose 3.3% Thursday after financial regulators said Thursday they plan to make it easier to let banks invest in venture capital funds and relax some limitations on derivatives trading. But shares fell after hours following the Fed announcement.
Biotech IPOs are booming. It’s not all about Covid-19
Health care companies and governments are racing to find a vaccine or other effective treatment for Covid-19 — so investors have been piling into stocks like Gilead Sciences, Moderna and Novavax.
Biotech IPOs are booming — but it's not all about Covid-19But a biotech boom is also taking place in the initial public offering market. Several recent biotech IPOs have soared since their debuts — even though none are working on coronavirus drugs, my CNN Business colleague Paul R. La Monica reports. Shares of Forma Therapeutics, which is developing drugs for hematologic diseases and cancers, has more than doubled since going public June 18.Avidity Biosciences, which has gained nearly 60% since its debut in mid-June, is working on muscle disorders. And Pliant Therapeutics, which is focusing on fibrosis, is up more than 90% since its early June IPO.IPO research firm Renaissance Capital said in a report this week that two-thirds of the companies going public in the second quarter were from the biotech sector.So what gives? Analysts say biotech firms are benefiting from the broader market comeback, as well as fresh interest in the health care as the industry makes headlines.”Pharma and biotech IPOs are doing particularly well,” said Philip Lawlor, FTSE Russell’s managing director of global markets research. “That’s partly due to Covid-19 but also because of the defensive nature of the health care sector.”Investor insight: The SPDR S&P Biotech ETF is up 20% this year.
Nike’s surprise loss and the future of retail
Nike (NKE) reported a surprise loss for its quarter ending in May, highlighting how the brutal environment facing the retail sector that has hurt even top brands.The details: Nike recorded a 75% rise in digital sales. But that couldn’t make up for store closures around the world and a collapse in the company’s wholesale business, through which Nike sells its products to other retailers.Nike said that wholesale shipments were down nearly 50%, driving inventory up more than 30% from one year ago.In China, where all the company’s stores are open again, there are signs of improvement. Revenue in the Greater China region fell 3%, while revenue in North America and the Europe, Middle East and Africa region both plunged 46%. Investor insight: Shares are down 3% in premarket trading. Nike is in much better shape than many of its competitors. But the results show how much physical stores matter, even for top players in the industry that have invested heavily in their online presence.
Up next
US personal income and spending data arrives at 8:30 a.m. ET.Coming next week: The US jobs report for June is expected to show continued improvement in the labor market, pushing the unemployment rate down to 12.2%.
Source: edition.cnn.com
