US banks in spotlight over bad loans

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Today’s top stories

• Shares in Boeing and supplier Spirit AeroSystems plunged as investigators looked into the causes of a door blowing off a Max 9 aircraft last week. Boeing is currently trying to raise production to catch up with European rival Airbus.

• Brussels approved €902mn in state aid for battery maker Northvolt’s factory in Germany, the first use of a new mechanism that allows governments to provide more funding to companies that have been offered higher subsidies elsewhere. The Swedish company had cited more generous incentives on offer in the US through President Joe Biden’s Inflation Reduction Act.

• US Congressional leaders reached a $1.66tn agreement on federal spending for 2024, raising hopes of avoiding a costly government shutdown. A Financial Times-Michigan Ross survey showed two-thirds of Republican voters trusted Donald Trump more than any other presidential candidate from the party to manage the US economy.

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Good evening.

Investor attention this week swings back to Wall Street where the big US banks publish fourth-quarter results amid warnings about bad loans and the impact of high interest rates.

Non-performing loans are expected to have hit a combined $24.4bn in the last three months of 2023 at the four largest lenders — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup — an increase of nearly $6bn since the end of 2022. Higher borrowing costs meanwhile have raised deposit costs and lowered the value of banks’ bond portfolios. 

Analysts forecast the six big banks, which includes Goldman Sachs and Morgan Stanley, will report a combined hit to earnings of 13 per cent compared with last year.

Earnings will be especially closely watched at JPMorgan, now the biggest American bank on almost every measure and which accounts for a fifth of total US bank profits. Analysts will also be looking for more on the huge reorganisation at Citi, which is likely to take a charge to cover lay-offs and other expenses. Citi is also planning to get more involved in China’s financial markets, even as rivals grow more cautious there.

As a new FT film explains, the collapse of Silicon Valley Bank, Signature Bank and the last-minute rescue of First Republic by JPMorgan, as well as the crisis at Credit Suisse which led to its takeover by UBS, made 2023 a year most bankers will be keen to forget. 

Some are also concerned about recent regulatory moves which they say trap bank capital and make the financial system more fragile.

Across the Atlantic, Europe’s banks are bracing for a flexing of muscles from investor activists who point to the fact that institutions’ share prices have increased much less than the upgrade to their profits.

EU regulators meanwhile are looking into the links between banks and other financial firms, such as hedge funds. Non-bank financial firms or NBFIs, sometimes known as shadow banks, hold almost half of the world’s financial assets, worth around $218tn. The sector grew after post-crisis rules drove some activities beyond the traditional banking sector while other areas outside the reach of regulators expanded, such as cryptocurrency.

José Manuel Campa, chair of the European Banking Authority, told the FT that more transparent data was needed on crucial exposures of non-banks. “The first step in this situation is always getting information; it’s an obscure sector where the quality of data is not homogenous,” he said.

Need to know: UK and Europe economy

British Prime Minister Rishi Sunak is hoping tax cuts can revive his party’s fortunes. He will be encouraged by a new industry survey that shows manufacturers are more optimistic about the UK’s attractiveness as a country to locate operations, albeit still likely to lose ground to India, China and the US. 

Sunak’s government has promised to speed up redress for victims of the Post Office Horizon IT scandal, which has gained greater prominence since a TV drama last week highlighted the plight of sub-postmasters wrongly accused of fraud. Sunak himself said he supported moves to strip former Post Office chief Paula Vennels of her CBE honorary award.

European Council president Charles Michel is standing down to run for the European parliament. Our Europe Express newsletter (for Premium subscribers) unpacks what it means for the Brussels machine.

Eurozone retail sales fell in the run-up to Christmas, defying hopes of a rebound and pointing to continuing economic weakness in the final quarter of the year.

Need to know: global economy

The global shipping fleet has hit its oldest average age in almost 15 years despite pressures for more sustainable vessels. Ship owners are concerned about the future availability of greener fuels while a plethora of ageing second-hand ships are being used in a “shadow fleet” transporting sanctions-hit Russian oil. A shortage of suitable ships is also holding up the flow of Chinese electric cars into Europe.

Bangladesh Prime Minister Sheikh Hasina looks set to extend her two-decade rule after Sunday’s election, in which her Awami League party was practically unchallenged after authorities arrested thousands of members of the opposition Bangladesh Nationalist party in the run-up to the polls.

Argentina’s new pro-market president Javier Milei faces a critical test as his cash-strapped government struggles to meet a looming deadline on the $16bn it owes to former private shareholders of state energy company YPF.

This week is a momentous one for Taiwan ahead of Saturday’s presidential election. Here’s our Weekend Essay on how, in China’s shadow, the island is asserting its identity.

FT columnist Patti Waldmeir reports on how the transportation of migrants by Texas Republicans to Democratic cities in a protest over lack of enforcement of the Mexican border has upended the politics of immigration in the US.

How can liberal democracies meet the challenge of mass migration? Join FT journalists Martin Wolf and Alec Russell as well as expert guests on January 24 at 1pm GMT for a webinar exclusively for FT subscribers. Put your questions to our panel here and register for free here.

Need to know: business

Beijing is attempting to ease fears of another regulatory crackdown on the video game industry after suggestions that tighter controls on the world’s largest gaming market were on the way. Separately, China has accused a foreign consultant of spying for Britain.

The world’s biggest mining project, a $20bn iron ore, rail and port development by Rio Tinto in west Africa, is set to start after 27 years of setbacks, scandals and false dawns.

Harold Hamm, the 78-year old shale magnate, is leading attempts to lure a sceptical younger generation into jobs in the oil and gas industry

European football clubs are raising billions for stadium redevelopment to grab a slice of the booming market for live music and other sporting events, with institutional investors and commercial banks lining up to finance it all.

The World of Work

As boundaries between work and leisure time blur, many workers are using hacks such as schedule send for emails to enable them to work flexibly while respecting some uniformity of working hours. But even the biggest fans of the send-later button acknowledge it is an imperfect fix.

From April, the current entitlement to 30 hours of free infant care a week for three- and four-year-olds in England will be gradually extended to all infants over nine months with two working parents until the child starts school. Childcare providers however say the policy would exacerbate 10 years of “chronic underfunding”.

Businesses should do more to encourage friendships in the workplace, says the Lex column. Research suggests they improve communication, productivity and staff retention.

If you’re short of human friends, there’s always the machine. Deloitte has launched a generative artificial intelligence chatbot for 75,000 employees across Europe and the Middle East that can create presentations, write emails and code in an attempt to boost productivity.

Some good news

The biggest study of its kind to date has highlighted the most successful method of stabilising elephant populations in Africa.