Raphael Stevens

For cash-strapped governments, development-finance institutions (dfis) offer an understandably alluring vision: that of development executed by the private sector at little cost to the state. Such institutions try to build businesses and create jobs by lending money and buying stakes in firms, and seeking healthy returns. Their aim is “to do good without losing money”, as an early chairman of the British one put it. Of late they have been tasked with fixing the climate, promoting sustainable-development goals and shepherding investors to difficult markets, too.This grand vision explains a recent rush of money into bilateral dfis. In 2019 America set up the us International Development Finance Corporation (dfc), with an investment limit of $60bn, twice that of its predecessor. The year before, Canada launched its first dfi. In Europe the combined portfolio of the 15 biggest institutions has doubled in a decade, to €48bn ($53bn) by the end of 2021. Some organisations operate as wholly owned investment arms of their governments; others are more like public banks, in which commercial investors have a minority stake. There is a common problem, however: dfis are yet to show their model can meet ambitions in the world’s poorest places. The funds end up in all sorts of businesses, from risk insurance for marine conservation in Belize to investing in Ethiopian telecoms operators. European outfits allocate a third of their cash to financial institutions, which lend it on to local firms. Another quarter goes to energy projects, such as solar panels and hydroelectric dams. dfis have mostly avoided losing money, making modest returns in the process, though covid-19 temporarily pushed many into the red. By their own reckoning, they have created millions of jobs.Yet this avoidance of loss may reflect excessive caution. In theory, dfis go where private investors fear to tread, demonstrating the possibilities of new markets. In practice, they often look for cheap co-financing from donor agencies that give grants or concessional loans, in order “to take the risk off the table” by making the firms involved less likely to fail, says Conor Savoy of the Centre for Strategic and International Studies, a think-tank. Philippe Valahu of the Private Infrastructure Development Group says his donor-backed fund, which focuses on Africa and Asia, has taken on projects that dfis turned down “because they were viewed as too risky”.One issue is where to spend. In 2021 some European dfis made only half their investments in sub-Saharan Africa or South Asia, the two places where almost all the world’s poor live. In tough countries it can be hard to find projects that are ready to receive finance. A failed investment may be bad for development as well as for the balance-sheet, argues Colin Buckley of the Association of European Development Finance Institutions. “You have a negative demonstration effect,” he says. “What you’re telling all investors is: ‘Don’t come here, you’re only going to lose money.’”Another issue is the type of investments dfis make. Businesses in developing countries need capital that is going to stick around and shoulder risk, as equity does. But only a few dfis, such as those in Britain and Norway, hold large equity portfolios. In America the dfc’s use of equity is constrained by federal budget rules, which treat it like a grant rather than a recoupable investment. In Europe some big dfis are set up and regulated like banks, with loans as their bread and butter. Banking rules designed for Europe are hard to apply in countries where some customers lack documents such as certificates of incorporation, says Michael Jongeneel, chief executive of fmo, the Dutch dfi.Many institutions are trying to be more adventurous. America’s dfc last year made around 70% of new investments into countries with average incomes of below the $4,256 threshold at which a country becomes upper-middle income according to the World Bank. British International Investment (bii) puts most of its money into Africa, and holds about 9% of its portfolio in a “Catalyst” fund, which seeks out the very riskiest investments. In 2021 a group of dfis launched a new platform to pool expertise and map markets in so-called “fragile” states, including fact-finding visits to Liberia and Sierra Leone.But dfis are caught between competing expectations, explains Samantha Attridge, co-author of a recent study for odi, a think-tank. Governments want them to generate a financial return, to go where private investors will not and to draw many more private investors into their projects. “If you want to create the maximum impact by going to the most difficult places, you’re not going to be able to bring pure commercial investors alongside you,” says Nick O’Donohoe, chief executive of bii.Governments, as the primary shareholders, must decide what precisely is the purpose of dfis. That means being realistic about what markets can achieve amid obstacles to investment such as political insecurity or a lack of contract enforcement—the kind of gnarly problems which dfis are not designed to solve. “Robust private-sector development and access to capital is critical for growth,” as Scott Nathan, chief executive of dfc, points out. But they cannot always come first. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

When china’s leaders reappointed Yi Gang as governor of the country’s central bank in March, it was a pleasant surprise. With an economics phd from America, where he also taught, Mr Yi is the kind of reform-minded, well-travelled technocrat that is disappearing from China’s policymaking establishment.The impression of him as a welcome anachronism was reinforced on April 15th when he spoke on the record, in English, at the Peterson Institute for International Economics, a think-tank in Washington, before accepting unscripted questions from the audience. In the talk, he expressed respect for market forces and economic liberties. “You have to believe that market adjustment is by and large rational,” he said. As a policymaker, he has pushed to give households and private firms “the maximum amount of freedom” to buy foreign exchange, without entirely abandoning capital controls. One reason for his stance is personal. As a student and professor abroad, he remembered, he found it difficult to convert yuan into dollars, even for small sums. “I hate that,” he said. The Chinese official even argued—only half-jokingly—that he was reluctant to intervene in currency markets, partly because traders at hedge funds, securities firms and commercial banks are much better paid, and presumably therefore smarter, than him and his hard-working team at the central bank. Asked if he felt China’s foreign-exchange reserves were still safe after the West’s financial sanctions on Russia, he expressed an almost touching faith in the global economic “architecture” (remember that?). This was music to the ears of the crowd in Washington. But a few of Mr Yi’s arguments raised eyebrows. He contrasted the stability of China’s interest rates with the activism of America’s Federal Reserve. After covid-19 struck, for example, the Fed slashed interest rates by 1.5 percentage points to near zero. The People’s Bank of China (pboc) cut them by only 0.2 percentage points. Conversely, since the start of 2022, as the Fed has raised rates by 4.75 points, the pboc has nudged down rates another 0.2 points.Mr Yi also explained that he tries to keep real interest rates a little below China’s “potential” growth rate, the pace at which the economy can grow without increasing inflation. One of the charts he showed suggested that real rates have averaged almost two percentage points below potential since 2018, when his tenure began.Such a guideline raises a number of awkward issues. Start with the theory behind it. In 1961 Edmund Phelps, who would go on to win a Nobel prize, spelled out a “golden rule” of saving and investment. An economy obeying this rule would accumulate capital up to the point where its marginal product (the gain from adding more) equalled the economy’s underlying growth rate. In these circumstances, the interest rate (which is closely related to the marginal product of capital) would also fall into line.This theoretical precept is, however, a rather strange guide to monetary policymaking. Central bankers do not, after all, control the marginal product of capital, exerting only very distant influence on it through their sway over the pace of investment. Moreover, why would a central bank aim to keep interest rates below the potential growth rate, rather than in line with it? In Mr Phelps’s model, interest rates settle below growth only when the economy has overaccumulated capital, driving its marginal product down too far. Such an economy has sacrificed consumption for the sake of excessive saving and investment, which will not generate any offsetting gratification in the future.China is, of course, routinely accused of exactly this kind of overinvestment. It was a little odd, then, to hear a Chinese central banker describe one of its symptoms as a policy goal. However, in an earlier speech in Beijing this month, Mr Yi made clear that he is trying to follow the golden rule. When deciding policy, he aims a little below the glistering rate only because potential growth is so difficult to calculate precisely (and, presumably, because he would rather undershoot than overshoot it). Uncertainty also explains the inactivism of Mr Yi’s interest-rate setting. To justify this approach, he cited the “attenuation” principle formalised by William Brainard of Yale University in 1967, which states that if policymakers are uncertain about the effects of their own policies, they should do less than they otherwise would. In other words, if you are not sure of the potency of your medicine, administer less than you would if you were. This sounds reasonable. “A little stodginess at the central bank is entirely appropriate,” as a former Fed official once put it.But in monetary policymaking the principle can end up being counterproductive. As Stéphane Dupraz, Sophie Guilloux-Nefussi and Adrian Penalver of the Bank of France argued in a paper published in 2020, those smart, well-paid traders in the financial markets, as well as wage- and price-setters in the broader economy, will come to expect this stodginess and adjust their actions accordingly. If inflation gets out of whack, they will expect an inhibited response and, as a consequence, a more persistent misalignment of inflation. They might then act on this expectation, setting prices or wages in ways that aggravate the problem.Attenuation deficitAfter Mr Yi’s speech, Adam Posen of the Peterson Institute pointed out that other central bankers would be very happy to have the Chinese policymaker’s inflation record, especially now. Last year inflation in China was only 2%. But cautious, inhibited policymaking is probably not the reason for this exceptional price stability. Thanks to the country’s aggressive containment of the pandemic in 2020, the central bank did not have to cut interest rates as much as the Fed to rescue the economy. And because of China’s bull-headed commitment to zero-covid policies last year, the central bank did not need to raise interest rates to contain inflation, as the Fed belatedly did. China’s attenuated monetary policy succeeded only because of a decidedly unattenuated covid policy. ■Read more from Free exchange, our column on economics:How the state could take control of the banking system (Apr 12th)Why economics does not understand business (Apr 4th)China is now an unlikely safe haven (Mar 30th)Also: How the Free exchange column got its name More

Overseas investors have been pecking at the Evergrande empire for well over a year. They have so far come away with very little. The Chinese company, which is the world’s most indebted property developer, with some $300bn in liabilities, defaulted in late 2021 and has been fending off creditors ever since. When the firm delayed a restructuring plan last year, a group of bondholders demanded that Hui Ka Yan, Evergrande’s chairman, put up $2bn of his own cash—a demand which went precisely nowhere. The billionaire, Evergrande and many other failing property companies have so far done well to continue to keep their assets out of foreign clutches. China’s property industry was flung into crisis in the middle of 2021 as companies such as Evergrande struggled to meet stringent government limits on debt levels while also continuing to build homes and pay creditors, both those in China and overseas. In the years since then, 39 companies with close to $100bn in dollar-denominated debts have defaulted. In recent weeks, a few have publicly announced proposals for how they will repay offshore creditors. Have they offered up enough?The property crisis means different things to different people. It has left ordinary folk without homes for which they have paid, as companies come up short on the cash needed to build them. It has cut off the most important sources of revenue for local officials—those of land sales to developers—and has hindered their ability to pay their own debts. This is leading to worries about a much bigger onshore debt crisis in future, linked to financing vehicles run by city and provincial governments. For local creditors, meanwhile, the worry is that small banks have lent too much to developers and local-government firms, and could therefore collapse.Of all those involved, foreign bondholders have been noisiest. That might be because they are lowest on the totem pole of parties likely to be compensated. The property crisis has devastated the offshore market for Chinese debts. There are $170bn-worth of outstanding dollar-denominated bonds issued by Chinese firms. According to Goldman Sachs, a bank, just a third of issuers have made payments on time. Yet Chinese authorities are loth to bail out hedge funds run by foreign capitalists, so have offered next to no support. The legal structures that underpin these debts are based on the laws of Hong Kong or other offshore jurisdictions but—in the event of a dispute—involve claiming assets almost exclusively based in China, and therefore governed by Chinese law. This has created a buffer between creditors such as BlackRock, an American asset manager, and the holdings of Evergrande. Only recently have developers given a sense of what they are willing to offer the foreigners. So far the outlook is far from encouraging. Since the start of the year five companies have put forward restructuring plans, including Evergrande and Sunac, another highly indebted firm that recently defaulted. The proposals could become templates for other restructuring attempts over the years to come.What is on offer is mainly debt extensions rather than “sustainable and permanent restructurings”, note analysts at Fitch, a rating agency. For example, one group of Evergrande creditors will receive new bonds with maturities of up to 12 years—a frightfully long wait. Those willing to accept riskier equity-linked instruments can expect repayment in under a decade. Sunac investors have been offered a similar, albeit slightly better, deal.Both Evergrande and Sunac are also offering to swap debt for stakes in some of their operations. The former has been trying for several years to build an electric-vehicle business, and is willing to give creditors a slice. Sunac has a property-management arm that it is offering up. Such investments pay nice dividends when firms perform well, but offer far less protection than fixed-income investments when they collapse. Accepting such offers would be a “leap of faith”, according to Sandra Chow of CreditSights, a research firm. Few creditors will willingly take so much as a hop.One Hong Kong-based lawyer has called the early restructuring proposals “a bad punchline at the end of a long joke”. They will, however, buy developers some time. The central government’s priority now is to re-establish confidence among homebuyers. To do that officials must ensure that homes for which payments have been made actually get delivered. This strategy does not include direct support for foreign creditors. Yet if the state can muster a gradual recovery in the property market, some companies may be able to offer offshore bondholders better deals.The government has loosened some of the restrictions that threw the sector into turmoil in the first place. An improvement is clearly in the works. In 30 of China’s big cities, sales in March increased by 44%, year on year. The same month, average property prices across 70 cities rose, too. If the revival continues, the proposals from Evergrande and Sunac might mark a low point for the market, and for foreign confidence in it. That, at least, is the hope. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The consumer price index inflation rate is almost a full percentage point higher than the Bank of England’s Monetary Policy Committee projected in its February report.
Food and non-alcoholic beverage prices rose by 19.2% in the 12 months to March, experiencing their sharpest annual incline in more than 45 years, the Office for National Statistics said Wednesday.

LONDON – March 31, 2023: A pedestrian shelters from the rain as they walk past fruit and vegetables displayed for sale at a market in stall east London. New data released on Weds, April 19 revealed that food and non-alcoholic beverage prices rose by 19.2% in the year to March 2023, the sharpest annual increase for more than 45 years.
Susannah Ireland/AFP via Getty Images

LONDON — U.K. inflation remained stubbornly in double digits in March, driven largely by soaring food prices, while the country’s cost-of-living crisis shows little sign of abating.
The 10.1% annual headline inflation figure of Wednesday came in above consensus estimates, and the consumer price index rate sits almost a full percentage point higher than the Bank of England’s Monetary Policy Committee projected in its February report.

Food and non-alcoholic beverage prices rose by 19.2% in the 12 months to March, experiencing their sharpest annual incline in more than 45 years, the Office for National Statistics said Wednesday.
As British households continue to contend with high food and energy bills, workers across a range of sectors have launched mass strike action in recent months amid disputes over pay and conditions.
The British government still provides residential energy subsidies, guaranteeing a cap on average household energy bills of £2,500 per year until the end of June, along with targeted support to certain vulnerable homes.
Despite this, Dominic Miles, global co-head of consumer at L.E.K. Consulting, said that the Wednesday figures showed “there is currently no respite from cost of living pressures.”
“Consumers are doing their best to make savings on essentials in order to maintain discretionary spending — this fragile equilibrium is underwritten by the ongoing energy subsidies without which a tipping point might be reached,” he said.

Further monetary policy tightening to come
Though food prices are keeping headline inflation elevated for now, economists expect it to fall sharply in April due the base effects of the spike in energy prices triggered in April 2022 by Russia’s invasion of Ukraine, while energy demand will inevitably fall through the summer.
But upward price pressures are currently proving broader and more stubborn than just these two components.
Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose by 6.2% over the 12 months, unchanged from the annual climb of February. This stickiness will be a concern for the Bank of England.
The labor market remains tight, reaffirming that risks to inflation are firmly skewed to the upside.
“Today’s figure shows that the cost-of-living crisis many Britons find themselves in might not be releasing its grip on families as quickly as first expected,” said Tom Hopkins, portfolio manager at BRI Wealth Management.
“The U.K. economy is not out the woods just yet, that said, if economic data continues to come in less negative than expected, it could help stir a revival in business and consumer confidence.”

The widespread strikes and squeezed household incomes were cited as reasons behind the country’s flatlining GDP in February. Meanwhile, persistent high inflation and labor market tightness will likely see the Bank of England continue hiking interest rates, exerting further downward pressure on what is already expected to be the worst-performing major economy in the world over the next two years.
Despite the bleak prognosis, the economic data has, by and large, shown more resilience than many expected late last year, thus far avoiding a technical recession — characterized as two successive quarters of negative growth in real GDP. The independent Office for Budget Responsibility and the central bank no longer forecast a downturn this year.
Given the upside inflation risks, labor market tightness and surprising economic robustness, markets are pricing in that the Bank of England will implement a further 25 basis point hike in interest rates during its May 11 meeting, which would take the main Bank rate to 4.5%.
This consensus was strengthened by an upside surprise in February wage data ahead of Wednesday’s March inflation print, although private sector pay — the MPC’s preferred metric — continued to show signs of slowing momentum.
Upward rate revisions
Several economists took swift action on Wednesday to upgrade their terminal interest rate forecast. Royal Bank of Canada Senior U.K. Economist Cathal Kennedy and Global Macro Strategist Peter Schaffrik upped their outlook to factor in a 25 basis point hike, but expect the Bank to remain on hold for the rest of the year.
Deutsche Bank Senior Economist Sanjay Raja noted that, since the MPC’s March meeting, “all key metrics have outperformed our expectations,” prompting the German lender to revise its forecasts.
“We now expect the MPC to push through two more hikes, taking Bank Rate to the very top end of our terminal rate projection at 4.75% in June,” Raja said in a note Wednesday.
“We expect the MPC to stick to its current data-dependent message in May. And, importantly, we now see risks to our terminal rate forecast skewed to the upside.”

Berenberg also upped its rate forecast from a hold at 4.25% in May to a 25 basis-point hike to 4.5%, with a 30% chance of a further quarter-point hike to 4.75% at the June meeting.
“Looking further out, we continue to expect the BoE to only partly scale back its tightening once inflationary pressures have subsided. In our view, a healthy outlook for long-run demand growth against a host of supply-side headwinds will leave the UK — and the Western world more broadly — more prone to bouts of inflation,” Senior Economist Kallum Pickering said.
The Hamburg-based private bank still projects drops totalling 50 basis points in the fourth quarter of 2023, but the new expectations for the peak means that the Bank rate will end the year at 4% before further cuts in 2024.
“Amid a highly uncertain outlook, we now expect 100bp of cuts instead of 50bp to keep our end-2024 call unchanged at 3.0% — our best guesstimate of the equilibrium bank rate. We maintain our call for no adjustment in the bank rate in 2025,” Pickering added. More

Shares in three of Japan’s five largest trading conglomerates reached record highs over the past week, following an announcement by Warren Buffett that he is keen to own more of their stock. It is just the latest good news for the firms. Itochu, Marubeni, Mitsui, Mitsubishi and Sumitomo Corporation have surged in value since Berkshire Hathaway, Mr Buffett’s investment firm, announced its first purchases on his 90th birthday in 2020. Since then, their share prices have risen by between 64% and 202%.In some ways Japan and Mr Buffett are a match made in heaven. Mr Buffett is famed for his unerring focus on business fundamentals. Even after a recent sell-off in American stocks the broad Tokyo market is still far cheaper. Its price-to-earnings ratio (based on expected earnings over the next year) is around 13, compared with 18 in America. The trading firms Berkshire Hathaway has invested in—known in Japan as sogo shosha—are often seen as stodgy and reliable. All have price-to-earnings ratios of below ten and pay healthy dividends.Berkshire Hathaway’s Japan trade is revealing in other ways, too. It illustrates why the country may become a more appetising destination for other American investors. On April 14th the investment firm issued around $1.2bn in yen-denominated bonds, adding to the $7.8bn it issued from 2019 to 2022. Not only is Japan now Berkshire Hathaway’s second-largest investment location—the yen is also its second-largest funding currency. Even before the recent issuance, nearly a fifth of Berkshire Hathaway’s debt was denominated in yen. The company is not borrowing because it is short of cash. Rather, the trade reveals the advantages of currency hedging. Borrowing as well as buying in yen protects Mr Buffett from falls in the currency’s value. And as a result of the gulf in interest rates between America and Japan, he can finance his investments using long-term loans charging less than 2% annually, while keeping his spare cash at home invested in government bonds earning almost 5%. Mr Buffett has questioned the merit of currency hedging in the past. Its appeal today seems to be irresistible. Borrowing in yen is so cheap relative to doing so in dollars that the trade is a no-brainer for investors with even a passing interest in Japanese stocks. Of course, not every such investor can easily issue yen-denominated bonds. But those who cannot may exploit the monetary-policy gap with more straightforward currency hedges. Prices in forward and futures markets are determined by the difference in interest rates between the two economies in question. The surge in American but not Japanese interest rates over the past 18 months means that Japanese investors are paying an enormous premium to buy American assets and protect themselves from currency movements. American investors get a rather lovely premium when they do the same in the other direction.The yen currently trades at 134 to the dollar, but currency-futures maturing in March next year give investors the opportunity to sell at 127 to the greenback. That locks in a 5% return over little less than a year. The only cost is that the buyer must hold yen for the whole period. For investors who want to own Japanese stocks, the return to hedging is essentially a bonus. The opportunity looks unlikely to disappear. Even if the Bank of Japan abandons its yield-curve-control policy, few analysts expect a big rise in Japanese rates.The potential benefits are large. Over the past year, the msci usa index has provided net returns, including capital gains and dividends, of -5%. The msci Japan index, unhedged but in dollar terms, provided a return of 1%. The msci Japan Hedged index, based on the returns of Japanese stocks employing one-month-rolling-currency forwards, is up by 12% over the same period. It is probably only because of the enviable returns to American stocks over the past decade or so that more investors have not taken advantage of the Japanese bonus. But big names are beginning to jet to the other side of the Pacific. Elliott Management, an activist investor, has been rewarded for its intervention in Dai Nippon Printing. The company’s shares have surged by 46% this year. Meanwhile, Citadel, an American hedge fund, is reportedly reopening an office in Tokyo, having stayed away for the past 15 years. After a period in which the Japanese market has quietly offered solid returns, the example of Mr Buffett and other giants of American finance might draw a little more attention.■Read more from Buttonwood, our columnist on financial markets:What luxury stocks say about the new cold war (Apr 13th)Stocks have shrugged off the banking turmoil. Haven’t they? (Apr 5th)Did social media cause the banking panic? (Mar 30th)Also: How the Buttonwood column got its name More

Electric vehicles (EV) line up outside a Tesla dealership in Melbourne on April 19, 2023.
William West | AFP | Getty Images

Check out the companies making headlines after the bell.
Tesla — Shares slid 3.6% after the electric vehicle maker said income and GAAP earnings tumbled more than 20% from the same quarter a year ago. Adjusted earnings per share were in line with Refinitiv’s consensus estimate, while revenue was ahead of expectations at $23.33 billion compared with the expected $23.21 billion. Competitor Rivian was down 0.7% following news that the company has increased and extended its credit facility. Lucid, which is focused on luxury electric vehicles, slipped 0.1% after hours.

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Las Vegas Sands — The stock rose 4.3% after the casino and resort company issued quarterly results. Las Vegas Sands posted adjusted earnings of 28 cents per share in the first quarter, a larger gain than the 20 cent consensus estimate of analysts polled by Refinitiv. The company also beat expectations for revenue, reporting $2.12 billion compared with the $1.85 billion estimate. Wynn Resorts gained 3%.
IBM — Shares of the technology service company advanced 2.3% after hours following a mixed first-quarter earnings report. The company reported adjusted earnings per share of $1.36, beating the consensus estimate of analysts polled by Refinitiv by 10 cents. But IBM’s $14.25 billion in quarterly revenue was under the $14.35 billion figure anticipated by Wall Street.
Lam Research — The maker of semiconductor equipment slid 0.7% after giving weak guidance. For its fiscal fourth quarter, the company anticipates adjusted earnings of $5 per share and $3.1 billion in revenue. Consensus estimates from Refinitiv show Wall Street expects $5.63 in earnings per share and $3.47 billion in revenue. That guidance overshadowed Lam’s performance in its third fiscal quarter, when it beat expectations on the top and bottom lines.
Zions Bancorporation — Shares dropped 4% after the regional bank reported lower-than-expected earnings for the first quarter. Zions reported earnings per share of $1.33, falling short of analysts’ expectations of $1.53, according to Refinitiv. The bank also reported $679 million in net interest income, while analysts forecasted $687.5 million, per StreetAccount. Zions had rallied on Wednesday, gaining 7.4% during the day’s trading session, as shares of several other regional banks were lifted amid reports that show deposits are stabilizing after the banking crisis last month. 
Alphatec — The medical technology stock tumbled 6.9%. Alphatec said it acquired all assets of REMI Robotic Navigation System from Fusion Robotics for $55 million. The company also raised its 2023 revenue guidance on the back of strong preliminary results from the first quarter. Alphabet preliminarily reported between $108 million and $109.5 million in first-quarter revenue, while analysts polled by FactSet estimated $101.6 million.

SL Green Realty – Shares gained 2.7% in extended trading after SL Green said that its Manhattan same-store office occupancy was 90.2% as of March 31, slightly ahead of the company’s expectations. The real estate investment trust, a major office landlord in New York City, posted a first-quarter loss of 63 cents per share, slightly wider than the loss of 61 cents per share that was forecasted by analysts, according to FactSet. Net rental revenue came in at $174.6 million, compared to analysts’ estimates of $182.6 million, per StreetAccount.
— CNBC’s Pia Singh and Darla Mercado contributed reporting More

After a hurricane has passed there is a period of calm that can feel euphoric. Survival is no longer at stake. Then, once the relief fades, it is time to assess the damage. What destruction has been wrought? How difficult will it be to recover? The sequence will be familiar to anyone who has been paying attention to American banks this year. In the days that followed the sudden failure of Silicon Valley Bank, once the country’s sixteenth-largest lender, as well as two other banks, panic and fear ripped through the financial system. Now, though, the storm seems to have passed. Certainly, no lender has been imperilled since. Cue the relief. What of the wreckage? The extent can be hard to discern in the immediate aftermath. But America’s listed banks must, once a quarter, disclose their balance-sheets and earnings, offering a 30,000-foot view of the mess. Results season, which began on April 14th, when Citigroup, JPMorgan Chase, pnc Bank and Wells Fargo reported their first-quarter results, will continue to be closely watched through to April 24th. That is when First Republic, a bank in San Francisco which narrowly avoided failure in March, will belatedly disclose its results, having postponed its normal schedule in light of events. The panorama so far visible indicates that damage has not struck each part of the banking industry evenly. The easiest way to see this is to look at three measures—deposit bases, interest income and profits—at three differently sized banks. The biggest, with $3.7trn in assets, is JPMorgan Chase; one of the largest regional banks, pnc, with $560bn in assets, is next; Western Alliance Bancorp, an Arizona-based lender with a mere $70bn in assets, completes the trio. On each measure, JPMorgan is doing well. Flight from other parts of the industry, as institutions and individuals moved to bigger and safer-seeming banks, resulted in deposit “flock”. Thus the bank’s deposit base grew by 2% from the end of 2022. Although Jeremy Barnum, JPMorgan’s chief financial officer, cautioned that he would not assume these deposits would stick because, “by definition, [they] are somewhat flighty”, the bank nonetheless now expects to earn a lot more interest income (the difference between what a bank pays for its funding and collects on its loans). At the end of last year, JPMorgan thought it would make $74bn in interest income in 2023. The bank now thinks it will make some $81bn. That is because it will have to pay less to retain deposits across the board. All this has helped increase profits at the firm to $12.6bn, up by 15% on the previous quarter and 50% on the previous year. JPMorgan looks just as structurally sound—perhaps even more so—than it did before the storm arrived. Things are not quite as rosy at pnc, our midsized bank. The good news is that the firm’s deposit base has held up—it was $435bn on average in the final quarter of 2022 and ended the first quarter of 2023 at $437bn. The bad news is that the firm is paying more for these deposits. At the end of last year, pnc customers held around 31% of their deposits in non-interest-bearing accounts, and pnc paid around 1.07% on the 69% of deposits that did earn interest. Now customers hold just 28% of deposits in non-interest-bearing accounts and pnc paid an average of 1.66% on the rest during the quarter. Although increases in the interest pnc is paid on its loans has numbed the pain, the bank’s net-interest income still dropped from $3.7bn to $3.6bn. The institution is clearly being cautious—it grew its loan book by just 1% in the first quarter—and this caution meant it also set aside less for loan losses than it did in the final quarter of last year. The overall result is that profits ticked up just a little in the first quarter.Next, consider Western Alliance, the puniest of the three banks. Here the damage is most evident. Western Alliance lost some 11% of its deposits in the first quarter of the year, although the bank’s management pointed out that deposits bottomed out on March 20th and have since climbed. As deposits are a low-cost source of funding, this pushed up the bank’s interest expense by almost 50%, from $250m in the fourth quarter of 2022 to $360m in the first quarter of 2023. Again the impact was dampened by rising interest on loans, which climbed by 10% on the quarter. Thus the institution’s net interest income only dipped 5% compared with the previous quarter. The clearest evidence of damage is in its profit figures, however. As Western Alliance shrank, it sold off parts of its balance-sheet, including loans and securities. This resulted in $110m of losses in the first quarter. Profits fell to $142m, down by half compared with the previous quarter. The firm is now planning to build up capital.These metrics do not paint a picture of an institution near collapse. The clearest proof of impending peril for a bank would be evidence that it has lost so much of its funding—its deposits—that it needs to fire-sell vast quantities of assets even at the cost of enormous outright losses. An alternative harbinger of doom would be if a bank’s funding costs have climbed by so much that its net interest income is wiped out, indicating that it will struggle to make profits in future and maintain its capital levels. None of this is yet evident at the Arizona-based lender.Sweat the small stuffFor the moment, investors seemed to be soothed by the facts laid out by Western Alliance. The financial institution’s shares rallied by 24% on April 19th (although they are still down by a third in the year to date). Its net interest income fell in the first quarter, but is still well above where it was when interest rates were at zero in 2021. Now that the bank has pruned its balance-sheet and is starting to build capital, it could even end up in better shape that it was during the era of low rates. It is nonetheless likely that other banks yet to report, including First Republic, have suffered more. It is also possible that the full extent of the damage might not have been revealed. Most banks report a quarterly average for their net interest margins, not an end of quarter figure, which will mask recent events. Funding costs may have spiraled more than is apparent. Living through a storm can be a scary experience; making it through one intact is reassuring. But not all banks have made it through just yet. ■ More