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    Macy’s ends buyout talks with Arkhouse and Brigade after months of negotiations

    Department store Macy’s said Monday its board has unanimously decided to end negotiations with the activist group that had been looking to take the retailer private for roughly $6.9 billion.
    Arkhouse and Brigade had for months been attempting to buy out the storied retailer.
    Macy’s is in the middle of a turnaround effort led by CEO Tony Spring, who stepped into the top job in February.

    The Macy’s company logo is seen at the Macy’s store on Herald Square on January 19, 2024 in New York City. Macy’s department-store chain announced that they will be laying off roughly 2,350 employees which is about 3.5% of their workforce. The company says that it will also be closing five stores in order to adjust to the online-shopping era. (Photo by Michael M. Santiago/Getty Images)
    Michael M. Santiago | Getty Images News | Getty Images

    Department store Macy’s said Monday its board has unanimously decided to end negotiations with the activist group that had been looking to take the retailer private for roughly $6.9 billion, saying in a statement that questions on financing and premium were insurmountable.
    “We have concluded that Arkhouse and Brigade’s proposal lacks certainty of financing and does not deliver compelling value,” Macy lead independent director Paul Varga said in a press release.

    Arkhouse and Brigade had for months been attempting to buy out the storied retailer. Earlier this month, the bidders increased their offer to $24.80 per share, the latest in a series of price hikes since they first launched their takeover effort last year.
    Macy’s said the company had gone “well beyond what is customarily required” in a due diligence period, offering the bidder group store-by-store profit and loss information and leases for each location. The company also noted that Arkhouse and Brigade had been allowed to share that confidential information with more than a dozen “credible financing sources.”
    Arkhouse, after its initial efforts had been rebuffed, said earlier this year it intended to mount a proxy fight for control of Macy’s. The two sides were able to reach a settlement in April, adding two independent directors to the Macy’s board.
    Arkhouse did not immediately return a request for comment. Shares of Macy’s fell roughly 15% in premarket trading Monday.
    Macy’s is in the middle of a turnaround effort led by CEO Tony Spring, who stepped into the top job in February. The department store operator announced earlier this year that it would close about 150 of its namesake stores and open new locations of Bloomingdale’s and Bluemercury, its two brands that have put up stronger results. It’s also opening smaller Macy’s locations in bustling strip malls in the suburbs.

    But the legacy department store operator’s efforts to grow sales have been stymied by high inflation, as consumers became more selective about spending on discretionary items. Macy’s has had to fight to stay relevant, too, as younger shoppers turn to online players like Shein, big-box stores like Target and off-price chains like T.J. Maxx instead of department stores.
    For the fiscal year, Macy’s expects net sales to range between $22.3 billion and $22.9 billion, which would be a drop from $23.09 billion in 2023. It expects comparable sales, which take out the impact of store openings and closures, to range from a decline of about 1% to a gain of 1.5% on an owned-plus-licensed basis and including third-party marketplace sales.
    On an earnings call in late May, Spring said Macy’s is in the “early innings” of revitalizing its namesake stores. Yet he pointed to better sales results at the first 50 stores where Macy’s had invested in more staffing, sharper merchandise displays and special events.
    Arkhouse is a well-known real estate investment firm led by Gavriel Kahane and Jonathon Blackwell. While it is not a conventional activist investing firm, it has made a handful of unsolicited bids for REITs in the last few years. Brigade Capital Management focuses on retail companies, and has previously invested in names like Sears and Neiman Marcus.
    Together, the bidding group sought to unlock what it saw as trapped value inside Macy’s real estate holdings, while simultaneously overhauling the company’s operations. Other department store names have been activist targets in the recent past for similar reasons: In 2022, activist fund Macellum urged Kohl’s to sell itself. More

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    Goldman Sachs tops estimates on better-than-expected fixed income trading

    Here’s what they reported: Earnings of $8.62 per share vs. $8.34 per share LSEG estimate
    Revenue of $12.73 billion vs. $12.46 billion estimate

    David Solomon, Goldman Sachs interview with David Faber, September 7, 2023.

    Goldman Sachs said Monday that it topped profit and revenue estimates on better-than-expected fixed income results and smaller-than-expected loan loss provisions.
    Here’s what the company reported:

    Earnings: $8.62 per share vs. $8.34 per share LSEG estimate
    Revenue: $12.73 billion vs. $12.46 billion estimate

    Goldman said second-quarter profit jumped 150% from a year earlier to $3.04 billion, or $8.62 per share; the bank’s results a year ago were hamstrung by write-downs tied to commercial real estate and the sale of a consumer business.
    Companywide revenue rose a more modest 17% to $12.73 billion on growth in the bank’s core trading, advisory, and asset and wealth management operations.
    Fixed income was a highlight for the quarter; revenue there jumped 17% to $3.18 billion, roughly $220 million more than the StreetAccount estimate, on activity in interest rate, currency and mortgage trading markets.
    Another boost for Goldman came thanks to the firm’s shrinking exposure to consumer loans: The bank’s provision for credit losses in the quarter fell 54% to $282 million; that is significantly below the $435.4 million StreetAccount estimate.
    In other places, the bank was merely in line with expectations; for instance, equities trading climbed 7% to $3.17 billion, matching the StreetAccount estimate, on strength in derivatives activity.

    The bank’s asset and wealth management division produced a 27% increase in revenue to $3.88 billion, also essentially matching the StreetAccount estimate, on gains in equity investments and rising management fees.
    The firm’s platform solutions division saw revenue climb 2% to $669 million, edging out the $652.1 million estimate, on rising credit card balances and deposits.
    But Goldman’s well-known investment banking business disappointed compared to rivals; investment banking fees rose 21% to $1.73 billion, slightly under the $1.8 billion StreetAccount estimate. The source of the miss appeared to be lighter-than-expected advisory fees of $688 million, compared with the $757.3 million estimate.
    Goldman’s 21% increase in investment banking fees in the quarter compared with jumps of over 50% for both JPMorgan Chase and Citigroup; JPMorgan in particular cited a flurry of activity toward the end of the period that boosted results.
    Goldman CFO Denis Coleman told reporters that the bank still had a No. 1 market share for mergers and the comparison had to do with better relative performance a year ago.
    Shares of New York-based Goldman fluctuated between gains and losses of less than 1% in premarket trading.
    Expectations have been set high for Goldman Sachs, with Wall Street businesses in the midst of a rebound after a dismal 2023. That’s because out of the six biggest U.S. banks, Goldman is the most reliant on investment banking and trading to generate revenue.
    On Friday, rivals JPMorgan and Citigroup both topped expectations thanks to surging investment banking fees and better-than-expected equities trading results.
    Bank of America and Morgan Stanley report results Tuesday.
    This story is developing. Please check back for updates. More

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    China reports second-quarter GDP growth of 4.7%, missing expectations

    China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7%.
    That’s slower than the 5.3% year on year GDP increase in the first quarter.
    Retail sales for June missed expectations, while industrial production figures beat.

    Chinese-made cars wait to be loaded onto a ship for export at Yantai Port on July 12, 2024, in Shandong province of China.
    Vcg | Visual China Group | Getty Images

    BEIJING — China’s National Bureau of Statistics on Monday said the country’s second-quarter GDP rose by 4.7% year on year, missing expectations of a 5.1% growth, according to a Reuters poll.
    June retail sales also missed estimates, rising 2% compared with the 3.3% growth forecast.

    “We estimate that discretionary retail spending fell at the sharpest sequential pace since the April 2022 Shanghai lockdowns,” Oxford Economics Lead Economist Louise Loo said in a note.
    The firm now pegs China’s 2024 GDP growth at 4.8%, higher than the 4.4% it estimated in December 2023 for the year ahead.
    Industrial production year-on-year growth in June, however, beat expectations at 5.3%, compared with Reuters’ estimate of 5%. High-tech manufacturing saw an 8.8% increase in value added in June.

    Urban fixed asset investment for the first six months of the year rose by 3.9%, meeting expectations. Investment in infrastructure and manufacturing slowed on a year-to-date basis in June versus May, while real estate investment declined at the same 10.1% rate.
    Housing-related wealth in China rose by 2.2% in 2023, down sharply from the13% average annual pace between 2016 and 2021, Oxford Economics said in late May.

    “We must work harder to invigorate the market and stimulate the internal impetus,” the bureau said in an English-language press release.
    It also called for efforts to “consolidate and enhance the momentum for economic recovery and growth, so as to ensure the sustained and sound development of the economy.”
    The urban unemployment rate in June was unchanged from the prior month at 5%, the bureau said. The jobless rate for people ages 16 to 24 who are not in school typically comes out a few days after the overall figure. The latest data available showed the youth unemployment rate remained high, at 14.2% in May.
    For the first half of the year, average per capita disposable income for city residents was 27,561 yuan ($3,801), a nominal growth of 4.6% from a year ago, the data showed.
    Rural disposable income grew at a faster rate, up 6.8% in nominal terms, but at 11,272 yuan, it was less than half that of urban residents.

    No press conference

    The National Bureau of Statistics did not hold a press conference for the data release. Separately, China’s high-level policy meeting, the Third Plenum, kicks off Monday.
    Bruce Pang, chief economist and head of research for Greater China at JLL, said he was looking forward to how the plenary meeting can boost confidence and stabilize expectations.
    More work will be needed for China to reach its target of around 5% growth, because the economy only expanded by 5% in the first half, and growth in the second half will likely be slower, he said.
    China’s GDP grew by 5.3% year on year in the first quarter in real terms.
    In nominal terms, GDP grew by 3.97% in the first quarter, and 4.01% in the first half of the year, according to data accessed via Wind Information.
    China’s exports as a driver of growth have held up better than expected, but there are uncertainties about the future due to trade tensions, said Xu Hongcai, deputy director of the Economics Policy Commission at the China Association of Policy Science.
    He said China could increase its fiscal support and ease monetary policy in the second half of the year.
    China’s exports rose by a more-than-expected 8.6% from a year earlier, customs data released Friday showed. But imports fell by 2.3% year on year in June, missing expectations for slight growth.

    Cosmetics sales plunge

    Retail sales for the first six months of the year rose by 3.7%, with online sales of physical goods rising by 8.8%. Services sector sales rose by 7.5%.
    Sales of communications equipment, sports and other entertainment goods, as well as alcohol and tobacco rose by more than 10%. Sales of grain, oil and food jumped 9.6%.
    In June, the sports category saw sales drop by 1.5% from a year ago, while alcohol, tobacco and communication equipment saw sales rise.
    Cosmetics product sales plunged by 14.6% year on year in June as the worst-performing category.
    Catering sales rose by 5.4% in June from a year ago, for 7.9% growth for the first half of the year.
    Other measures also pointed to muted domestic demand.
    China’s consumer prices rose by 0.2% in June, year on year, missing expectations. Core CPI, which strips out more volatile food and energy prices, rose by 0.6% year on year in June, slightly slower than the 0.7% increase in the first six months of the year.

    Weak credit demand

    China’s credit data released Friday showed a sharp drop in the growth of broad money supply and new yuan loans in the first half of the year versus the same period in 2023.
    Household loans increased by 1.46 trillion yuan ($200 billion) in the first six months of the year, nearly half the 2.8 trillion yuan in new loans for the category last year, according to the People’s Bank of China.
    Loans to businesses increased by 11 trillion yuan in the first half of the year, slightly less than the 12.81 trillion yuan recorded for the same period last year.
    “June money and credit data indicated credit demand remained weak,” Goldman Sachs analysts said in a report Friday. “The recent policy communication suggests that the PBOC continues to focus on enhancing monetary policy transmission and downplay the importance of aggregate credit growth. Looking ahead, the growth of new CNY loans and M2 may gradually slow down further.” More

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    Here’s the deflation breakdown for June 2024 — in one chart

    Deflation measures how quickly prices are declining for consumer goods and services.
    Prices have deflated for a range of items like physical goods, airfare, gasoline and some groceries since June 2023, according to the consumer price index.
    One explanation: Supply and demand dynamics have normalized after being thrown out of whack during the Covid-19 pandemic.

    97 / Getty

    Inflation has throttled back significantly since peaking two years ago. The U.S. economy is even seeing some prices deflate for consumers.
    Deflation measures how quickly prices are falling for a consumer good or service. It’s the opposite of inflation, which gauges how quickly prices are increasing.

    Physical goods have accounted for much of the deflation over the past year, according to economists. This is happening as supply and demand dynamics that were thrown out of whack in the pandemic normalize.

    Commodity prices (excluding those related to food and energy) — so-called “core” goods — have declined by 1.8%, on average, since June 2023, according to the consumer price index, a key inflation measure.
    “We have seen core-goods deflation in quite a few categories,” according to Olivia Cross, a North America economist at Capital Economics.
    “It’s quite broad based,” she added. “I think that’s something we expect to persist for a little while.”
    Prices on gasoline and many grocery items have also pulled back.

    However, consumers shouldn’t expect a broad and sustained fall in prices across the U.S. economy. That generally doesn’t happen unless there’s a recession, economists said.

    Why prices are deflating for goods

    Demand for physical goods soared in the early days of the Covid pandemic as consumers were confined to their homes and couldn’t spend on things such as concerts, travel or dining out.
    The health crisis also snarled global supply chains, meaning goods weren’t hitting the shelves as quickly as consumers wanted them.
    Such supply-and-demand dynamics drove up prices.

    The environment has changed, though: The initial pandemic-era craze of consumers fixing up their homes and upgrading their home offices has diminished, cooling prices. Supply-chain issues have also largely unwound, economists said.
    Since June 2023, consumers have seen prices deflate for goods like home furniture for a living room, kitchen or dining room (down by 4.9%), appliances (-3.6%), toys (-6%), dishes and flatware (-10.2%) and outdoor equipment like grills and garden supplies (-4.3%).
    More from Personal Finance:High inflation largely not Biden’s, Trump’s fault: economistsHere’s the inflation breakdown for June 2024 — in one chartHere’s why housing inflation is still stubbornly high
    Car buyers have also seen prices for new vehicles fall more than 1% and for used vehicles by roughly 10% over the past year. Vehicle prices were among the first to surge when the economy reopened broadly early in 2021, amid a shortage of semiconductor chips essential for manufacturing.
    “Vehicle prices remain under pressure from improved inventory and elevated financing costs,” Sarah House and Aubrey George, economists at Wells Fargo Economics, wrote in a note this week. (Higher financing costs are the result of the Federal Reserve raising interest rates to tame inflation.)

    Outside of supply-demand dynamics, the U.S. dollar’s strength relative to other global currencies has also helped rein in prices for goods, economists said. This makes it less expensive for U.S. companies to import items from overseas, since the dollar can buy more.
    Long-term forces like globalization have also helped, such as importing more lower-priced goods from China, Cross said. However, a shift toward higher tariffs and less free trade could serve to push up goods prices “quite significantly,” she added.

    Why there’s been deflation for food, travel, electronics

    Prices have also declined for items including food, travel and electronics.
    Grocery prices have fallen for items such as ham, rice, potatoes, coffee, milk and cheese, according to CPI data.
    Each grocery item has their own supply-and-demand dynamics that can influence pricing, economists said. For example, apples prices are down 12% in the past year due to a supply glut, while egg prices surged in 2022 due largely to a historic and deadly outbreak of bird flu.

    Gasoline prices have fallen by 2.5% in the past year. Weaker recent prices were the result of “tepid gasoline demand, increasing supply, and falling oil costs,” according to AAA.
    Travelers have seen deflation for airline fares (prices are down 5.1% annually) amid factors like an increased volume of available seats. Hotel rates are also down, by 2.8%, and car rental rates by 6.3% since June 2023.

    Consumers also appear to be more price sensitive, which has caused retailers to be a bit more cautious, economists said.
    For example, there have been more price promotions lately at grocery stores, with a few “major retailers recently announcing price cuts that are likely to pressure competitors’ pricing,” wrote House and George of Wells Fargo.
    Elsewhere, some deflationary dynamics may be happening only on paper.
    For example, in the CPI data, the Bureau of Labor Statistics controls for quality improvements over time. Electronics such as televisions, cellphones and computers continually get better, meaning consumers generally get more for the same amount of money.
    That shows up as a price decline in the CPI data.

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    SpaceX’s Falcon 9 rocket suffers rare inflight failure, is grounded during investigation

    A launch of SpaceX’s Falcon 9 rocket carrying Starlink satellites suffered a rare midflight failure Thursday evening.
    The rocket’s upper second stage failed to reignite its engine as planned and was destroyed, SpaceX CEO Elon Musk confirmed.
    Falcon 9 is grounded until the Federal Aviation Administration signs off on SpaceX’s investigation of the incident, the federal regulator confirmed to CNBC.

    SpaceX’s Falcon 9 is pictured launching satellites to orbit in space after it lifted off from the Vandenberg Space Force Base in California, U.S., in this screenshot obtained from a handout video released on July 12, 2024. 
    Spacex | Via Reuters

    SpaceX’s Falcon 9 rocket is grounded, pending an incident investigation, after an inflight failure — a rare misfire for the company’s workhorse vehicle.
    The mission, known as “Starlink Group 9-3,” launched from California’s Vandenberg Space Force Base on Thursday evening and was carrying 20 satellites bound for low Earth orbit.

    The rocket’s lower first stage, or booster, operated as expected before returning to land. But the rocket’s upper second stage failed to reignite its engine as planned and was destroyed, SpaceX CEO Elon Musk confirmed.
    “Upper stage restart to raise perigee resulted in an engine RUD for reasons currently unknown,” Musk wrote in a post on social media. RUD, or “rapid unscheduled disassembly,” is a term SpaceX uses to refer to an explosive or destructive event. The company said in a later update that the engine failure came after a leak of liquid oxygen in the second stage.
    Falcon 9 is grounded until the Federal Aviation Administration signs off on SpaceX’s investigation of the incident, the federal regulator confirmed.
    “The FAA will be involved in every step of the investigation process and must approve SpaceX’s final report, including any corrective actions,” the agency said in a statement to CNBC.

    A SpaceX Falcon 9 rocket flies carrying a payload of 22 Starlink internet satellites into space after launching from Vandenberg Space Force Base, as seen from Los Angeles, on March 18, 2024.
    Mario Tama | Getty Images

    The Starlink mission was the 69th Falcon 9 launch of the year — with the company averaging a blistering pace of a launch every two to three days in 2024 — but the investigation will likely delay launches planned in the weeks ahead, including two crewed missions: The private Polaris Dawn and NASA’s Crew-9.

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    SpaceX still deployed the 20 Starlink satellites but noted that the second stage engine failure means the satellites were in “a lower than intended orbit.” In an update Friday afternoon, the company said it made contact with 10 of the satellites in an effort to use the satellites onboard thrusters to climb higher in orbit.
    Despite the attempted recovery, SpaceX confirmed that the “enormously high-drag environment” from being in the wrong, lower orbit means the satellites will not be recovered. The 20 satellites will re-enter the Earth’s atmosphere and burn up.
    “They do not pose a threat to other satellites in orbit or to public safety,” the company wrote in a statement on its website.

    A SpaceX Falcon 9 rocket lifts off on the USSF-124 mission for the U.S. Space Force and Missile Defense Agency in Cape Canaveral, Florida, on Feb. 14, 2024.
    Joe Skipper | Reuters

    Falcon 9 has been on an unrivaled run of success for nearly a decade, chocking up more than 300 consecutive successful orbital launches since its previous inflight failure in June 2015, during the NASA cargo mission CRS-7.
    In total, SpaceX’s Falcon 9 has launched 354 missions to orbit, with more than 300 of those featuring successful landings and resulting in the reuse of rocket boosters more than 280 times.

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    Citigroup tops expectations for profit and revenue on strong Wall Street results

    Citigroup on Friday posted second-quarter results that topped expectations for profit and revenue on a rebound in Wall Street activity.
    Investment banking revenue surged 60% to $853 million, driven by strong issuance of investment grade bonds and a rebound in IPO and merger activity from low levels in 2023.
    Citigroup was just this week rebuked for failing to address its regulatory shortfalls, so analysts will be keen to ask Fraser about her long-running efforts to address the issue.

    Jane Fraser, CEO of Citi, speaks during the Milken Institute Global Conference in Beverly Hills, California, on May 1, 2023. 
    Patrick T. Fallon | AFP | Getty Images

    Citigroup on Friday posted second-quarter results that topped expectations for profit and revenue on a rebound in Wall Street activity.
    Here’s what the company reported:

    Earnings: $1.52 a share vs. $1.39 a share expected, according to LSEG
    Revenue: $20.14 billion vs. $20.07 billion expected, according to LSEG

    The bank said net income jumped 10% from a year earlier to $3.22 billion, or $1.52 a share. Revenue rose 4% to $20.14 billion.
    Equities trading revenue rose 37% to $1.5 billion, driven by strength in derivatives and a rise in hedge fund balances, roughly $300 million more than the StreetAccount estimate.
    Fixed income revenue dipped 3% to $3.6 billion, essentially matching analysts’ expectations, on lower activity in rates and currency markets.
    Investment banking revenue surged 60% to $853 million, driven by strong issuance of investment grade bonds and a rebound in IPO and merger activity from low levels in 2023.
    Shares of the bank climbed 3% in premarket trading.

    “Our results show the progress we are making in executing our strategy and the benefit of our diversified business model,” Citigroup CEO Jane Fraser said in the release. “Markets had a strong finish to the quarter leading to better performance than we had anticipated.”
    Citigroup was just this week rebuked for failing to address its regulatory shortfalls, so analysts will be keen to ask Fraser about her long-running efforts to address the issue.
    Last year, Fraser announced plans to simplify the management structure and reduce costs at the third-biggest U.S. bank by assets. But earnings will take a backseat if the bank cannot appease regulators’ concerns about its data and risk management.  
    JPMorgan Chase reported results earlier Friday, while Goldman Sachs, Bank of America and Morgan Stanley report next week.
    This story is developing. Please check back for updates.
    Correction: This article has been updated to correct that Citigroup reported revenue of $20.14 billion for the second quarter. A previous version misstated the figure due to a rounding error. More

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    JPMorgan Chase tops second-quarter revenue expectations on strong investment banking

    JPMorgan Chase on Friday posted second-quarter profit and revenue that topped analysts’ expectations as investment banking fees surged 52% from a year earlier.
    Revenue rose 20% to $50.99 billion, topping the consensus estimate of analysts surveyed by LSEG.
    CEO Jamie Dimon noted in the release that his firm was wary of potential future risks, including higher-than-expected inflation and interest rates.

    JPMorgan Chase on Friday posted second-quarter profit and revenue that topped analysts’ expectations as investment banking fees surged 52% from a year earlier.
    Here’s what the company reported:

    Earnings: $4.26 per share adjusted vs. $4.19 estimate of analysts surveyed by LSEG
    Revenue: $50.99 billion vs. $49.87 billion estimate

    The bank said earnings jumped 25% from the year-earlier period to $18.15 billion, or $6.12 per share. Excluding items related to the bank’s stake in Visa, profit was $4.26 per share.
    Revenue rose 20% to $50.99 billion, topping the consensus estimate of analysts surveyed by LSEG, helped by better-than-expected investment banking fees and equities trading results.
    CEO Jamie Dimon noted in the release that his firm was wary of potential future risks, including higher-than-expected inflation and interest rates, even while stock and bond valuations currently “reflect a rather benign economic outlook.”
    “The geopolitical situation remains complex and potentially the most dangerous since World War II — though its outcome and effect on the global economy remain unknown,” Dimon said. “There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world.”
    Shares of JPMorgan slipped 1% in premarket trading.

    A rebound in Wall Street activity, especially on the advisory side, was expected to aid banks this quarter, and JPMorgan’s results bear that out.
    JPMorgan reaped $2.3 billion in investment banking fees, exceeding the StreetAccount estimate by roughly $300 million.
    Equities trading revenue jumped 21% to $3 billion, topping the estimate by $230 million, on strong derivatives results. Fixed income trading jumped 5% to $4.8 billion, matching the estimate.
    But the bank had a $3.05 billion provision for credit losses in the quarter, exceeding the $2.78 billion estimate, which indicated that it expects more borrowers will default in the future. A rise in charge-offs and moves to build loan loss reserves in the quarter was driven by the firm’s massive credit-card business, the bank said.
    “JPMorgan has navigated a challenging interest rate environment very well,” said Octavio Marenzi, CEO of consulting firm Opimas.
    Still, while banking and equities trading boosted results, “We see Main Street banking beginning to sputter,” Marenzi said. “Provisions for credit losses were up significantly, showing us that JPMorgan is expecting to see a rough patch in the US economy.”
    Wells Fargo and Citigroup also posted earnings Friday, while Goldman Sachs, Bank of America and Morgan Stanley report next week.
    This story is developing. Please check back for updates. More

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    Women are set to inherit trillions of dollars in the great ‘horizontal wealth transfer’

    Up to $9 trillion is expected to be passed along to spouses and partners in the coming years as part of what’s being called “the horizontal wealth transfer,” according to a new report.
    There are over 43 million people in the Americas over the age of 75, with over $50 trillion in combined transferrable wealth.
    Women now make up over 11% of the world’s millionaires, nearly double the share in 2016, according to Julius Baer.

    Charday Penn | E+ | Getty Images

    Up to $9 trillion is expected to be passed along to spouses and partners in the coming years as part of what’s being called “the horizontal wealth transfer,” according to a new report.
    Over the next 20 to 30 years, aging baby boomers and older generations are expected to pass down $84 trillion in wealth to charity and family members. Younger generations, including Generation X, millennials and Generation Z are expected get the bulk of the inheritances.

    Yet because surviving spouses and partners typically get the initial inheritances, and because women typically outlive men, bequests in the coming years will largely go to women, according to the UBS Global Wealth Report.
    An estimated $9 trillion will be transferred “intra-generationally,” meaning from one spouse to another, according to the report.
    “Life expectancy varies between men and women, and quite frequently couples have an age gap, therefore the inheriting spouse will typically own and hold onto this wealth for an average of four years before passing it on,” the report said.
    UBS calls it the “horizontal wealth transfer,” since the wealth is moving intra-generationally rather than intergenerationally. And while little noticed, the horizontal transfers have the potential to reshape the wealth management, investing and luxury spending landscape, which has largely been dominated by men.
    “Most people have a rather feudal idea of wealth going down through generations,” said Paul Donovan, chief economist of UBS Global Wealth Management. “But about 10% is likely to go sideways, to spouses or partners and not yet giving it to children, although it will shift over time.”

    According to the report, the largest horizontal wealth transfers will be in the Americas. There are over 43 million people in that region over the age of 75, with over $50 trillion in combined transferrable wealth. The average age of the individuals passing down wealth is over 85, the report said.

    While some families may pass fortunes directly to next generations, inheritances can often be a two-step process — first going to the surviving spouse and then handed down by that spouse to the next generation. (Estate law typically allows the surviving spouse to inherit property of unlimited value without being subject to estate tax).
    The report estimates that after $9 trillion is passed to spouses, they will pass down over $8.4 trillion to next generations, making them key decision makers in the great wealth transfer.
    Those transfers, along with other broader forces in the economy, are adding to the so-called “feminization of wealth.” With women’s incomes and wealth rising, combined with inheritances for both older and younger inheritors, analysts expect women will make up a growing share of high net-worth investors and consumers.
    Women now make up over 11% of the world’s millionaires, nearly double the share in 2016, according to Julius Baer.

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    The biggest impact will be on wealth management. Donovan said 45% of UBS’s wealth clients are now women.
    “It’s important when it comes to wealth management,” he said. Wealth management clients, he said, will likely be “different people, with different ideas and different things they want to do with their wealth.”
    A McKinsey report estimated that women are expected to control most of the $30 trillion in baby boomer wealth by 2030. While the wealth management industry has been traditionally dominated by male clients and male advisors (accounting for 85% of the latter group), McKinsey said that’s changing fast.
    “After years of playing second fiddle to men,” the report said, “women are poised to take center stage.”
    McKinsey said that compared with five years ago, 30% more married women are making financial and investment decisions, and more women than ever are the family breadwinners, “spurring growth in their investible assets.” 
    Luxury brands traditionally geared toward men are also adapting. In the luxury watch market, women’s watches are one of the fastest growing segments. Jean-Christophe Babin, the CEO of Bulgari, told me earlier this year that “the trend is toward more and more feminine and more unisex watches. Women have increasing power, in terms of independence, autonomy and purchasing power. We think that will continue.”
    Philanthropy could also benefit from the horizontal wealth transfer. Giving to groups focused on women and girls grew 9% in 2020, the latest year measured, to over $8 billion, according to the Women’s Philanthropy Institute at the Lilly Family School of Philanthropy.
    Melinda French Gates just pledged $1 billion to women’s and girls’ causes, and MacKenzie Scott has given away over $17 billion of her fortune since 2019, including large grants to Girl Scouts of the USA.
    “We will see a dramatic shift in ownership of wealth,” Donovan said. “It is going to be quite significant in looking at who controls the resources that finance the global economy.”

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