Economy

(Reuters) -The Federal Deposit Insurance Corporation (FDIC) is investigating potential misconduct by executives and board members of First Republic Bank (OTC:FRCB), raising the prospect of stiff penalties for the failed bank’s former bosses.”We can confirm a D&O probe into First Republic is taking place,” a spokesperson told Reuters on Wednesday, referring to the bank’s directors and officers. The regulator did not provide further details.The investigation, which has not previously been reported, is the third the FDIC has opened into bank failures earlier this year which cost the federal government’s deposit insurance fund about $32 billion.FDIC Chairman Martin Gruenberg said in March the agency was also probing possible misconduct related to the collapses of Silicon Valley Bank (SVB) and Signature Bank (OTC:SBNY) New York. The FDIC has not provided updates on these investigations. The three banks, which combined held more than half a trillion dollars in assets, failed following depositor runs. Regulators have said they each exhibited weak risk management and ran high levels of uninsured deposits. As with SVB and Signature Bank, the FDIC is probing whether First Republic executives and board members broke rules that require them to act in the bank’s best interests. Under federal law, the FDIC can ban former directors and officers from the industry, and impose fines for breaching their fiduciary duty and unsafe or unsound practices that involve dishonesty or “willful or continuing disregard” for a bank’s well being. Former First Republic CEO and President Michael Roffler and former Executive Chairman James Herbert could not immediately be reached for comment. Attorneys representing the bank’s independent board members did not immediately return requests for comment.Roffler told lawmakers in May that regulators never expressed any concern about the bank’s strategy, liquidity or management and it had been “contaminated overnight” by the depositor panic from SVB and Signature Bank. While it is standard practice for the FDIC to probe bank failures, and not necessarily an indication of wrongdoing, the probe adds to regulatory scrutiny of the failed banks’ leadership.The U.S. Justice Department and Securities and Exchange Commission (SEC) are scrutinizing stock trades and statements made by First Republic ahead of the bank’s demise, according to a source with knowledge of the probe. Bloomberg previously reported the investigation.Massachusetts regulators are also investigating First Republic insiders’ stock sales, Reuters previously reported. Federal investigators are likewise probing the collapse of SVB, Reuters and others have reported. In congressional testimony, former SVB and Signature executives have denied wrongdoing or mismanagement of their banks. NO ACTIONThe March implosions of SVB and Signature Bank sparked a deposit run at First Republic. Despite efforts to stabilize the ailing lender, it failed in May and was sold to JPMorgan Chase & Co. (NYSE:JPM) It was the biggest bank failure since the 2007-2009 global financial crisis. A JPMorgan spokesperson declined to comment.First Republic was especially vulnerable because it relied excessively on uninsured deposits, grew rapidly with loans and funding concentrated in ways that increased risk, and failed to plan adequately for the possibility the Federal Reserve could raise interest rates sharply, the FDIC has said. In a September postmortem, the FDIC also highlighted decisions by First Republic’s board of directors in the second half of 2022 when they were confronted with serious warning signs.On at least two occasions, the board collectively decided “to take no further action” after learning one of its risk models was flashing red, causing FDIC supervisors to worry about the bank’s “lack of urgency” in confronting the problem. One model forecast that a 200 basis-point increase in interest rates could more than wipe out the bank’s equity. As the Fed raised rates in 2022, First Republic suffered mounting unrealized losses in its loan portfolio that ultimately exceeded its equity levels, which undermined public confidence, contributing to the fatal run on the bank, the FDIC said.PENALTIESIn the past, the FDIC has required board members of failed banks to help replenish the deposit insurance fund by ordering them to pay restitution personally or using payouts on their liability insurance coverage, said Michael Krimminger who was the FDIC’s general counsel from 2011-2012.The FDIC has recovered more than $4.4 billion from the directors and officers of more than 500 failed lenders in this way since 2008, according to its website. “The most severe penalty is to bar an individual from working for a bank in the future,” said Krimminger, noting this was reserved for “the more egregious cases.”FDIC bank failure probes can take years. Four years after IndyMac collapsed in 2008, the FDIC banned its former CEO Michael Perry from the industry, accusing him of negligence.In a settlement, the FDIC, which suffered a nearly $13 billion loss from IndyMac’s collapse, collected $11 million in an insurance payout and $1 million in Perry’s personal assets. Perry’s lawyers said he “steadfastly denied” the allegations. More

BRASILIA (Reuters) -Brazil’s central bank cut its benchmark interest rate by 50 basis points on Wednesday for the third time in a row and once again signaled more of the same for its upcoming meetings, but also flagged an “adverse” external backdrop for emerging economies.The bank’s rate-setting committee, known as Copom, unanimously reduced its Selic benchmark interest rate to 12.25%, a move expected by all 40 economists polled by Reuters.”If the scenario evolves as expected, the committee members unanimously anticipate further reductions of the same magnitude in the next meetings, and judge that this pace is appropriate to keep the necessary contractionary monetary policy for the disinflationary process,” said the central bank in its decision’s statement.However, despite its expectation of keeping its pace of rate cuts, the bank mentioned an “adverse” global outlook that “requires caution on the conduct of monetary policy.”The prospect of higher long-term U.S. interest rates has led to a tightening of global liquidity and strengthening of the dollar, adding to inflation pressures in emerging markets like Brazil. “Despite anticipating the next steps of 50 basis points, there appears to be less visibility and confidence regarding the overall extent of the cycle,” said Daniel Cunha, chief strategist at brokerage BGC Liquidez.In its statement, the central bank also highlighted the persistence of elevated core inflation in several countries, alongside emerging geopolitical tensions following the outbreak of the Israel-Palestine conflict.Policymakers again reiterated that the overall extent of the easing cycle over time will depend on a range of factors, including the inflation dynamics and the output gap, emphasizing the need to maintain a tight policy until the disinflationary process solidifies and inflation expectations meet targets.Uncertainties about the global scenario and concerns about leftist President Luiz Inacio Lula da Silva’s commitment to fiscal discipline had already caused economists polled by the central bank to tweak their estimates for the easing cycle, forecasting rates to end 2024 at 9.25%, up from 9% before.Last week, Lula said his government did not need to erase its primary budget deficit next year, as previously proposed to Congress under new fiscal rules, given the importance of public funding for priority projects and construction investments. His comments hobbled local markets and reignited concerns about a larger-than-estimated increase in Brazil’s public debt.The central bank, which had already been pointing to market distrust of the government’s fiscal targets as one of the reasons why long-term inflation expectations were not converging to the target, reaffirmed in its statement the importance of “firmly pursuing” the fiscal goals. Policymakers revised their inflation projections to 4.7% for this year, down from 5.0% before, now standing within the official target of 3.25% with a tolerance margin of 1.5 percentage points in either direction.Meanwhile, inflation forecasts for 2024 and 2025 have been increased to 3.6% and 3.2%, from 3.5% and 3.1% respectively. The inflation target for the upcoming year and beyond stands at 3%, with the same tolerance interval. More

After shocks from the pandemic and Russia’s invasion of Ukraine, there’s little cushion if the fighting between Hamas and Israel becomes a regional conflict.Fears that Israel’s expanding military operations in Gaza could escalate into a regional conflict are clouding the global economy’s outlook, threatening to dampen growth and reignite a rise in energy and food prices.Rich and poor nations were just beginning to catch their breath after a three-year string of economic shocks that included the Covid-19 pandemic and Russia’s invasion of Ukraine. Stinging inflation has been dropping, oil prices have stabilized and predicted recessions have been avoided.Now, some leading international financial institutions and private investors warn that the fragile recovery could turn bad.“This is the first time that we’ve had two energy shocks at the same time,” said Indermit Gill, chief economist at the World Bank, referring to the impact of the wars in Ukraine and the Middle East on oil and gas prices.Those price increases not only chip away at the buying power of families and companies but also push up the cost of food production, adding to high levels of food insecurity, particularly in developing countries like Egypt, Pakistan and Sri Lanka.As it is, nations are already struggling with unusually high levels of debt, limp private investment and the slowest recovery in trade in five decades, making it tougher for them to grow their way out of the crisis. Higher interest rates, the result of central bank efforts to tame inflation, have made it more difficult for governments and private companies to get access to credit and stave off default.Israeli soldiers surveying destruction in Kfar Azza, a community near the Gaza border that Hamas militants raided last month.Tamir Kalifa for The New York Times“All of these things are happening all at the same time,” Mr. Gill said. “We are in one of the most fragile junctures for the world economy.”Mr. Gill’s assessment echoes those of other analysts. Jamie Dimon, the chief executive of JPMorgan Chase, said last month that “this may be the most dangerous time the world has seen in decades,” and described the conflict in Gaza as “the highest and most important thing for the Western world.”The recent economic troubles have been fueled by deepening geopolitical conflicts that span continents. Tensions between the United States and China over technology transfers and security only complicate efforts to work together on other problems like climate change, debt relief or violent regional conflicts.The overriding political preoccupations also mean that traditional monetary and fiscal tools like adjusting interest rates or government spending may be less effective.The brutal fighting between Israel and Hamas has already taken the lives of thousands of civilians and inflicted wrenching misery on both sides. If the conflict stays contained, though, the ripple effects on the world economy are likely to remain limited, most analysts agree.Jerome H. Powell, the Federal Reserve chair, said on Wednesday that “it isn’t clear at this point that the conflict in the Middle East is on track to have significant economic effects” on the United States, but he added, “That doesn’t mean it isn’t incredibly important.”Mideast oil producers do not dominate the market the way they did in the 1970s, when Arab nations drastically cut production and imposed an embargo on the United States and some other countries after a coalition led by Egypt and Syria attacked Israel.At the moment, the United States is the world’s largest oil producer, and alternative and renewable energy sources make up a bit more of the world’s energy mix.“It’s a highly volatile, uncertain, scary situation,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University. But there is “a recognition among most of the parties, the U.S., Europe, Iran, other gulf countries,” he continued, referring to the Persian Gulf, “that it’s in no one’s interest for this conflict to significantly expand beyond Israel and Gaza.”Mr. Bordoff added that missteps, poor communication and misunderstandings, however, could push countries to escalate even if they didn’t want to.And a significant and sustained drop in the global supply of oil — whatever the reasons — could simultaneously slow growth and inflame inflation, a cursed combination known as stagflation.Women buying and selling grain in Yola, Nigeria. The aftereffects of the pandemic have stunted growth in emerging markets like Nigeria.Finbarr O’Reilly for The New York TimesGregory Daco, chief economist at EY-Parthenon, said a worst-case scenario in which the war broadened could cause oil prices to spike to $150 a barrel, from about $85 currently. “The global economic consequences of this scenario are severe,” he warned, citing a mild recession, a plunge in stock prices and a loss of $2 trillion for the global economy.The prevailing mood now is uncertainty, which is weighing on investment decisions and could discourage businesses from expanding into emerging markets. Borrowing costs have soared, and companies in several countries, from Brazil to China, are expected to have trouble refinancing their debt.At the same time, emerging markets like Egypt, Nigeria and Hungary have experienced some of the worst scarring from the pandemic, according to Oxford Economics, a consulting firm, resulting in lower growth than had been projected.Conflict in the Middle East as well as economic strains could also increase the stream of migrants heading to Europe from that region and North Africa. The European Union, which is teetering on the brink of a recession, is in the middle of negotiations with Egypt over increasing financial aid and controlling migration.China, which gets half its oil imports from the Persian Gulf, is struggling with a collapse in the real estate market and its weakest growth is nearly three decades.By contrast, the United States has confounded forecasters with its strong growth. From July through September, the economy grew at an annual rate of just a shade under 5 percent, buoyed by slowing inflation, stockpiled savings and robust hiring.India, backed by enthusiastic consumers, is on track to perform well next, with estimated growth of 6.3 percent.A natural gas pipeline terminal in Ashkelon, Israel, in 2017. When it comes to energy markets, events in the Middle East “will not stay in the Middle East,” said M. Ayhan Kose, a World Bank economist.Tamir Kalifa for The New York TimesThe region with the gloomiest prospects is sub-Saharan Africa, where, even before fighting broke out in Israel and Gaza, total output this year was estimated to fall 3.3 percent. Incomes in the region have not increased since 2014, when oil prices crashed, said M. Ayhan Kose, who oversees the World Bank’s annual Global Economic Prospects report.“Sub-Saharan Africa has already experienced a lost decade,” Mr. Kose said in an interview. Now “think about another lost decade.”As far as energy markets are concerned, something that “happens in the Middle East will not stay in the Middle East,” he added. “It will have global implications.” More

High interest rates and an uncertain global economy has forced companies to pare their spending on expensive technologies to protect their bottomline and maintain a strong cash balance.PTC said it sees revenue between $2.27 billion and $2.36 billion for the year ending September 2024, compared to analysts’ consensus estimate of $2.36 billion, according to LSEG data. It forecast annual run rate (ARR), which represents the annualized value of all active subscription software, of between $2.19 billion to $2.25 billion.Boston, Massachusetts-based PTC has over 25,000 customers including Rockwell Automation (NYSE:ROK) and Indian motorcycle maker Eicher Motors’ Royal Enfield.In the most-recent quarter ended Sept. 30, revenue grew 8% to $547 million, falling short of analysts’ expectation of $558 million, according to LSEG data.ARR grew 26% to $1.98 billion, in line with expectations.Excluding items, PTC earned $1.20 per share, compared with estimate of $1.14. More

In the first major legislative action under Johnson, House Republicans unveiled their bill on Monday seeking to provide $14.3 billion for Israel by cutting Internal Revenue Service (IRS) funding.The House could vote on the bill and pass it with Republican support as soon as Thursday. But it is unlikely to become law, as it faces stiff opposition in the Democratic-controlled Senate and the White House has threatened a veto.Democrats and some Republicans oppose the plan, choosing instead to support Democratic President Joe Biden’s request for a $106-billion bill including funding for Ukraine as it fights Russian invaders, increased border security, humanitarian aid and efforts to push back against China in the Indo-Pacific, as well as money for Israel.Johnson voted against aid to Ukraine before he became speaker, but Republican Senator Josh Hawley said he told a group of senators at a lunch meeting on Wednesday that he does support some money for the Kyiv government, just not combined with Israel aid. Johnson’s office did not immediately respond to a request to verify his remarks.The non-partisan Congressional Budget Office (CBO) said on Wednesday that the IRS cuts and the Israel aid in the standalone bill would add nearly $30 billion to the U.S. budget deficit, currently estimated at $1.7 trillion.Johnson rejected that assessment, telling reporters: “We don’t put much credence in what the CBO says.” To become law, any legislation must pass the House, the Senate and be signed into law by Biden. Democrats accused Johnson’s Republicans of wasting time by backing a partisan measure rather than a bill that would pass quickly to address the crisis following the Oct. 7 attack on Israel by Iran-backed Hamas militants from the Gaza Strip.The top Senate Democrat, Chuck Schumer, said on Tuesday the bill would be dead on arrival in the upper chamber.The Biden administration said Biden would veto such a bill if it reached his desk, calling it “bad for Israel, for the Middle East region, and for our own national security.” More

WASHINGTON (Reuters) -The Federal Reserve held interest rates steady on Wednesday as policymakers struggled to determine whether financial conditions may be tight enough already to control inflation, or whether an economy that continues to outperform expectations may need still more restraint.Fed Chair Jerome Powell said the situation remained something of a riddle, with U.S. central bank officials willing to raise rates again if progress on inflation stalls, wary that a rise in market-based interest rates may begin to weigh on the economy in a significant way, and trying not to disrupt, any more than necessary, an ongoing dynamic of steady job and wage growth.In a press conference after the end of a two-day policy meeting, Powell said the better course of action for now, given the uncertainties, was to maintain the Fed’s benchmark overnight interest rate in the current 5.25%-5.50% range, and see how job and price data evolve between now and the next policy meeting in December.Roughly 20 months into the Fed’s aggressive tightening of monetary policy, Powell said it remained unclear whether overall financial conditions were yet restrictive enough to tame inflation that he still considers to be far above the central bank’s 2% target. “We’re not confident that we haven’t, we’re not confident that we have” reached that sufficiently restrictive plateau, Powell told reporters. “Inflation has been coming down, but it’s still running well above our 2% target … A few months of good data are only the beginning of what it will take to build confidence.”Annual inflation, based on the Fed’s preferred measure, was 3.4% in September for the third month in a row. Excluding volatile food and energy costs, it was 3.7%, little changed from August.Asked if the Fed maintained a bias towards hiking rates versus keeping policy on hold, Powell responded “that’s the question we’re asking. Should we hike more?”MARKET RATES IN FOCUSBut the Fed chief also acknowledged that a recent market-driven rise in Treasury bond yields, home mortgage rates and other financing costs could have their own impact on the economy as long as they persist, and Fed officials will be watching those effects closely as they consider whether to hike the central bank’s policy rate again.”These higher Treasury yields are showing through to higher borrowing costs for households and businesses. Those higher costs are going to weigh on economic activity to the extent this tightening persists,” Powell said, taking particular note of 30-year fixed-rate home mortgages that are nearing 8%, close to a 25-year high.Powell’s comments elaborated on a policy decision and statement that, while leaving the Fed’s benchmark rate unchanged for the second consecutive meeting, also took stock of what he called the “outsized” 4.9% annual pace of U.S. economic growth in the July-September period after a surge of consumer spending.”Economic activity expanded at a strong pace in the third quarter,” the U.S. central bank said in its statement after policymakers unanimously agreed to leave rates unchanged. The language marked an upgrade to the “solid pace” of activity the Fed saw as of its September meeting.U.S. stocks climbed after the release of the policy statement and closed higher on the day, while the U.S. dollar pared gains and ended flat against a basket of currencies. U.S. Treasury yields fell and traders of short-term U.S. interest rates added to bets the Fed was done raising its policy rate and would start cutting rates by June of next year.”The statement leans to the dovish side,” said Peter Cardillo, chief market economist at Spartan Capital Securities. “The fact that they left rates unchanged for the second time in a row suggests the Fed might leave rates unchanged in December. And if they do, that means the Fed is done.”Though markets think the Fed’s rate-hiking campaign may be finished, data pointing to a stronger-than-expected economy and labor market have kept the prospect of another hike on the table.Powell noted that much about the economy’s recent performance was constructive, with low unemployment and rising wages fueling more demand for goods and services and more job creation – the sort of virtuous cycle that, within bounds, leads to self-sustaining growth.The issue for the Fed is whether conditions remain so robust that progress on inflation stalls or even reverses.”It has been good,” Powell said. “We’ve been achieving progress on inflation in the middle of this … The question is, how long can that continue?”The odds, he said, are that a slowdown of some sort will be needed, with the Fed committed to finding the policy stance that makes it happen. “It is still likely … we will need to see some slower growth and some softening in the labor market … to fully restore price stability,” Powell said.His comments throw the focus onto upcoming employment and inflation data, with the release of the Labor Department’s monthly jobs report on Friday the first major piece of data that will shape the Fed’s deliberations for its December meeting. 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