Finance

A bank publishes lousy earnings or an “update” on its business. Its share price plunges. Its name is splashed on newspaper front pages. The bank’s bosses hold a conference call urging calm. Its share price slides some more. Anyone who has paid attention to America’s banking industry over the past year will recognise these events. They ended in failure for Silicon Valley Bank (svb) in March and First Republic Bank (frb) in April.At first glance, the same script seems to be playing out. On January 31st New York Community Bancorp (NYCb) of Hicksville, New York, reported a quarterly loss. Its stock promptly dropped by 46%. During a hastily organised conference call to investors on February 7th, Alessandro DiNello, the bank’s hastily appointed executive chairman, attempted to soothe fears. Shares sagged, dropping another 10% when markets opened that morning.Yet the surface-level similarities in these stories belie two big differences. The first, and most important, is that nycb does not appear to be on the brink of failure, nor is it easy to see how it will fail in the coming weeks. Indeed, its shares later rallied on February 7th. The second is that its problems indicate a different type of trouble has begun. When interest rates rise their impact on things like bond prices is immediate. Their impact on borrowers’ ability to repay debts takes longer to play out. svb and frB were both imperilled by a combination of flighty deposits and their investments in low-interest-rate securities or loans, the value of which collapsed when rates climbed. nycb is struggling, in large part, because a big loan went bad.Start with nycb’s balance-sheet. The bank, which holds $116bn in assets, earned around $200m in the third quarter of 2023. But in the final quarter it had to set aside $552m to cover property loans, resulting in a $252m loss. Even before this, it was working to beef up capital levels. In 2023 it acquired assets and deposits from Signature Bank, which failed along with SVB last March. This pushed NYCb’s assets past $100bn, subjecting it to stricter regulation. Compared with its new 12-figure peers, NYCb is no fortress. The bank’s common equity tier-1 ratio, a measure of capital based on the riskiness of its assets, fell to an unimpressive 9.1%, down from 9.6% in September. In a bid to retain more equity, the bank slashed its dividend.More than half of the bank’s value has now evaporated, leaving it with a market capitalisation of $3bn, less than a third of the book value of its equity. Analysts have slashed their profit forecasts for the bank. On February 6th Moody’s, a rating agency, downgraded NYCB to junk status, citing the bank’s exposure to commercial property and the recent exit of important audit and risk-management personnel.Grim stuff. But NYCB’s deposits provide reassurance. More than two-thirds of the $83bn deposited at the bank is insured, a much larger share than at SVB and FRB before their collapses, which should mean depositors are less inclined to run. If they do, the bank should be able to weather it. Against an uninsured deposit base of $23bn, nycb holds $17bn in cash, $6bn in securities and collateral that could be used to borrow $14bn from the Federal Home Loan Banks (FHLB) system or the Federal Reserve’s discount window. In addition, it can exchange $10bn of “reciprocal deposits” with other banks, which could in effect reduce the share of nycb‘s deposits that are uninsured.As a result, the bank has access to almost three times as much cash as it needs to pay out all uninsured depositors. And, for now at least, depositors do not appear to be going anywhere. Deposit levels have risen since the end of 2023, according to an unaudited balance-sheet the bank published on February 6th. “We have seen virtually no deposit outflow from our retail branches,” Mr DiNello told investors on February 7th.Despite this, NYCB’s troubles might provoke broader unease. One reason for this is its reliance on the FHLB system. This inconspicuous part of America’s financial plumbing comprises 11 government-sponsored banks, with total assets of $1.3trn. America’s lender of “second-to-last resort” raises money from capital markets, and does so cheaply owing to the assumption that the government would backstop its borrowing. It then lends to FHLB members, which are also its dividend-receiving owners. By the end of March 2023 FHLB advances, a type of loan usually secured against mortgages, had nearly tripled since the year before. SVB alone had increased its borrowing to $15bn by the end of 2022.Because the nycb holds more loans than deposits it has long relied on FHLB advances as a source of funding, especially before its recent purchases brought in more depositors. At the end of 2023, NYCB had borrowed $20bn of FHLB advances. This borrowing amounts to 17% of NYCB’s assets, up from 12% at the end of September. The bank taps the FHLB system at nine times the rate of similar peers.Another reason for broader unease is that this could be the first sign that a crisis in commercial property is now harming the banking system. Although total lending to office buildings is small as a share of loan books across small banks—at around 5% of total assets—the slump in office-building values has been steep. Other losses are already appearing. Aozora, a Japanese lender that tried out American commercial-property lending, reported losses related to its loans on January 31st. On February 7th Deutsche Pfandbriefbank, a German bank, announced it had increased loss provisions for its commercial-property loans. Given the post-pandemic fall in office use, more losses are likely. These are unlikely to imperil the broader banking system—but they might keep individual banks on the front pages. ■ More

China is encouraging banks and local business vendors to accept foreign bank cards, said Zhang Qingsong, deputy governor of the People’s Bank of China.
His written comments, exclusive to CNBC, come as Beijing has stepped up efforts to encourage visits from foreign tourists and business people.
“Now, when using Alipay or WeChat Pay, foreign visitors do not need to provide ID information if their total annual transaction volume is under $500,” he said, adding “We are also looking at the possibility of raising the $500 threshold in the future.”

A coffee shop at Beijing Capital Airport shows customers can use Visa, Mastercard, the digital Chinese yuan and other payment methods.
CNBC | Evelyn Cheng

BEIJING — China is encouraging banks and local businesses to accept foreign bank cards and is considering other steps to make mobile pay for international visitors even easier, said Zhang Qingsong, deputy governor of the People’s Bank of China.
“Banks and vendors (such as hotels, restaurants, department stores and even coffee shops) are encouraged to accept foreign bankcards,” Zhang said.

His written comments, exclusive to CNBC, come as Beijing has stepped up efforts to encourage visits from foreign tourists and business people. In the last few months, authorities have enacted visa-free travel policies for residents of several European and Southeast Asian countries — after stringent border controls during the pandemic.
Mobile pay took off in China in the last several years. But while it’s been convenient for locals to scan a QR code with a smartphone to pay, financial system restrictions have also meant foreigners often found it difficult to make payments. Shopping malls have increasingly preferred not to accept foreign credit cards.
But that’s started to change in recent months.
Last summer, the two dominant mobile pay apps WeChat and AliPay started allowing verified users to connect their international credit cards — such as those from Visa. Tencent owns WeChat, while AliPay is operated by Alibaba affiliate Ant Group.
“We are fully aware that foreign visitors care very much about their privacy,” Zhang said “We take this issue seriously and have put in place measures for information protection.”

“Now, when using Alipay or WeChat Pay, foreign visitors do not need to provide ID information if their total annual transaction volume is under $500,” he said. “It is estimated that over 80% transactions are below this threshold. We are also looking at the possibility of raising the $500 threshold in the future.”

Zhang and other officials attended an event Monday at Beijing Capital Airport to formally open a payments service center for visiting foreigners.
While their public remarks mentioned the digital yuan, they focused on discussing the availability of cash currency exchange, greater acceptance of overseas cards and more mobile pay support.
The number of travelers in and out of mainland China has “continued to improve but both remained below 2019 levels,” Visa executives said on an earnings call in late January, according to a FactSet transcript.
Foreign financial services businesses have also started to see improved access to China, after years of waiting during which international companies criticized Beijing for favoring domestic players until they grew large enough.
Mastercard in November announced its joint venture in China received approval from the PBOC to begin processing domestic payments. The venture waited nearly four years since its application to begin preparations was approved in principle.

Read more about China from CNBC Pro

Zhang said China’s plan for supporting foreigners’ payments in the country would focus on allowing card transactions for large payments and mobile pay for smaller amounts.
Users of 13 foreign mobile wallet apps can also directly use QR payment codes in China, Zhang claimed, without naming the apps.
“At the same time cash is always available and accepted,” he said.
Ant Group in September said users of 10 major mobile payment apps in countries such as Singapore, South Korea and Thailand could use the same apps to scan AliPay QR payment codes in mainland China — a product the company calls Alipay+. More

Nvidia shares hit a fresh all-time high today, and its gains may still be in the early innings, according to VanEck CEO Jan van Eck.
Van Eck, whose firm runs the largest U.S. semi exchange-traded fund, points to a first-mover edge in the race to fabricate artificial intelligence chips that could bolster the performance of stocks including Nvidia.

“It’s just that these companies have huge competitive advantages, almost quasi-monopolies,” he told CNBC’s “ETF Edge” on Monday.
Nvidia is up 216% over the past year and 41% since Jan. 1, as of Wednesday’s close.
“Who competes against Nvidia for GPUs [graphics processing units]?” he questioned. “They’ve got great pricing power. They’ve got AI.”
Nvidia is the VanEck Semiconductor ETF’s top holding. The fund tracks 25 of the largest semiconductor companies weighted by market cap. According to FactSet, Nvidia accounts for almost a quarter of the fund’s assets.
“[Nvidia’s] lead is so big,” van Eck added. “The return on equity is huge.”

He suggests as more competitors enter the AI GPU space, Nvidia’s more advanced capabilities could buffer the company’s current status as the most valuable semiconductor stock. 
“They’re trying to build their moat by now having software services, and now they’re building a cloud solution,” van Eck said. “But who can really compete with them?”
The VanEck Semiconductor ETF’s top holdings as of Wednesday are Nvidia, Taiwan Semiconductor and Broadcom. The ETF is up more than 12% this year.
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Embattled lender New York Community Bank disclosed a litany of financial metrics in the past 24 hours in a bid to soothe skittish investors.
The sudden decline in NYCB reignited fears over the state of medium-sized American banks.
Investors have worried that losses on some of the $2.7 trillion in commercial real estate loans held by banks could trigger another round of turmoil after deposit runs consumed Silicon Valley Bank and Signature last March.

The New York Community Bank (NYCB) headquarters in Hicksville, New York, US, on Thursday, Feb. 1, 2024. 
Bing Guan | Bloomberg | Getty Images

Embattled lender New York Community Bank disclosed a litany of financial metrics in the past 24 hours in a bid to soothe skittish investors.
But one of the most crucial resources for any bank appears to be in short supply for NYCB lately: confidence.

The regional bank late Tuesday said that deposits were stable at $83 billion and that the firm had ample resources to cover any possible flight of uninsured deposits. Hours later, it promoted chairman Alessandro DiNello to a more hands-on role in management.
The moves spurred a 6% jump Wednesday in NYCB shares, a small dent in the stock’s more than 50% decline since the bank reported fourth-quarter results last week. Shares of the Hicksville, New York-based last traded for about $4.48 per share.
“There’s a confidence crisis here,” said Ben Emons, head of fixed income at NewEdge Wealth. “The market doesn’t have belief in this management.”
Amid the freefall, ratings agency Moody’s cut the bank’s credit ratings two notches to junk, citing risk management challenges while the firm searches for a pair of key executives. Making matters worse, NYCB was hit with its first shareholder lawsuit Wednesday over the share collapse, alleging that executives misled investors about the state of its real estate holdings.
The sudden decline in NYCB, previously deemed one of last year’s winners after acquiring the assets of Signature Bank, reignited fears over the state of medium-sized American banks. Investors have worried that losses on some of the $2.7 trillion in commercial real estate loans held by banks could trigger another round of turmoil after deposit runs consumed Silicon Valley Bank and Signature last March.

Real estate

Last week, NYCB said it was forced to stockpile much more cash for losses on offices and apartment buildings than analysts had expected. Its provision for loan losses surged to $552 million, more than 10 times the consensus estimate.
The bank also slashed its dividend by 71% to conserve capital. Companies are usually loath to cut dividends because investors favor firms that make steady payouts.
The NYCB results sent shares of regional banks tumbling because that group plays a relatively large role in the country’s commercial real estate market compared to the megabanks, while generally reserving less for possible defaults.
Shares of Valley National, another lender with a larger weighting to commercial real estate, have declined about 22% in the past week, for instance.
NYCB’s results “shifted investor sentiment back towards the risk of an acceleration in CRE nonperforming loans and loan losses over the course of 2024,” Morgan Stanley analyst Manan Gosalia wrote Wednesday in a research note.
Despite a suddenly low valuation, “the perceived risk tied to all things commercial real estate is also likely to weigh on investor appetite to step in,” Bank of America analyst Ebrahim Poonawala wrote Wednesday. He rates NYCB “neutral” and has a $5 price target.
Office buildings are at greater risk of default because of lower occupancy rates with the rise in remote and hybrid work models, and changes in New York’s rent stabilization laws have made some multifamily dwellings plunge in value.
“People thought that office space is where the stress is; now we’re dealing with rent-controlled properties in New York City,” Emons said. “Who knows what will happen next.”

Institutions ‘stressed’

Emons noted that, much like during the March tumult, speculators have piled into trades betting that NYCB shares would decline further.
In particular, activity for put options that pay off if NYCB stock falls to $3 or lower have surged, he said. A put is a financial contract that gives the buyer the right to sell a stock at a predetermined price and within a specific time.
On Tuesday, Treasury Secretary Janet Yellen said she was “concerned” about losses in commercial real estate, but that bank regulators were working to make sure that the financial system would adjust.
“I believe it’s manageable, although there may be some institutions that are quite stressed by this problem,” Yellen said, declining to speak about any specific bank.
That jibes with the view of Wells Fargo analysts that regulators are likely to take a more critical stance on reserving for possible loan losses after the NYCB flare up.
“A tougher look at credit likely leads to more write-offs, which can lead to more capital needs,” wrote Wells Fargo analysts led by Mike Mayo. More

The hedge fund billionaire is planning to launch a closed end fund, investing in 12 to 24 large-cap, investment grade, “durable growth” companies in North America, according to a regulatory filing.
Ackman’s new fund doesn’t have a performance fee in place.

Bill Ackman, Pershing Square Capital Management CEO, speaking at the Delivering Alpha conference in New York City on Sept. 28, 2023.
Adam Jeffery | CNBC

Pershing Square’s Bill Ackman is set to offer a new investment vehicle listed on the New York Stock Exchange, aiming to leverage his following among Main Street investors.
The hedge fund billionaire is planning to launch a closed end fund, investing in 12 to 24 large-cap, investment grade, “durable growth” companies in North America, according to a regulatory filing. There will be no minimum investment.Unlike traditional hedge funds that typically charge a 2% management fee on the total assets under management plus a performance fee of 20% of the fund’s profits, Ackman’s new fund doesn’t have a performance fee in place. Ackman is waiving the management fee for the first 12 months and after the first year will charge a flat 2% fee.

“The Adviser believes that the Fund has the potential to be one of the largest, if not the largest, listed closed-end funds and expects that the Adviser’s brand-name profile and broad retail following will drive substantial investor interest and liquidity in the secondary market,” Ackman said in the filing.
A spokesperson at Pershing Square declined to comment beyond the filing.
Ackman has become one of the world’s most prominent hedge fund investors after years of market-topping returns and vocal activist campaigns. He also gained a wide following on social media platform X with 1.2 million followers, commenting on issues ranging from antisemitism to the presidential election.
The popular investor’s hedge fund held only seven stocks at the end of 2023, including Alphabet, Chipotle Mexican Grill and Howard Hughes Corporation. It posted a 26.7% gain last year.
Pershing Square had more than $18 billion in assets under management as of the end of January.Don’t miss these stories from CNBC PRO: More

Federal Reserve Governor Adriana Kugler said Wednesday inflation is showing solid signs of slowing down, but she is not ready yet to start lowering interest rates.
In a busy day for Fed speakers, Minneapolis Fed President Neel Kashkari also expressed caution about cutting rates too quickly and said he only expects two or three reductions this year.
Boston Fed President Susan Collins added to the cautionary tone, saying, “I will need to see more evidence before considering adjusting the policy stance.”
“That drumbeat you hear is the soft landing,” Richmond Fed President Thomas Barkin said, though he also added that he favors “being patient” on rates.

Federal Reserve Governor Adriana Kugler said Wednesday inflation is showing solid signs of slowing down, but she is not ready yet to start lowering interest rates.
In her first major policy address since being confirmed to the Board of Governors in September 2023, Kugler said three factors are converging to ease inflation pressures: moderating wage growth, changes in how often companies are raising prices and survey indicators that the pace of price increases is expected to continue to fall.

With all that in mind, however, Kugler wants more confidence that it’s time to cut rates.
“So I am pleased with the disinflationary progress thus far and expect it to continue. I must emphasize, however, that the [Federal Open Market Committee’s] job is not done yet,” she said in remarks for speech to the Brookings Institution in Washington, D.C.
“At some point, the continued cooling of inflation and labor markets may make it appropriate to reduce the target range for the federal funds rate,” Kugler added. “On the other hand, if progress on disinflation stalls, it may be appropriate to hold the target range steady at its current level for longer to ensure continued progress on our dual mandate.”
The policymaker added that she expects consumer spending to grow and core services inflation excluding housing to pull back. Additionally, she sees indications that firms which raised their prices frequently during the big inflation run-up of 2021-22 are doing so less now.
Should inflation continue to recede toward the Fed’s 2% goal, that likely will lead to cuts later this year. However, like other Fed officials, Kugler did not commit to a timetable, despite market pricing for aggressive reductions ahead.

“It all depends,” Kluger said on the pace of rate cuts once the Fed does move. “I don’t think we can call it out now.” She did add that “every meeting is live,” meaning the committee hasn’t ruled out moving at any point.
As a governor, Kugler, the first Latina to hold the position in Fed history, is a permanent FOMC voter.
“I am pleased by the progress on inflation, and optimistic it will continue, but I will be watching the economic data closely to verify the continuation of this progress,” Kugler said.
Fed officials generally have expressed broad satisfaction with the balance of growth and inflation as the central bank seeks to steer the economy back into stable inflation without halting growth.
“That drumbeat you hear is the soft landing,” Richmond Fed President Thomas Barkin said during an appearance with the Economics Club of Washington, D.C.
“All of these metrics are very strong, and inflation is coming down. So I’m very supportive of being patient to get to where we need to get,” he added. “I see at this point, the trade off, which is coming into better balance, is still being in favor of continuing to work on inflation.”
Earlier in the day, Minneapolis Fed President Neel Kashkari also expressed caution about cutting rates too quickly.

Two or three rate cuts expected

“Sitting here today, I would say, two or three cuts would seem to be appropriate for me right now,” Kashkari said during a CNBC “Squawk Box” interview. “But again, I don’t want to prejudge things, but that’s, that’s my gut, based on the data we have so far.”
Markets have been pricing in an aggressive path this year for the Fed, with the first reduction happening as soon as May and five total quarter percentage point cuts happening before the end of the year, according to the CME Group’s FedWatch measure of futures pricing.
However, multiple Fed officials have been pushing back on that narrative. Fed Chair Jerome Powell a week ago and again during a “60 Minutes” interview that aired Sunday on CBS all but completely took a March cut off the table and said he expects policymakers to move carefully as they measure the progress of inflation against broader economic growth.
“We just need to look at the actual inflation data to guide us,” Kashkari said. “So far, the data has been resoundingly positive. I hope it continues. And then the question will simply be, at what pace do we then start to adjust rates back down?”
He added that there are “compelling arguments to suggest we could be in a longer, higher rate environment going forward.”
Kashkari is a nonvoting member this year on the FOMC.
Earlier this week, he penned an essay that ran on the Minneapolis Fed site where he suggested that the real fed funds rate when adjusted for inflation may not be as high as it looks. In a series of hikes that ran from March 2022 to July 2023, the FOMC took its benchmark overnight borrowing rate from near zero to a target range between 5.25%-5.5%, the highest in 23 years.
However, economic data has held solid during that time. Kashkari said the trend indicates that interest rates may not be exerting as much pressure on the economy as expected. Labor market growth has stayed strong as consumers continue to spend.
“That’s all really good news, and that tells me maybe monetary policy is not putting as much downward pressure on demand as we would otherwise think,” he said. “That gives us more time to access that data before we start reducing interest rates. So I think this is a good problem to have.”
Also Wednesday, Boston Fed President Susan Collins added to the cautionary tone, saying that recent signs of strength in consumption and employment show that it could take a while until the economy settles into a 2% inflation pace.
“While heartened by the progress to date, I will need to see more evidence before considering adjusting the policy stance,” Collins said remarks for a speech to the Boston Economic Club. “As we gain more confidence in the economy achieving the Committee’s goals, and consistent with the last set of projections from FOMC participants, I believe it will likely become appropriate to begin easing policy restraint later this year.”
However, Collins did not put a timetable on when it might be appropriate to cut rates. Moreover, she noted that the path to get back to the Fed’s inflation goal could get “bumpy” and emphasized the importance of a policy determined to defeat inflation.
There are multiple Fed speakers during the day. This story will be updated to reflect other developments. More

Running China’s securities watchdog is a perilous job. A market rout can end your career, or worse. On February 7th, after weeks of stockmarket instability, Yi Huiman, the head of the China Securities Regulatory Commission (CSRC), was suddenly fired and replaced. He is not the first official to fall after a period of plummeting stock prices. Liu Shiyu, his predecessor, was sacked in 2019, and later investigated for corruption. Xiao Gang, the boss before that, was treated as a scapegoat for the market crash in 2015.Before his dismissal, Mr Yi would have been aware that he was on dangerous ground. Already this year, more than $1trn in market value has been wiped from exchanges in China and Hong Kong. On February 5th the Shanghai Composite plummeted to a five-year low. All told, the index is down by more than a fifth since early 2022. And as miserable as the performance of Chinese stocks has been for most of their three-decade history, the present downturn feels different.That is because China’s economic prospects are gloomier than at any point in recent history. The dire state of the property market is the chief problem. Prices and sales have fallen for more than a year; officials have failed to stop the correction. During the stock rout in 2015 retail investors had a slogan: “Sell your stocks and buy real estate”. No one is chanting it now. Worse still, government rescue plans do not look up to the task.For many citizens, it feels as if China never truly emerged from its dismal zero-covid years. An economic recovery that was expected to play out in 2023 faltered during the first half of the year. Pessimism has clouded the market ever since. Goldman Sachs, a bank, recently asked a dozen local clients—asset managers, insurers and private-equity types—to rate their bearishness towards China on a scale of zero to ten, with zero being equal to their outlook during the lockdowns of 2022. Half gave the country a score of zero; the other half said three.image: The EconomistThe situation ought to worry Xi Jinping, the country’s leader, for several reasons. One is that more than 200m Chinese people own stocks, and officials risk taking the blame for the downturn. Few things enrage Chinese social-media warriors more than a stockmarket rout. One recent post suggested that food deliveries to the Shanghai Stock Exchange were being searched for dangerous materials, such as bombs or poison. Many have piled onto the American embassy’s social-media account to gripe. And a flurry of angry posts have been directed at Hu Xijin, a nationalist media personality who often tries to whip up support for Chinese shares. He said last year that he would jump off a building if he lost too much money on stocks—not because of the loss itself, but because of embarrassment. As the Shanghai Composite hit its five-year low on February 5th, some recommended that he keep his word.Another reason for Mr Xi to worry is that markets reflect the perception of China and his leadership abroad. Until relatively recently global investors were in love with Chinese stocks. Their inclusion in MSCI’s flagship emerging-markets index in 2018 was welcomed by asset managers, and hailed as a step forward in attempts to make Chinese stockmarkets more international. Needless to say, the excitement has faded. Zero-covid policies hurt China’s reputation. Mr Xi’s support for Vladimir Putin despite his invasion of Ukraine has done further damage. But nothing, most investors agree, has harmed Mr Xi more than allowing the property downturn to drag on for years.Although Chinese authorities still hope to attract investment, foreign investors are fleeing. They have been net sellers for months, dumping $2bn-worth of shares in January alone. The sell-off has been so severe that some experienced foreign investors are shutting down. Asia Genesis, a hedge fund in Singapore, announced in January that it would close its doors following the unexpected price drops.Most foreign investors hold little hope for a recovery any time soon. One investment manager at a foreign bank in Shanghai suggests that the stockmarket may stabilise in the coming weeks. Indeed, on February 6th the CSI 300, a big index, finished the day up by more than 3%, its best performance in more than a year. Yet the low level of confidence will remain until leaders put forward a sufficiently ambitious plan to fix the property market. That might take years, the manager notes.Money talksRegulators have put out a series of statements about market stabilisation since late January. Most recently, on February 6th Central Huijin, the domestic arm of China’s sovereign wealth fund, indicated that it would start buying shares to help stabilise the market. On February 4th the CSRC said that it would prevent abnormal movements in trading, while cracking down on “malicious” short-selling. Such announcements have made fund managers uneasy. Foreign investors need to use hedging tools, like short-selling, to operate normally. Talk of a crackdown has therefore caused them to withdraw from Chinese markets in case they can no longer hedge positions. Some are also pulling back owing to fear that their staff could be detained and accused of financial crimes.image: The EconomistBoth foreign and domestic investors are awaiting a state bail-out fund, about which there have been hints but nothing more. On January 23rd Bloomberg, a news service, reported that a stabilisation fund armed with some 2trn yuan ($280bn, or about 3% of China’s stockmarket capitalisation) could start buying up shares. The “national team”, a handful of state-owned asset managers, which includes Central Huijin, often steps in during downturns. In 2015 it hoovered up about 6% of the entire market capitalisation through purchases of individual stocks. More recently, these investment firms have bought exchange-traded funds to avoid claims of insider-trading when the names of their targets leak. Although investors have seen signs of the national team at work in recent weeks, so far they have probably bought less than 100bn yuan-worth of shares—far below the amount required to produce a serious turnaround in the markets.The central government may eventually step in with a bigger bail-out package, perhaps after the Chinese New Year holiday, which will shut markets for a week starting on February 12th. But Mr Xi is also eyeing sweeping reforms to how China’s stockmarkets work and how investors value the companies that trade on them.One part of the plan is to shift China’s markets from a focus on capital-raising to one on helping investors preserve their wealth. The distinction often perplexes foreign market-watchers. Shouldn’t stockmarkets serve both capital-hungry companies and regular investors? In theory, yes. But in China markets are different, since they often serve state objectives, too. In recent years, for instance, one of Mr Xi’s main aims has been to open capital markets to industries such as artificial intelligence, green technology, robotics and semiconductors, as part of a push to compete with America and dominate a number of advanced-tech industries.The government also wanted companies in these sectors to list within China rather than foreign exchanges, which led to the largest wave of initial public offerings (IPOs) and follow-on issuance in Chinese history, turning the country into the world’s biggest IPO market for several years. Chinese firms raised more capital on local stock exchanges between 2020 and 2023 than they did in the entire decade beforehand.image: The EconomistThis helped meet Mr Xi’s aims. But it also drained liquidity from secondary markets, where investor value is stored. Firms often went public at high valuations only to see their share prices fall. Now regulators want to shift towards a more “investor-oriented” market that protects average investors. That means fewer IPOs and more liquidity directed to secondary trading.History repeatsChina’s markets have moved through such a cycle before. In 2012 regulators halted all IPOs in the hope that excess liquidity would support share prices. As a consequence no company went public in 2013, even as hundreds joined a queue to do so in the hope of raising funds. IPOs resumed in 2014. The following year the stockmarket launched into a historic rally that ended in a dramatic crash. The experience hurt the standing of both China’s capital markets and its regulators. As officials try once again to make markets more friendly to investors, capital allocators will be supremely conscious of this experience.Another part of the Chinese government’s long-term plan is to raise the market value of state-owned enterprises (SOEs). Although such companies already dominate China’s markets, they are valued at just half the amount of similar non-state companies. This is because SOEs are viewed by investors as clunky operators that are more loyal to party apparatchiks than to shareholders. Policymakers have therefore proposed creating a “valuation system with Chinese characteristics” in order to boost their share prices.Such a system would aim to educate investors on the broader social roles, such as reducing unemployment during downturns, that state enterprises play. But it would also involve reforms within SOEs themselves. State managers have historically cared little about investor relations, and have not used return on equity as an internal metric for judging performance. This would change. Meanwhile, regulators want the firms to pay out regular dividends and conduct share buybacks that reward investors. If the reforms are successful they would not only increase prices on China’s stock exchanges, they would boost the wealth of the state through its holdings in these companies.These changes would have been easier to make when China’s stockmarket was smaller and the country’s economy was still growing rapidly. Most of the reforms require investors to accept the state’s dominant position in the market, whether in directing capital flows or in making SOEs more palatable. Investors now have decades of experience in trading Chinese shares. They remember the initial attempts to list and market SOEs, as well as the desire to guide capital into certain parts of the market, and they have witnessed the results. Ultimately, Chinese investors may have little choice but to return to the country’s stockmarkets. Foreign investors, however, have other options. ■ More

New York Community Bank’s shares continued their downward spiral Wednesday after Moody’s Investors Service cut the firm’s credit rating two notches to junk status.
The regional bank has been in freefall since reporting a surprise loss last week, along with mounting losses on commercial real estate and the need to slash its dividend by 71% to shore up capital levels.

A man walks past a closed branch of the New York Community Bank in New York City, U.S., January 31, 2024. 
Mike Segar | Reuters

New York Community Bank’s shares jumped early Wednesday after it promoted its chairman to help stabilize the company’s operations.
NYCB shares rose 8%, reversing earlier losses of about 10%, in premarket trading. That followed a punishing series of trading sessions that cut almost 60% of the bank’s market value.

The bank made Alessandro DiNello executive chairman effective immediately, promoting him from nonexecutive chairman, to work with CEO Thomas Cangemi “to improve all aspects of the Bank’s operations,” according to a statement released at 7:45 am.
The regional bank has been in freefall since reporting a surprise loss last week, along with mounting losses on commercial real estate and the need to slash its dividend by 71% to shore up capital levels. The moves reignited concerns that some small and medium sized banks could be squeezed by declines in profitability and losses on real estate holdings.
Late Tuesday evening, Moody’s issued a report stating that NYCB faced “multi-faceted financial, risk-management and governance challenges.” It downgraded all the bank’s long term ratings to Ba2 from Baa3, partly on concerns about turnover of the firm’s risk management leaders, and warned the assessments remain on review for further downgrade.
“The downgrade reflects Moody’s views that NYCB faces high governance risks from its transition with regards to the leadership of its second and third lines of defense, the risk and audit functions of the bank, at a pivotal time,” Moody’s wrote. “In Moody’s view, control functions with strong knowledge of a bank’s risks are key to a bank’s credit strength.”
Overnight, NYCB issued a statement hours after the Moody’s report, stating that the downgrade isn’t expected to have a “material impact on our contractual arrangements.”

The bank sought to boost confidence by issuing unaudited financial information as of Monday, stating that 72% of total deposits were either insured or collateralized, and that it had amply liquidity to cover uninsured deposits.
“We took decisive actions to fortify our balance sheet and strengthen our risk management processes during the fourth quarter,” Cangemi said in the release. “Our actions are an investment in enhancing a risk management framework commensurate with the size and complexity of our bank.”
NYCB has begun searching for a new chief risk officer and chief audit executive “with large bank experience,” Cangemi added. Managers holding those roles left the bank in the months before its disastrous earnings report last week, Bloomberg reported.
This story is developing. Please check back for updates. More