Finance

A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, July 13, 2022.
Brendan McDermid | Reuters

Stock futures were flat after the Dow Jones Industrial Average slumped more than 200 points during Monday’s session, reversing an earlier rally as earnings season continued in earnest.
Dow Jones Industrial Average futures rose by 9 points, or 0.03%. S&P 500 futures ticked up 0.11% and Nasdaq 100 futures rose 0.09%. Shares of IBM fell more than 4% after hours when the original tech company lowered its forecast for cash flow, even while reporting earnings that beat Wall Street’s earnings and revenue estimates.

Earlier, the Dow shed more than 200 points to end the day in the red, reversing a morning rally fueled by solid earnings reports from Goldman Sachs and Bank of America. Oil broke above $100 a barrel, and bitcoin surged to the highest levels seen since mid-June.
Late in the trading session, stocks were dragged down on a Bloomberg report that Apple would slow hiring and spending on growth next year to prepare for a potential economic downturn. Shares of the iPhone maker ended the day about 2.1% lower.
Monthly homebuilder sentiment plunged 12 points to 55, the lowest since the start of the pandemic, according to a report Monday from the National Association of Home Builders. Confidence is coming under pressure in a host of economic sectors as the Federal Reserve continues its campaign to raise interest rates to tame high inflation. The Fed’s next policy meeting wraps up on Wednesday, July 27.
Still, whether the U.S. will experience a recession, and its potential duration and depth, are up for debate.
“When we think about earnings and we think about where stocks are now, we think there’s upside simply because there may be overpricing of this recession that some people think is imminent or already upon us,” said Julian Emanuel, senior managing director at Evercore ISI, during Monday’s Fast Money on CNBC.
The flood of second quarter earnings results continues this week. Johnson & Johnson and Hasbro will report quarterly results before the bell Tuesday, with Netflix reporting after the market close. Later in the week, Tesla, United Airlines, American Airlines, Snap, Twitter and Verizon are among those scheduled to report.

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Goldman Sachs CEO David Solomon said Monday that inflation is deeply embedded in the economy and it’s unclear whether the situation will improve later this year.
“I expect there’s going to be more volatility and there’s going to be more uncertainty and in light of the current environment we will manage all our resources cautiously,” Solomon said.
The uncertainty has Solomon operating his New York-based bank cautiously, and the firm has opted to slow its rate of new hires and cut the professional fees it pays, according to management.

Goldman Sachs CEO David Michael Solomon attends a discussion on “Women Entrepreneurs Through Finance and Markets” at the World Bank on October 18, 2019 in Washington, DC.
Olivier Douliery | AFP | Getty Images

Goldman Sachs CEO David Solomon said Monday that inflation is deeply embedded in the global economy and it’s unclear whether the situation will improve later this year.
“We see inflation deeply entrenched in the economy, and what’s unusual about this particular period is that both demand and supply are being affected by exogenous events, namely the pandemic and the war on Ukraine,” Solomon told analysts during a call to discuss second-quarter results.

Solomon, who leads one of Wall Street’s top advisors to corporations, then laid out one of the central debates occurring in markets right now: It is known that inflation is at multidecade highs; but how long will it persist?

“My dialogue with CEOs operating big global businesses, they tell me that they continue to see persistent inflation in their supply chains,” Solomon said. “Our economists meanwhile say there are signs that inflation will move lower in the second half of the year. The answer is uncertain and we will all be watching it very closely.”
As central banks around the world continue to tighten financial conditions to combat inflation, already volatile markets across asset classes will remain choppy, he said.
The chief concern is that the campaign to fight inflation will begin to take a toll on both “corporate confidence and also consumer activity in the economy,” Solomon told an analyst.
The uncertainty has Solomon operating his New York-based bank cautiously, including by examining its spending plans. The firm has opted to slow its rate of new hires, cut the professional fees it pays and will likely reinstate annual performance reviews for staff this year, according to CFO Denis Coleman.
“I expect there’s going to be more volatility and there’s going to be more uncertainty and in light of the current environment we will manage all our resources cautiously,” Solomon said.

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Much of the business of financial markets is the business of prediction. But beyond predicting the future, the markets also guide decisions about allocating resources today. Financial conditions tighten or loosen as expectations change. For many market actors, expectations can matter as much as, or even more than, reality. In January investors expected the Federal Reserve to raise interest rates to just 0.75% by the end of the year. Since then, expectations have shifted dramatically: by late June markets were expecting rates to hit 3.5% by the end of 2022. This change in expectations is far bigger than the actual move in interest rates, which have climbed by 1.5 percentage points over the same period. The impact of this duality—that expectations have leapt while reality has only hopped—was plain to see on July 14th, 15th and 18th as America’s six largest banks, Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo, reported earnings for the second quarter.The activities of the banks that run on expectations—conducted by the slick investment bankers who advise on major corporate investments, like mergers and acquisitions, and help firms go public or issue debt—had a torrid quarter. Investment-banking revenues (excluding trading) plunged by 41%, year on year, at Goldman, by 61% at JPMorgan and by 55% at Morgan Stanley. Investment bankers who underwrite loans for deals have had a particularly rough time. All banks took losses of varying sizes on their “bridge books”, the portfolios of loans they have yet to sell to investors but have agreed to issue for private-equity deals or mergers. These write-downs added up to more than $1bn in losses across the big banks.Investment banks’ trading businesses fared better. These are often volatile, and tend to do well during periods of chaos and poorly in times of calm. Markets revenues climbed by 21% on the year at Morgan Stanley and 32% at Goldman, benefiting from bond-market turmoil as investors braced themselves for higher rates.But it was the usually staid business of retail banking that really boomed. In the early phase of a tightening cycle bankers see the net interest income they earn on things like business and credit-card loans rise, as appetite for them has yet to diminish. Last quarter demand for loans roared, even in the face of modestly higher rates. Swelling loan portfolios and higher rates contributed to a jump in net interest income (nii). Bank of America’s nii rose by 22% on the year, Citi’s by 14%. Consumer spending on credit cards leapt by 15% on the year at JPMorgan, 18% at Citi and 28% at Wells, driving card balances up. Customers have been “revenge spending” on travel and dining—expenditure in those categories climbed by 34% on the year at JPMorgan—and reducing spending on goods, like apparel and home improvements, which dropped by double digits at Wells. Commercial bankers did well, too. They grew their corporate-loan books by a whopping 7% on the year at JPMorgan. “We have never seen business credit be better, ever, in our lifetimes,” said Jamie Dimon, the boss of JPMorgan, on the firm’s earnings call.The result of this mixed bag—bumper loan growth, bustling consumer card spending, robust trading revenues but a slump in issuance and dealmaking—made for a mediocre quarter at Goldman and Morgan Stanley, where total revenues fell by 23% and 11% on the year, respectively. Results were better at banks where retail banking makes up a big share of business, like Bank of America and Citi. Their revenues climbed by 6% and 11% on the year, respectively.The question is what happens as expectations become reality. It is hard to see the bonanza in retail banking continuing: high inflation and rising interest rates will surely bite consumers eventually. Not all loan growth is good news. It is easy to look at credit-card lending growth, for instance, and feel a pang of unease. Bankers at both JPMorgan and Wells pointed out that lower-income households were starting to look constrained. If you “turn up the magnification of the microscope and look really, really, really closely”, said Jeremy Barnum, JPMorgan’s chief financial officer, there is a “little bit” of a signal that excess cash is running out. Charlie Scharf, the chief executive of Wells, noted that debit-card spending was up by just 3% on the year for customers who had received stimulus payments (ie, those who earned less than $75,000). Bumper corporate-loan growth sounds less like an indication of business health, considering that it seems to have been driven by chaotic debt markets. Jane Fraser, the boss of Citi, told investors that “clients have been less inclined to obtain financing through the debt markets.” At Wells average loan balances were up by 22% year on year. Mr Scharf attributed this development to the “disruption” in capital markets, which increased demand for bank financing and encouraged firms to draw down credit lines. Interest rates in bond markets have risen more quickly than bank-loan rates, but the latter will probably catch up.Still, rising interest rates and strong loan demand are, for now, a happy combination for retail bankers. For central bankers they might be less welcome. As Brian Moynihan, the boss of Bank of America, put it, all this activity, together with low unemployment, “clearly makes the Fed’s job tougher”. ■ More

David Solomon, chief executive officer of Goldman Sachs & Co., speaks during the Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, April 29, 2019.
Kyle Grillot | Bloomberg | Getty Images

Check out the companies making headlines in midday trading.
Goldman Sachs – The bank stock jumped 2.51% after the company posted profit and revenue that exceeded analysts’ estimates. Goldman’s fixed income traders generated roughly $700 million more revenue than expected on “significantly higher” trading activity in interest rates, commodities and currencies.

Delta Air Lines, Boeing – Shares of Delta Air Lines jumped 3.49% on news that it’s purchasing 100 Boeing 737 Max 10 planes, in a deal that marks Delta’s first new Boeing aircraft order in over a decade. Boeing shares dipped 0.01% following the news.
Tesla – Shares rose 0.02% after Deutsche Bank added the company to its short-term buy list, citing the potential for it to exceed Wall Street expectations when it reports earnings. Tesla reports quarterly earnings on Wednesday.
Grab Holdings – The food delivery stock jumped 9.64% after JPMorgan upgraded Grab to overweight form neutral. JPMorgan described the sentiment around Grab as “extremely cautious,” setting up a potential bounce if quarterly results beat expectations
Coinbase – Shares jumped 9.07% after DNB Asset Management, a large European asset manager, bought shares of the cryptocurrency exchange. Bitcoin also surged to a monthly high.  
Energy stocks – Industry shares spiked as the price of oil jumped on fears that supply will remain tight. Natural gas also surged, adding to energy sector gains. Diamondbank Energy, Marathon Oil, Halliburton and Devon Energy all gained more than 3%. Enphase Energy jumped 5.91%.
—CNBC’s Yun Li, Samantha Subin and Jesse Pound contributed reporting.

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Goldman Sachs has slowed its hiring and is looking to cut the fees that it pays vendors as the investment bank prepares for tougher times ahead.
But New York-based Goldman has another tool in its arsenal to keep expenses under control: A potential return of year-end job cuts, according to a person with knowledge of the situation.
No target exists yet for head count reduction, according to the person, and the plans are dynamic and could change.

People walk by the New York Stock Exchange on May 12, 2022 in New York City.
Spencer Platt | Getty Images News | Getty Images

Goldman Sachs has slowed its hiring and is looking to cut the fees that it pays vendors as the investment bank prepares for tougher times ahead.
But New York-based Goldman has another tool in its arsenal to keep expenses under control: A potential return of year-end job cuts, according to a person with knowledge of the situation.

Wall Street firms have long culled those deemed to be underperformers, often at the end of the year as the companies prepare to dole out bonuses to those who remain. That annual exercise was paused during the pandemic as banks furiously hired to take advantage of a record boom in deals activity.
At Goldman, for instance, head count swelled by 15% to 47,000 employees in the past year alone, according to figures disclosed Monday. Some of those workers may have come aboard via acquisition, but that is still a large increase.
Now, amid a steep decline in revenue tied to debt and equity issuance, Wall Street’s leading investment bank is considering a return to the year-end ritual.
Employees often make up the single biggest line item when it comes to expenses at an investment bank. At Goldman, the firm set aside $7.78 billion for workers’ compensation and benefits through June 30, or half the overall operating expenses of the period.
CFO Denis Coleman told analysts Monday on a conference call to review second-quarter earnings that the firm will slow hiring to replace those who leave and will “probably” reinstate annual performance reviews by year end.

That is “something that we suspended during the period of the pandemic for the most part,” he said.
No target exists yet for head count reduction, according to the person, and the plans are dynamic and could change. In the past, managing directors and partners were asked to come up with lists of those they could release if needed.

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Starling told staff Monday that it had withdrawn its application for a European bank license with the Irish central bank.
The four year-long process was stunted by delays, including a temporary pause in talks in 2020 due to Covid.
The move has dealt a blow to the Goldman-backed fintech’s European expansion plans.

Starling CEO Anne Boden.
Harry Murphy | Sportsfile for Web Summit via Getty Images

LONDON — British digital bank Starling is ending its bid to obtain a European banking license, dealing a significant setback to the company’s international expansion ambitions.
The firm told staff Monday that it had withdrawn its application for a bank license from the Irish central bank, four years after initiating the process. Starling’s application had faced problems in the past, with the digital lender temporarily pausing talks with regulators in 2020 due to the Covid-19 pandemic.

Starling will instead focus on selling its software-as-a-service product, aimed at helping banks with their digital transformation strategies, and expanding into new areas of lending, CEO Anne Boden told staff in a memo Monday. The memo was first reported by Sky News and subsequently confirmed to CNBC by a Starling spokesperson.
The news comes as a blow to Starling’s European expansion plans. Backed by the likes of Goldman Sachs and Qatar’s sovereign wealth fund, Starling has won investment from such high-profile investors with the promise that it can achieve success in countries outside its home market.
Starling is one of the U.K.’s largest online-only banks, with more than 3 million clients, 500,000 of which are businesses. It competes with numerous popular fintechs in the country including Revolut and Monzo, as well as its own investor Goldman, which offers savings accounts through a digital banking brand called Marcus.
The privately-owned firm was last valued at £2.5 billion ($3 billion) in April, double what it was worth in a 2021 financing round.
Fintechs have had a tough time in both public and private markets, with Swedish buy now, pay later firm Klarna recently seeing its valuation drop 85% to $6.7 billion from $45.6 billion last year.

Starling said its still intends to pursue expansion in Europe, only through software deals with other lenders rather than its own retail bank brand.
“Ultimately, we felt that an Irish subsidiary would not deliver the added value we are seeking,” Boden said in the memo Monday.
“We’ll now be focusing on taking our software to banks around the globe through our Software as a Service subsidiary, Engine, and by expanding our lending across a range of asset classes, including through targeted M&A activity,” she added.
Starling acquired Fleet Mortgages, a specialist mortgage lender, for £50 million in July 2021.
The company was recently the target of criticism from Lord Agnew, a former U.K. minister, who questioned its deployment of government-backed lending schemes aimed at helping businesses through the coronavirus crisis.
Agnew, who resigned as anti-fraud minister this year over the government’s handling of Covid loan fraud, called Starling “one of the worst” offenders when it came to making checks on businesses applying for the government’s £47 billion bounce back loans program. The government promised lenders 100% backing for the loans in the event that a firm didn’t repay.
Boden fired back at Agnew’s claims, calling them “defamatory” and “wild accusations,” and threatening legal action against the politician if he didn’t retract the comments.
The Covid loans program provided a big boost to Starling’s bottom line, with the upstart bank posting its marquee profit in October 2020 following a significant uplift in lending activity. The bank’s loan book ballooned from barely any lending to nearly £2.2 billion between 2019 and 2021. Starling is expected to reveal its latest full-year accounts this week.

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Second-quarter profit fell 48% to $2.79 billion, or $7.73 a share, driven by industrywide declines in investment banking revenue. Still, the results were more than a dollar higher than the average analyst estimate reported by Refinitiv.
Revenue fell 23% to $11.86 billion, which was a full $1 billion more than analysts had expected, driven by a 55% surge in fixed income revenue.
The bank’s fixed income operations generated $3.61 billion in revenue, topping the $2.89 billion StreetAccount estimate, on “significantly higher” trading activity in interest rates, commodities and currencies.

Goldman Sachs on Monday posted profit and revenue that exceeded analysts’ estimates as fixed-income traders generated roughly $700 million more revenue than expected.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $7.73 vs. $6.58 expected
Revenue: $11.86 billion vs. $10.86 billion expected

Second-quarter profit fell 48% to $2.79 billion, or $7.73 a share, driven by industrywide declines in investment banking revenue. Still, the per share results were more than a dollar higher than the average analyst estimate reported by Refinitiv.
Revenue fell 23% to $11.86 billion, which was a full $1 billion more than analysts had expected, driven by a 55% surge in fixed income revenue.
The bank’s fixed income operations generated $3.61 billion in revenue, topping the $2.89 billion StreetAccount estimate. Goldman attributed the performance to “significantly higher” trading activity in interest rates, commodities and currencies. Equities revenue rose 11% to $2.86 billion, edging out the $2.68 billion StreetAccount estimate.
Goldman shares were up about 3% in premarket trading.
“We delivered solid results in the second quarter as clients turned to us for our expertise and execution in these challenging markets,” CEO David Solomon said in the release.

“Despite increased volatility and uncertainty, I remain confident in our ability to navigate the environment, dynamically manage our resources and drive long-term, accretive returns for shareholders,” he said.
Goldman tends to outperform other banks during periods of high volatility, as displayed by the firm’s strong fixed income results.
Similar to rivals including JPMorgan Chase and Morgan Stanley who posted steep declines in second-quarter advisory revenue, Goldman said investment banking revenue dropped 41% to $2.14 billion, slightly higher than the $2.07 billion estimate. The firm blamed a sharp slowdown in equity and debt issuance in the quarter, one of the casualties of surging interest rates and declines across financial assets.
The bank said its deals backlog shrank compared with the first quarter, which could indicate that potential mergers and IPOs are being killed instead of being pushed back into future quarters.
Goldman also tends to benefit from rising asset prices through its various investment vehicles, and so broad declines in financial assets stung the firm in the quarter.
Asset management revenue fell 79% from a year earlier to $1.08 billion, edging out the $924.4 million estimate. The decline came from losses in publicly traded stocks and smaller gains in private equity holdings, the bank said.
“Macroeconomic concerns and the prolonged war in Ukraine continued to contribute to the volatility in global equity prices and wider credit spreads,” the bank noted.
Last week, JPMorgan and Wells Fargo also posted writedowns tied to declines in loan books or equity holdings.
Goldman’s consumer and wealth management revenue rose 25% to $2.18 billion, essentially matching analysts’ estimate, on rising management fees, credit card balances and deposits in its digital banking business.
Goldman shares have fallen 23% this year through Friday, worse than the 16% decline of the KBW Bank Index.
Last week, JPMorgan and Wells Fargo posted second-quarter profit declines as the banks set aside more funds for expected loan losses, while Morgan Stanley disappointed after a bigger-than-expected slowdown in investment banking. Citigroup topped expectations for revenue as it benefited from rising rates and strong trading results.

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Bank of America earnings dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses.
Revenue climbed 5.6% to $22.79 billion, edging out analysts’ expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth.
Shares of the lender rose 2.5% premarket trading.

Bank of America on Monday said second-quarter results benefited from rising interest rates, but profit took a hit from about $425 million in expenses tied to regulatory matters.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: 78 cents adjusted vs. 75 cents a share expected
Revenue: $22.79 billion vs. $22.67 billion expected

Profit dropped 32% to $6.25 billion, or 73 cents a share, from a year earlier as the firm took a $523 million provision for credit losses. A year ago, the bank had a $1.6 billion benefit as borrowers proved more creditworthy than expected.
Excluding the impact of the regulatory expenses, the bank earned 78 cents a share, which was higher than analysts had predicted.
Revenue climbed 5.6% to $22.79 billion, edging out analysts’ expectations, as net interest income surged 22% to $12.4 billion on rising interest rates and loan growth. That figure could climb by $900 million or $1 billion in the third quarter, CFO Alastair Borthwick told analysts Monday during a conference call.
Shares of the lender rose 2.5% premarket trading.
“Solid client activity across our businesses, coupled with higher interest rates, drove strong net interest income growth and allowed us to perform well in a weakened capital markets environment,” CEO Brian Moynihan said in the release.

“Our U.S. consumer clients remained resilient with continued strong deposit balances and spending levels. Loan growth continued across our franchise and our markets teams helped clients navigate significant volatility reflecting economic uncertainty.”
Bank of America, led by Moynihan since 2010, has enjoyed tailwinds as rising interest rates and a rebound in loan growth have boosted income. But bank stocks have been hammered this year amid concerns that high inflation will spark a recession, which would lead to higher loan defaults.
Noninterest expenses in the quarter rose 2% from a year earlier, as the firm cited about $425 million in costs tied to regulatory matters. Roughly half of that figure was tied to fines announced last week totaling $225 million over how the bank handled unemployment benefits during the pandemic; the rest has to do with an industrywide probe into trading personnel using messaging apps.
Similar to peers at Morgan Stanley and JPMorgan Chase, Bank of America saw investment banking fees plunge 47% to $1.1 billion, just below the $1.24 billion StreetAccount estimate.
Fixed income trading revenue jumped 19% to $2.3 billion and equities revenue rose 2% to $1.7 billion, both essentially matching analysts’ expectations.
Furthermore, broad declines across financial assets have begun to show up in bank results in the quarter, with Wells Fargo saying that “market conditions” forced it to post a $576 million impairment on equity holdings. JPMorgan said last week it had a $257 million writedown on bridge loans for leveraged buyout clients.
On Monday, Bank of America cited “mark-to-market losses related to leveraged finance positions” but didn’t immediately disclose a figure for the losses. Last month, Borthwick said that the bank will likely post a $150 million writedown on its buyout loans.
Bank of America shares have fallen 28% this year through Friday, worse than the 16% decline of the KBW Bank Index.
Last week, JPMorgan and Wells Fargo posted second-quarter profit declines as the banks set aside more funds for expected loan losses, while Morgan Stanley disappointed after a bigger-than-expected slowdown in investment banking. Citigroup topped expectations for revenue as it benefited from rising rates and strong trading results.
This story is developing. Please check back for updates.

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