Finance

AFTER A DISMAL decade, bankers of all stripes had reasons to be cheerful last year. Eighteen months of soaring corporate dealmaking generated blockbuster fees for mergers and acquisitions (M&A) desks. Their counterparts in debt advisory played midwife to a deluge of newly minted bonds. Bouts of high volatility buoyed traders’ revenues. Though the dealmaking frenzy may have cooled a little in 2022, lenders are licking their lips at the prospect of sharply rising interest rates.Listen to this story. Enjoy more audio and podcasts on More

UNHAPPY ECONOMIES are often unhappy in their own ways. Today most, however, are battling a common foe: a surge in consumer-price inflation. According to figures released on April 12th, consumer prices rose by 8.5% in March in America, compared with a year earlier—the fastest pace since 1981. In Britain and the euro area consumer prices rose by 7% and 7.5%, respectively, in the year to March. Across most rich and emerging economies, inflation is now well above central banks’ targets.In summer 2020, after a period of too-low inflation, America’s Federal Reserve said that it would tolerate inflation that was a little above its 2% target for a time, in the hope of making up for undershoots. In the subsequent 20 months, consumer prices have blown past where they would have been had the Fed achieved its 2% target on average, putting pressure on the central bank to raise interest rates fast.In many places a big chunk of current headline inflation reflects rises in energy prices, which soared after Russia’s invasion of Ukraine jolted commodity markets. In March these explained about half of the euro area’s annual inflation rate. In America, however, the pressure is broad-based. “Core” consumer prices, which strip out food and energy prices, rose at an annual rate of 6.5% in March.Core inflation is one way to assess the breadth of price surges. Another is to exclude the items for which prices have swung the most, typically owing to idiosyncratic factors. The Dallas Fed, for instance, constructs a “trimmed mean” measure, which sorts the components of the personal-consumption expenditures index (the Fed’s preferred gauge of prices) by their inflation rates, and drops the bottom 24% and the top 31%. On that measure inflation has risen by 3.6%—still above the central bank’s target, but by much less.The problem with trimmed means, however, is that they involve abrupt cliffs, lopping off the top and bottom of the index while giving adjacent percentiles their full weight. In November The Economist devised an alternative index, which applies smooth weights. Components with inflation near the median get the most emphasis, and those with the most dramatic price changes get the least. Our measure suggests an inflation rate of close to 6%—hot enough to keep Jerome Powell, the Fed’s chairman, sweating at night.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

THINGS ARE looking bright for Zhuzhou. The city of 4m people in landlocked Hunan province has often caught the runoff of industrial business from the more populous provincial capital, Changsha, to its north. In the 1990s it became a regional hub for chemicals and metals production. But that caused horrible environmental destruction; more than 1,000 polluters were eventually shut down, with dire economic consequences. Zhuzhou’s inland economy has remained behind that of coastal cities. Over the past decade its moderate growth has been typical of the mid-tier cities that dot China’s interior.Listen to this story. Enjoy more audio and podcasts on More

THE ECONOMIC fallout from Russia’s invasion of Ukraine now includes a sovereign default. On April 12th Sri Lanka said that it would suspend payments on the $35bn its government owes foreign creditors. Surging food and energy prices, the result of wartime disruption to commodity markets, have dealt a heavy blow to an economy that was already mismanaged, and brought even erstwhile government supporters onto the streets in protest. Sri Lanka may not be the only country to run aground in the hazardous conditions prevailing in the global economy.Listen to this story. Enjoy more audio and podcasts on More

Binance CEO Changpeng “CZ” Zhao said “the tide is definitely turning” on crypto regulation, with governments beginning to take a more positive approach to the sector.
The U.S. and Britain have both announced moves to bring regulatory oversight to the nascent crypto market.
Governments want to foster innovation — but they’re also cautious about the use of crypto for sanctions evasion and money laundering.

Changpeng Zhao, founder and CEO of Binance, speaks at the Blockchain Week Summit in Paris, France, on April 13, 2022.
Benjamin Girette | Bloomberg | Getty Images

PARIS — The crypto world may have turned a corner when it comes to regulation.
The bosses of several major crypto companies told CNBC regulators are beginning to take a more positive approach to digital currencies, following a numerous crackdowns targeting the space.

Whereas China has banned crypto outright, countries like the U.S. and Britain have announced moves to bring regulatory oversight to the nascent market.
“The tide is definitely turning,” Changpeng “CZ” Zhao, CEO of Binance, the world’s largest crypto exchange, told CNBC on the sidelines of Paris Blockchain Week Summit.
Last year, U.K. regulators barred Binance from undertaking any regulated activity in the country, while in Singapore, Binance limited its services after the central bank warned it may be in violation of local regulation.
In a speech kicking off the event Wednesday, Zhao said regulatory discussions around crypto have shifted from “negative” to “positive.”
Before Zhao was introduced, the MC for the event referenced the crypto slang term “wagmi,” which stands for “we’re all gonna make it.”

“To be honest, I feel we kind of did make it,” he said, adding crypto serves as a lifeline for some in Ukraine amid Russia’s invasion.
But the crypto world still has some way to go before reaching widespread acceptance. And the fate of the industry largely hinges on the approaches that will be taken by different global regulators.

Governments taking action

“The regulatory landscape around the world is coming up to speed quickly,” Nicolas Cary, co-founder of crypto wallet maker Blockchain.com, told CNBC.

The U.K. government last week announced it would bring stablecoins — digital assets that track the prices of existing currencies like the U.S. dollar — into the local payments regime.
British Finance Minister Rishi Sunak has also asked the Royal Mint, which is responsible for producing the country’s coins, to create a non-fungible token, or NFT, the crypto world’s answer to rare collectible items.
“The U.K. could be a dark horse in this whole situation,” Cary told CNBC.
“Post-Brexit, they sort of have a policy decision to make and a strategy decision to make,” he added. “Do they rebuild Brussels in London, or do they become the Singapore of the West, invite all this innovation, all this technology and all this wealth generation and really own the future of the Web?”
Governments want to foster innovation around financial markets and the next possible generation of the internet, known as “Web3,” crypto execs told CNBC.
But they’re also cautious about the dark side of the industry, including money laundering and other illegal transactions, and the impact of energy-intensive bitcoin mining on the environment.
In the U.S., President Joe Biden recently signed an executive order urging government-wide coordination on digital assets. A key concern for Western regulators, industry insiders say, is the use of digital assets for Russian sanctions evasion.
“I think they’re starting to take it seriously [but] I don’t think they’re getting a warm and fuzzy feeling about it,” Arthur Breitman, a co-founder of Tezos, a blockchain protocol rivalling Ethereum, told CNBC.

“Naturally, they are going to have a conservative bias,” Breitman said. However, only a “tiny fraction” of crypto payments is related to criminal activity, he added.
Illegal activity accounted for less than 0.2% of digital currency transactions in 2021, according to data from blockchain analytics firm Chainalysis.

Charm offensive

France is “very progressive and very welcoming towards cryptocurrencies,” Binance’s Zhao told CNBC. “They are far more advanced in their understanding.”
Binance turned on the charm in Paris this week, announcing a “Web3 and crypto” start-up accelerator program in partnership with the business incubator Station F.
It comes as the company, which has previously boasted about having no official headquarters, is now on the hunt for a global main office.
“We will definitely have our regional headquarters for Europe in Paris,” Zhao said. “We will establish a number of regional headquarters first before going global.”

Binance now has licenses in Bahrain and Dubai, and provisional approval in Abu Dhabi. In Europe, it is supervised by Lithuanian anti-money laundering regulators and is seeking registration with Sweden’s financial services watchdog.

The U.S. falling behind?

Not all regulators are on board with the rapid growth of crypto, according to Brad Garlinghouse, CEO of blockchain firm Ripple.
The U.S. Securities and Exchange Commission has taken Ripple, Garlinghouse and co-founder Chris Larsen to court over allegations they illegally sold over $1 billion worth of the cryptocurrency XRP.
The SEC contends XRP should be considered a security, a claim that Ripple disputes.
“When I give advice to entrepreneurs that are thinking about building a crypto or blockchain company, I tell them do not incorporate in the United States,” Garlinghouse said. “The lack of clarity and a lack of certainty means that you are at risk for the exact kind of lawsuit the SEC brought against us.”
Ripple is even considering moving its headquarters abroad, with London and Singapore among the potential candidates.
“Ripple will hire north of 300 people this year, and more than half of them will be outside the United States,” Garlinghouse said.

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President Joe Biden will nominate Michael Barr to be the Fed’s big banks regulator, the administration’s second attempt to fill the post.
Barr served as assistant Treasury secretary for financial institutions during the Obama administration, where he helped design the 2010 Dodd-Frank Act.
“He understands that this job is not a partisan one, but one that plays a critical role in regulating our nation’s financial institutions,” Biden said of Barr on Friday.
Biden’s first pick to serve as the Fed’s banks regulator, Sarah Bloom Raskin, withdrew her candidacy last month after opposition from Democratic Sen. Joe Manchin.

President Joe Biden will nominate Michael Barr to be the Federal Reserve’s top regulator in charge of big banks. Barr, who served as assistant Treasury secretary for financial institutions during the Obama administration, seen here at a Treasury Department meeting in Washington, D.C. on Nov. 30, 2010.
Andrew Harrer | Bloomberg | Getty Images

President Joe Biden will nominate Michael Barr, a former Treasury Department official, to be the Federal Reserve’s top regulator in charge of big banks.
The choice of Barr was expected after CNBC earlier in the week confirmed that he was the White House’s frontrunner for the post. It would make the leading financial laws author perhaps the most powerful U.S. bank regulator: the Fed vice chair of supervision.

Barr served as assistant Treasury secretary for financial institutions during the Obama administration, where he helped design the 2010 Dodd-Frank Act. That law was one of the most expansive overhauls of financial regulation in U.S. history and came on the heels of the 2008-2009 financial crisis.
Among its many provisions aimed at protecting the economy from future calamity, Dodd-Frank produced both the Consumer Financial Protection Bureau (CFPB) and the Fed’s vice chair for supervision.
“He was instrumental in the passage of Dodd-Frank, to ensure a future financial crisis would not create devastating economic hardship for working families,” Biden said in a statement Friday morning accompanying the formal White House announcement.
“He understands that this job is not a partisan one, but one that plays a critical role in regulating our nation’s financial institutions to ensure Americans are treated fairly and to protect the stability of our economy,” Biden added.
The president also underscored the fact that Barr received support from both Democrats and Republicans when he was previously confirmed by the Senate.

That may be an oblique acknowledgement of the difficulties the administration has faced in trying to advance some of its nominees for financial regulatory posts in a Senate split 50-50.
Sarah Bloom Raskin, Biden’s first pick to be the Fed’s bank regulator, withdrew her candidacy last month. She removed herself from consideration after West Virginia’s Joe Manchin, the most conservative Democrat in the Senate, said he would not support her nomination due to her views on climate change and energy policy ideas.

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Barr himself had last year been considered as Biden’s pick to run the Office of the Comptroller of the Currency. But progressive Democrats, concerned by what they viewed as his cozy ties to Wall Street, snuffed out his candidacy.
The White House later chose Saule Omarova to replace Barr as its nominee to lead the OCC until she was forced to withdraw in November as a result of skepticism from moderate Democrats Sens. Mark Warner of Virginia and Jon Tester of Montana.
In tapping Barr again, the White House is betting that Raskin’s withdrawal at the hands of Manchin is enough to persuade progressives — who might have preferred Raskin — to back a more-centrist choice.
Those Democrats would likely want Barr to divulge the details of his prior work for financial technology companies like Ripple Labs, a blockchain-based payments firm, to guarantee he is insulated from corporate interests.
Still, those familiar with the White House’s thinking say the president’s advisors believe they can convince the likes of Sen. Elizabeth Warren, D-Mass., who previously applauded Barr’s work in writing Dodd-Frank and establishing the CFPB.
Moderate Democrats like Sen. Sherrod Brown of Ohio, the chairman of the Senate Banking Committee, are considered more reliable support for the veteran of the Obama and Clinton administrations.

Sen. Sherrod Brown (D-Ohio), left, speaks with Sen. Elizabeth Warren (D-Mass.), during a Senate Banking, Housing and Urban Affairs  in Washington, DC.
Andrew Harnik | The Washington Post | Getty Images

A Republican aide told CNBC that Barr would likely receive many nay votes from their ranks based on his work crafting what many in the GOP consider overly burdensome financial regulations.
If confirmed for the Fed post, Barr would be charged with overseeing the nation’s largest banks, including JPMorgan Chase, Bank of America and Citigroup. The vice chair for supervision oversees the safety of the country’s biggest lenders by checking that they are meeting capital requirements, checking risks and subjecting banks to regular stress tests.
Barr would also be an important voice on monetary policy as one of seven members of the Fed’s board of governors, who vote at every central bank meeting.
The Fed last month kicked off what’s expected to be a series of interest rate hikes to help cool unruly inflation. The Labor Department reported on Tuesday that the prices Americans pay jumped by 8.5% in the 12 months ending in March, the hottest pace since 1981.
But imposing higher borrowing costs on the U.S. economy is a tricky task in the best of times.
Economists, including Treasury Secretary and former Fed Chair Janet Yellen, say the Fed will have to be careful not to pull back on its easy-money policies too quickly, or else risk U.S. GDP growth in the face of ongoing supply-chain constraints and the Russia-Ukraine war in Europe.
“They have a dual mandate. They will try to maintain strong labor markets while bringing inflation down,” Yellen said of the Fed on Wednesday. “And it has been done in the past. It’s not an impossible combination, but it will require skill and also good luck.”
Excluding Barr, the White House has four nominees to the Fed in front of the Senate — Jerome Powell, Lael Brainard, Lisa Cook and Philip Jefferson.
Barr is the current dean of the University of Michigan’s public policy school, a post he accepted following his work for the Obama administration. During the Clinton administration, he served as special assistant to Treasury Secretary Robert Rubin, deputy assistant secretary of the Treasury and as special advisor to President Bill Clinton.

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The risk that the Federal Reserve accidentally tips the U.S. economy into recession as it combats inflation is rising, according to JPMorgan Chase CEO Jamie Dimon.
“I’m simply pointing out that those are storm clouds on the horizon that may disappear, they may not,” Dimon said.
In the event that a recession does develop, the bank would “have to put up a lot more” for loan loss reserves, Dimon told reporters.

Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co., listens during a Business Roundtable CEO Innovation Summit discussion in Washington, D.C., Dec. 6, 2018.
Andrew Harrer | Bloomberg | Getty Images

The risk that the Federal Reserve accidentally tips the U.S. economy into recession as it combats inflation is rising, according to JPMorgan Chase CEO Jamie Dimon.
The CEO of the biggest U.S. bank by assets said Wednesday that economic growth will continue at least through the second and third quarters of this year, fueled by consumers and businesses flush with cash and paying off debts on time.

“After that, it’s hard to predict. You’ve got two other very large countervailing factors which you guys are all completely aware of,” Dimon told analysts, naming inflation and quantitative tightening, or the reversal of Fed bond-buying policies. “You’ve never seen that before. I’m simply pointing out that those are storm clouds on the horizon that may disappear, they may not.”

Dimon’s remarks show just how quickly major events can change the economic landscape. A year ago, he said the U.S. was enjoying an economic “Goldilocks moment” of high growth coupled with manageable inflation that could last through 2023. But stubbornly high inflation and a host of possible impacts from Russia’s invasion of Ukraine have clouded that picture.
The risks spilled into view on Wednesday, when JPMorgan posted a 42% profit decline from a year earlier on increased costs for bad loans and market upheaval caused by the Ukraine war.
Specifically, the bank took a $902 million charge for building loan loss reserves, a stark reversal from a year ago, when it released $5.2 billion in reserves.
JPMorgan made the move — unusual because executives said borrowers of all income levels are still paying their bills — as odds increased of a “Fed-induced” recession, according to CFO Jeremy Barnum. In the past, the Fed has hiked rates to the point that the U.S. economy shrinks. Last month, the Fed hiked its benchmark rate and said increases could come at each of the remaining six meetings this year.

Bank stocks have been hammered this year, despite rising interest rates, which tend to improve their lending margins. That’s because parts of the yield curve have flattened and even inverted this year, which is a highly watched indication of a possible recession in the future.

The JPMorgan executives made it clear that they weren’t predicting a recession; but that high inflation, exacerbated by the impacts of the Ukraine war and Covid, as well as Fed actions have made it more likely than before. Managers have to survey a variety of hypothetical, probability-weighted scenarios in judging how much in reserves to set aside.

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“Those are very powerful forces and these things are going to collide at one point, probably sometime next year,” Dimon said during a media conference call. “And no one actually knows what’s going to turn out so I’m not predicting a recession. But you know, is it possible? Absolutely.”
In the event that a recession does develop, the bank would “have to put up a lot more” for loan loss reserves, Dimon told reporters. JPMorgan shares dropped 3.2% on Wednesday, making a new 52-week low.
“Wars have unpredictable outcomes, you’ve already seen in oil markets. The oil markets are precarious,” Dimon said. “I hope those things all disappear and go away; we have a soft landing and the war is resolved, okay. I just wouldn’t bet on all of that.”

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Kacper Pempel | Reuters

Check out the companies making headlines in midday trading.
Twitter — Twitter shares fell 1.7% after surging earlier on news that Elon Musk offered $54.20 a share to buy the social media company and take it private. Earlier this month, the Tesla CEO disclosed a 9.2% stake in Twitter.

Goldman Sachs — Shares of the bank erased earlier gains and traded 0.1% lower even after its first-quarter results blew past expectations. Goldman’s traders were able to navigate a surge in market volatility sparked by the war in Ukraine. The bank’s fixed income desk produced $4.72 billion in first-quarter revenue, thanks to strong activity in currencies and commodities, the bank said.
Morgan Stanley — Shares of the New York-based bank rose 0.8% after the firm reported first-quarter earnings and revenue that surpassed Wall Street expectations. The bank saw stronger-than-expected revenue from equity and fixed-income trading amid volatile markets and higher completed M&A transactions. 
Wells Fargo — Shares fell 4.5% after the bank posted lower-than-expected revenue. A slowdown in its mortgage banking arm amid rising interest rates weighed on results. Wells Fargo beat profit expectations, however, as it released $1.1 billion from its credit reserves. 
UnitedHealth Group — Shares of the health insurance giant closed down 0.4% after the company beat estimates on the top and bottom lines for the first quarter. UnitedHealth reported $5.49 in earnings per share on $80.1 billion in revenue. Analysts surveyed by Refinitiv had projected $5.38 in earnings per share on $78.79 billion of revenue. UnitedHealth’s total customers served was up 1.5 million year over year.
Rite Aid — The pharmacy stock declined 3.6%. Rite Aid posted an adjusted $1.63 per-share loss for its fiscal fourth quarter. Rite Aid also announced a cost-cutting program, which includes the closure of 145 unprofitable stores.

Nike — Shares of the footwear and apparel retailer rose 4.7%. The move comes as UBS reiterated the stock as a buy and said it was “very bullish” as demand in North America continues to withstand the current environment.
IBM — IBM shares closed marginally higher after Morgan Stanley upgraded the stock to overweight and said the company is a good “place to hide” in the current economic backdrop. The bank also raised its price target in the technology stock.
Western Digital, Seagate Technology — Shares of the disk-drive makers dipped 3.2%, respectively, after Susquehanna Financial downgraded both stocks amid concerns of weaker demand next year. The firm downgraded Western Digital to “neutral” and Seagate to “negative.”
Tesla — The electric vehicle stock dipped 3.7% after its CEO Elon Musk revealed he wants to purchase Twitter and turn it into a private company.
Rent The Runway — Shares of the fashion rental company closed flat after falling earlier in the session. Rent The Runway reported a smaller-than-expected loss and beat revenue estimates for the previous quarter.
— CNBC’s Jesse Pound, Yun Li and Hannah Miao contributed reporting

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