Finance

Check out the companies making headlines in after hours trading
Virgin Galactic — Shares of the space company fell more than 11% during extended trading on Thursday after Virgin Galactic delayed the beginning of its commercial space tourism service to the fourth quarter of 2022.

Alcoa — Alcoa shares jumped more than 5% following the aluminum company’s third-quarter results, which beat expectations on the top and bottom line. Alcoa earned $2.05 per share excluding items, compared to the $1.80 analysts surveyed by Refinitiv were expecting. Revenue came in at $3.11 billion, also ahead of the expected $2.93 billion.
Hologic — The medical technology company’s stock advanced 1% after Hologic said it signed a definitive agreement to acquire Bolder Surgical for $160 million.

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There were 2.7 million people long-term unemployed in September. These people, who’ve been out of work at least six months, account for 34.5% of all unemployed Americans.
The number of long-term unemployed fell to its lowest level in a year, but is still 1.6 million higher than before the pandemic.
Federal unemployment benefits for the long-term jobless expired on Labor Day.

People receive information as they attend a job fair at SoFi Stadium on Sept. 9, 2021, in Inglewood, California.
PATRICK T. FALLON | AFP | Getty Images

More than a third of jobless Americans are still long-term unemployed, and federal benefits for these workers ended more than a month ago.  
However, the number of long-term unemployed has been falling and last month reached its lowest level in a year.

In September, 2.7 million people — 34.5% of unemployed Americans — were long-term unemployed, according to the U.S. Bureau of Labor Statistics. This is a period of joblessness that lasts at least six months and generally poses elevated financial risk for households.

The number and share of long-term unemployed were at their lowest levels since September and October 2020, respectively, as the economic recovery continues.
They’ve also fallen significantly from their pandemic-era peaks in March 2021, when almost 4.3 million people (43.4% of all unemployed workers) were considered long-term jobless.
“In the past three months, the number of long-term unemployed has fallen by 1.3 million,” said Brian Deese, director of the White House’s National Economic Council. “That is the largest three-month decline since [the Bureau of Labor Statistics] began keeping records in 1948.”
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However, there remain 1.6 million more long-term unemployed than before the pandemic. Such households no longer receive federal income support, which ended on Labor Day.  
The long-term jobless are typically ineligible for state unemployment benefits, which generally last for up to 26 weeks. However, Congress had authorized federal benefits for such individuals once their state aid expired. That helped shore up household finances, which may have otherwise dropped significantly.
Congress declined to extend benefits again. (It had passed two other extensions after the CARES Act, in December 2020 and March 2021.)

Aside from reduced income, the long-term jobless also generally have a harder time finding a new job, according to labor economists. Their long-term earnings potential is generally affected and they face higher odds of losing a future job.
The September jobs report suggested that the Covid delta variant wave caused a slowdown in employment growth, perhaps due to a cutback in hiring amid lackluster consumer demand or workers’ reluctance to take in-person jobs due to health fears. It also hinted that unemployment benefits weren’t keeping people form looking for work.
A report from the U.S. Department of Labor on Thursday showed an easing of the number of people seeking unemployment benefits. Claims for benefits fell to their lowest level since March 14, 2020, in the early days of the pandemic.

That suggests an improvement in the labor market as Covid infections have fallen from their recent peak, which may make it easier for the long-term unemployed to find work. Some experts still strike a note of caution.
“With job openings still at high levels, the conditions for an economic recovery remain in place, but progress finding quality jobs is coming slower than expected,” said Andrew Stettner, a senior fellow at The Century Foundation.

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Here are the numbers: Earnings of $1.98 a share vs the $1.68 a share estimate of analysts surveyed Refinitiv.
Revenue: $14.75 billion vs. the $14 billion estimate.
Shares of the bank climbed 2.2% in premarket trading.

Morgan Stanley on Thursday topped expectations for third-quarter profit and revenue as the firm posted record results in investment banking and asset management.
Here are the numbers:

Earnings: $1.98 a share vs the $1.68 a share estimate of analysts surveyed Refinitiv
Revenue: $14.75 billion vs. the $14 billion estimate

Revenue and net income jumped more than 25% from a year ago, aided by CEO James Gorman’s acquisitions of E-Trade and Eaton Vance, which bulked up the firms’ wealth and asset management divisions. Shares of the bank climbed 2.2% in premarket trading.
“The Firm delivered another very strong quarter, with robust revenues and improved efficiency,” Gorman said in the release. “We had standout performance of our integrated investment bank and record net new assets of $135 billion in wealth management.”
While rival banks have reported a slowdown in third-quarter fixed income trading revenue, Morgan Stanley’s strength has traditionally been in its equities franchise, the biggest in the world.
Equities trading revenue jumped 24% from a year earlier to $2.88 billion, exceeding the estimate by more than $500 million. Fixed income revenue dropped 16% to $1.64 billion, edging out the $1.53 billion estimate.
Another area that has flourished is investment banking, propelled by robust mergers and IPO activity, and Morgan Stanley is a top player there as well. Rival advisor JPMorgan Chase posted record investment banking fees in the third quarter.

Morgan Stanley’s investment banking franchise delivered in the quarter, posting a 67% increase in revenue to a record $2.85 billion, exceeding the StreetAccount estimate by more than $600 million, helped by strong mergers advisory fees.
Shares of the bank have climbed 44% this year before Thursday, exceeding the 36% rise of the KBW Bank Index.
JPMorgan topped expectations Wednesday, helped by a $1.5 billion boost from better-than-expected loan losses. Bank of America posted results Thursday that exceeded analysts’ expectations as it benefited from better-than-expected loan losses and record advisory and asset management fees.
This story is developing. Please check back for updates.

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A BOOK PUBLISHED in 2014 shook the world of offshore finance. “Global Shell Games” exposed the ease with which ne’er-do-wells could launder money or dodge tax using bank accounts held by anonymous shell companies. The book, NGO activism and numerous leaks—the latest, earlier this month, being the Pandora Papers—have since pushed governments to increase corporate transparency. Britain and other countries introduced public registers of company owners. America passed a law ending shell-company anonymity.But to what end? The book’s authors are putting the finishing touches on a study that suggests little has changed. The banks and corporate-service providers (CSPs)—firms that set up companies for others—meant to be in the front line of the fight against financial crime do a terrible job of differentiating between legitimate would-be clients and those waving red flags.The three academics behind the study—Jason Sharman of Cambridge University and Daniel Nielson and Michael Findley of the University of Texas at Austin—undertook what they call a “mystery shopping expedition”. They registered shell companies with varying risk profiles and then sent more than 30,000 emails to banks and CSPs in every country of the world to set up bank accounts. The riskiest-looking of these brass-plate firms were domiciled in places with a high corruption risk, such as Papua New Guinea or Pakistan. The safest-looking were from Australia or New Zealand. In between were shells from havens of offshore secrecy like the British Virgin Islands. In some missives the authors and their team posed as legitimate businessmen; in others as dodgier-sounding supplicants or actual miscreants, such as people on sanctions lists.The global anti-money-laundering (AML) system that has evolved since the 1980s under the Financial Action Task Force (FATF), a multilateral agency, relies heavily on the private sector to weed out dirty money. Banks must follow “know your customer” rules and identify a would-be client’s real, or “beneficial”, owner.This “risk-based” regime is broken, suggests the study. The authors found that the varying risk profiles made “almost no difference” to banks’ willingness to open an account; CSPs were even less sensitive to risk. (One Singaporean bank, however, deserves credit for smelling a rat, replying “Hey, you’re the Global Shell Games guys!”)The study shows that the grunt-work of AML is being “pushed onto a private sector which can’t or won’t do it,” says Mr Sharman. “Banks are unable or unwilling to make the fine-grained risk judgments the system demands, because they use standardised, generic procedures.”Although the conclusion fits broadly with previous research by the authors, Mr Sharman says he was surprised by the level of risk-insensitivity, because “some of our approaches were ridiculously dodgy”. Other experts will also be taken aback: scholars surveyed by the authors before they went shell-shopping predicted that the study would show the system to be working much better than it was before the transparency reforms of the past five years.The FATF knows the system is far from perfect. Last year its chief, David Lewis (who has since resigned), admitted that national AML laws were rarely being used effectively. He also implored bankers to “stop just ticking the boxes”. Even before this study the agency was reviewing its approach. More than tinkering is in order. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “The shell games go on” More

GLOBAL INVESTORS are all too aware of the discount on the valuations of mainland firms as a result of Xi Jinping’s aim to lower leverage, house prices and inequality in China. Borrowers, for their part, must contend with a “Xi premium” on sorely needed capital. The Chinese leader’s policies may have led to a perilous credit crunch for many companies, especially property developers, in global markets.Regulators have shaken the foundations of China’s property market by toughening up on the amount of leverage developers can take on. This has pushed Evergrande, a home builder with more than 1,000 projects across China and $300bn in liabilities, towards collapse. It has missed five payments on offshore-dollar bonds in the past month. Several rivals have followed suit. Fantasia defaulted on offshore bonds on October 4th. Sinic Holdings said on October 11th that it would probably default soon. Modern Land and Xinyuan Real Estate are hoping to delay payments on offshore bonds.This wave of distress has led to a crunch in the offshore junk-bond market. Spreads (ie, yields compared with the risk-free rate) have reached nearly 17 percentage points, the widest gap on record. The market has for the most part shut to developers hoping to refinance their debts in October, says Sandra Chow of CreditSights, a research firm. One investment manager at a global institution says even non-property companies are being priced out, noting that “this is the definition of contagion.”The problems run much deeper than the string of missed payments. One fear is that Chinese authorities are pressing companies to ignore the interests of creditors and to sell offshore assets and siphon cash back home, in a desperate attempt to ensure that unfinished properties that have already been sold to Chinese people are completed. The leading theory among investors goes that Evergrande is buying time to prevent its offshore assets being frozen by offshore creditors. A “privately negotiated” resolution on a yuan bond was announced on September 22nd in order to prevent an instant cross-default on dollar bonds. Although the group has since missed dollar-bond payments, a 30-day grace period gives the group until October 23rd before it is deemed to be in default and creditors can move to seize its offshore assets. In the meantime, it is selling all it can, including a large stake in its property-services unit and its offices in Hong Kong.Other groups may be considering a similar strategy. In recent weeks developers such as Fantasia and Sinic have been reluctant to pay offshore coupons. Some instances have surprised investors, suggesting that companies may be able but not willing to make these payments, says Arthur Lau of PineBridge, a Hong Kong-based investment manager.If such behaviour is tolerated, or even encouraged, by the authorities, the impact could be devastating for the $1trn market for dollar bonds issued by Chinese companies. More defaults could come if yields stay high. Having crushed many private conglomerates that sought to buy overseas assets, and impeded Chinese share sales in New York, Mr Xi may now be putting his stamp on the offshore-bond market. ■This article appeared in the Finance & economics section of the print edition under the headline “Xi’s premium” More

IT TOOK 24 days and seven bureaucratic steps to start a business in Beijing, according to the World Bank’s report on the ease of doing business in 2017. But an investigation released last month concluded that the bank’s leaders, including Kristalina Georgieva, its former second-in-command, had pressed staff into doctoring the report to flatter China. The allegations left Ms Georgieva fighting to save her current job as head of the IMF. On October 11th the fund’s board finally decided her fate. The evidence, it said, “did not conclusively demonstrate” that Ms Georgieva “played an improper role”. It had taken almost 26 days and eight meetings for the board to finish its business. But at the end of it all, she could keep her job.Ms Georgieva, a former EU commissioner, had won the backing of Britain, France, Germany and Italy, the powers that installed her in the first place. The finance ministers of 17 African countries praised her “human touch”, as well as the $30bn the IMF mobilised last year to help the continent in its fight against covid-19. Two former chief economists of the bank (Lord Nicholas Stern and Joe Stiglitz), one of whom has a Nobel prize, also expressed strong support. Mr Stiglitz described the investigation as a “hatchet job”.Arrayed against her in fearful symmetry were two other former chief economists of the bank (Anne Krueger and Paul Romer), one of whom has a Nobel prize. She also had to win over America’s Treasury, led by Janet Yellen. It was under pressure from both sides of Congress, which are united in alarm about China’s growing global influence. In a call with Ms Georgieva on October 11th, Ms Yellen said there was not now “a basis for a change in IMF leadership”, but that the investigation raised “legitimate issues” and that the Treasury will “evaluate any new facts or findings”. (Investigators are still working on a report for the bank’s human-resources department on potential misconduct by former or current staff.)Ms Georgieva also benefited from the perception that the changes made to the report in 2017 were mere judgment calls. But a separate investigation by the bank released in December 2020 established that the tweaks were, in fact, not judgment calls but errors. To take one example: the seven steps and 24 days required to start a business in Beijing had been incorrectly cut from nine and 26 at the last minute.The manipulation of the data in this report and the one published in 2019 was bad enough that eight World Bank staff members eventually blew the whistle, triggering the investigation. Both the fund and the bank will have to ensure future whistleblowers feel protected enough to raise the alarm earlier. Ms Georgieva will have to prove that she is not a pushover for the fund’s bigger members and can insulate its technical judgments from politics. The fund is supposed to review the voting structure of its board by the end of 2023. It is hard to imagine Ms Georgieva persuading America to back any redistribution of votes to China, as the country’s growing economic weight would warrant.If Ms Georgieva feels ill-treated by the bank, she may get the last laugh. Even before she took over the fund, it was encroaching on the bank’s turf, tackling issues such as inequality, climate and gender. Its response to the pandemic demonstrated its ability to lend more money, faster than the bank possibly can. Insiders share a joke loosely inspired by an old French quip about a divided Germany. Is Ms Georgieva unhappy with the bank? On the contrary. She loves it so much she would be glad to see two of them—the one she used to work for and the institution she is, still, leading. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “The International Monetary Bank” More

FROM ENERGY and used cars to wages and shipping, the list of factors pushing up American inflation is growing fast. Could housing be next? According to figures published on October 13th, the consumer-price index (CPI) rose by 5.4% in the year to September. Its shelter component increased by 3.2%, up from 2.8% in the year to August. And it has further to run.Shelter has the biggest weight in the CPI, making up 32% of the basket of goods and services used to construct the index. The component is broken into two main buckets: regular rents paid by tenants, and the imputed cost of living in owned homes. Although house prices rose by 20% in the year to July, they do not feed directly into the CPI. That is because statisticians treat home purchases as investment rather than consumption. Instead they capture homeownership by estimating “owners’ equivalent rent”, the amount an owned property could collect based on leased ones nearby. The rental market, therefore, is what drives shelter inflation.For much of the pandemic both rents and shelter inflation were depressed. But there are two reasons to think the latest pickup in shelter costs will continue. The first is the expiry of the government’s eviction moratorium. The policy had helped renters stay in their homes in 2020, even as lockdowns meant some were unable to work. Many tenants also negotiated lower rents during that time. Now that the moratorium has lapsed, Goldman Sachs, a bank, expects about 750,000 evictions by the end of year. That could lead to a jump in rents. The largest rises occur when a new tenant moves in, says Randal Verbrugge of the Federal Reserve Bank of Cleveland. Rents for new leases are up by 17% compared with what the previous tenant paid, suggests RealPage, a rental site.The second reason why shelter inflation might rise further is that market prices feed through to the inflation figures only slowly. Landlords tend to charge more rent when the value of their property goes up, but with a lag. Rises in new rents also take time to appear in consumer prices, because leases tend to last a year, and the CPI samples rents only every six months or so. President Joe Biden’s Council of Economic Advisers estimates that a one-percentage-point increase in house-price inflation leads to a rise of 0.11 percentage points in the shelter component in 16 months’ time.A timely measure of rents, published by Zillow, a property site, is up by around 10% on the year. Further rises could follow as more new leases are signed. Laura Rosner-Warburton of Macro Policy Perspectives, a research firm, expects shelter inflation to climb to 4-6% by the end of 2022. That would contribute 1.3-1.9 percentage points to headline inflation, twice its average contribution in the decade before the pandemic. The next inflationary force could be home-grown. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Rental resurgence” More

A HIGHLY SKILLED workforce, harmonious labour relations and restrained wage growth: all have long underpinned Germany’s economic success. But, as the recovery from the ravages of covid-19 continues, the three pillars are looking wobbly. A shortage of skilled workers is becoming more acute. Pay is rising against the backdrop of higher inflation. And some disgruntled unions are even threatening to strike.Average wages in Germany rose by 5.5% in the second quarter, compared with the previous year. That may in part reflect a base effect: pay fell by 4% in the same period in 2020, when the economic shock from the pandemic hit. Still, workers today are in their strongest position in 30 years, says Gabriel Felbermayr of the Kiel Institute for the World Economy, a think-tank. Bosses are chasing after skilled staff in particular. Automation and migration cannot make up the shortfall, says Carsten Brzeski of ING, a bank.Trade unions are not shy about using their increased power. “We are demanding a 4.5% pay increase for wood and plastic workers immediately, plus extra early-retirement funds,” says Frederic Striegler of IG Metall, Germany’s biggest union. Industry bosses are offering an increase of only 1.2% next year, and 1.3% the year after. That’s not enough, says Mr Striegler, as it will not compensate workers for inflation. Consumer prices rose by 4.1% in September, the highest rate in 28 years (though some of that reflects one-off factors, such as a temporary value-added-tax cut in 2020).Unions used to prefer preserving jobs to securing pay rises, and so tended to come to an agreement with bosses who were unable to afford higher wages. Things are now more fractious. Workers at Carthago, a maker of motorhomes, went on strike this week, demanding a fair share of a surge in profits from booming demand for caravans. More strikes are planned at other makers of caravans and furniture.The boss of IG Bau, a union representing some 900,000 construction workers, warned that it would call its first nationwide strike in 20 years if employers did not meet demands for a wage increase of 5.3% next year, as well as higher payments for travel to sites and a pay rise for east German construction workers to match rates in the west. Germany’s 16 states are in talks with unions about higher pay for more than 2.3m public-sector workers. Unions are demanding a 5% pay increase, with a rise of at least €150 ($173) a month for the least-paid and of €300 for health-care workers.All told, an average wage increase of 5% next year seems “realistic”, reckons Mr Felbermayr. Pay in industries that rely on skilled workers may rise by even more. But the increases will not fan inflation further, at least not in the short term, says Mr Brzeski. Even after the rises seen so far this year, real incomes are still below pre-pandemic levels. And most firms in most industries can afford reasonable pay increases, as the state shouldered a large chunk of the cost of the pandemic. Yet staff shortages may well return as the population ages: the supply of labour is set to dwindle from 2023. Restoring harmony between workers and bosses could be a tall order.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Finance & economics section of the print edition under the headline “Hard bargains” More