>>> Regulators close Philadelphia-based Republic First Bank, first US bank failure this year


Associated Press

4-26-24


https://www.msn.com/en-us/money/companies/regulators-close-philadelphia-based-republic-first-bank-first-us-bank-failure-this-year/ar-AA1nK8gv?cvid=8494263e32044cc8dd2049b02657979f&ei=23


WASHINGTON (AP) — Regulators have closed Republic First Bank, a regional lender operating in Pennsylvania, New Jersey and New York.

The Federal Deposit Insurance Corp. said Friday it had seized the Philadelphia-based bank, which did business as Republic Bank and had roughly $6 billion in assets and $4 billion in deposits as of Jan. 31.

Fulton Bank, which is based in Lancaster, Pennsylvania, agreed to assume substantially all of the failed bank's deposits and buy essentially all of its assets, the agency said.

Republic Bank’s 32 branches will reopen as branches of Fulton Bank as early as Saturday. Republic First Bank depositors can access their funds via checks or ATMs as early as Friday night, the FDIC said.

The bank's failure is expected to cost the deposit insurance fund $667 million.

The lender is the first FDIC-insured institution to fail in the U.S. this year. The last bank failure — Citizens Bank, based in Sac City, Iowa — was in November.

In a strong economy an average of only four or five banks close each year.

Rising interest rates and falling commercial real estate values, especially for office buildings grappling with surging vacancy rates following the pandemic, have heightened the financial risks for many regional and community banks. Outstanding loans backed by properties that have lost value make them a challenge to refinance.

Last month, an investor group including Steven Mnuchin, who served as U.S. Treasury secretary during the Trump administration, agreed to pump more than $1 billion to rescue New York Community Bancorp, which has been hammered by weakness in commercial real estate and growing pains resulting from its buyout of a distressed bank.

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>>> Globe Life profit surges on strong underwriting, investment returns



Reuters

Apr 22, 2024


https://finance.yahoo.com/news/globe-life-profit-surges-strong-210636532.html


April 22 (Reuters) - Globe Life posted a rise in first-quarter profit on Monday as the insurer benefited from strong investment returns and underwriting activities.

The insurance industry, known for its resilience to economic downturns, sustains a stable demand for policies, with both corporate and government spending on insurance remaining steady.

Total premiums at Globe Life rose to $1.15 billion in the first quarter from $1.10 billion a year ago.

The surge in the broader equity capital markets on the other hand has enhanced investment income for insurers, who diversify a portion of their cash across various asset classes.

Globe Life's net investment income for the quarter increased about 10% to $282.6 million.

The company's net operating income for the three months ended March 31 came in at $2.78 per share, compared with $2.53 per share in the prior-year quarter.

Globe Life expects its operating income for the year to be between $11.50 to $12.00 per share. The insurer further expects to resume share buybacks once the blackout period related to a potential acquisition ends for the first quarter.

Earlier this month, Fuzzy Panda Research disclosed a short position in the company, citing numerous cases of insurance fraud, leading Globe Life's shares to drop to their lowest in over a decade.

Globe Life denied the allegations, saying "the short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false."

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>>> Jay Powell just made 2024 more of a puzzle for regional banks


Yahoo Finance

by David Hollerith

Apr 21, 2024


https://finance.yahoo.com/news/jay-powell-just-made-2024-more-of-a-puzzle-for-regional-banks-130039910.html


Federal Reserve Chair Jay Powell is making the rest of 2024 more complicated for regional banks.

This past week 12 of the nation's best-known midsize lenders reported sizable drops in first quarter profits thanks largely to the effect elevated interest rates are having on their operations.

Many of these banks are paying higher costs for deposits as customers continue to seek out higher yields, and those costs are eating into a key revenue source known as net interest income.

That pressure is not likely to abate anytime soon as the Fed dials back its expectations for rate cuts in 2024, a move that was cemented by Powell this past Tuesday just as many regional banks prepared to release their first quarter results.

The Fed was a popular topic for regional bank executives as they explained their results to Wall Street and described their outlook for the rest of the year.

Most reaffirmed that they expect the money they make from lending to drop as rates remain elevated.

Some, however, predicted that if rates stay high, their banks will eventually be able to make more from lending or the repricing of their securities, perhaps during the second half of this year.

Take US Bancorp (USB) and PNC Financial Services Group (PNC), the two biggest regional lenders in the US.

Minneapolis-based US Bancorp now expects to make between $200 million and $500 million less in net interest income than it forecast in January, driven by lower loan growth and more expense pressure from deposit costs.

"The outlook for potential rate cuts in 2024 has meaningfully changed," Andy Cecere, US Bancorp CEO, told analysts Wednesday. "We now expect our net interest income for the full year to be lower than anticipated."

As for next year, "we're not going to give a 2025 guide right now because it's so volatile in terms of what rates could be."

Pittsburgh-based PNC, however, said it expects improvement in the last two quarters of the year thanks to the repricing of its under-earning securities portfolio. That will help even out any rise in deposit costs, the bank’s CEO said.

"It would be a bit of a heroic assumption for anybody to say that deposit costs won't continue to creep up in the face of a steady Fed," PNC CEO Bill Demchak told analysts Tuesday.

First Horizon (FHN) CFO Hope Dmuchowski told analysts Wednesday that forecasting how much the bank can make from its net interest income “in this environment is very, very hard, even within a 3% range, with as many moving parts as we have.”

The Memphis-based lender kept its previous guidance for net interest income to grow between 1% and 4%, assuming three rate cuts. It also bucked an industry-wide trend in the quarter, with costs for interest-bearing deposits declining from the previous quarter while overall levels were stable.

At Buffalo, N.Y.-based M&T Bank (MTB), executives bumped the bank's net interest income guidance up to $6.8 billion, the top of its previous range. But that is an estimate based on two rate cuts.

Part of that estimate also leans on the repricing of M&T's securities portfolio as a margin boost.

“Obviously, we could outperform, but I'd much rather under promise and over deliver right now,” M&T CFO Daryl Bible told analysts Monday.

These regional banks could surely use more loan growth, but that may have to wait until the Fed lowers rates. And that largely depends on the path of inflation.

So far this year, readings from the Consumer Price Index (CPI) have been hotter than expected. Fed officials have cited those readings as a reason why rates will likely remain elevated for longer than expected.

"When you read those [CPI] reports, it's a little bit like you’re looking into Snow White’s magic mirror; you kind of see what you want to see," Fifth Third Bancorp (FITB) CEO Timothy Spence said in an interview Friday.

CPI rose 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain in prices and more than economists expected.

"You can conclude by looking at it that inflation is stuck at 3%, that it’s grinding down slowly to 2%, you could conclude that it’s reigniting towards 4%," Spence added.

As long as rates remain where they are, Spence said, the key for banks is "the race between your ability to reprice fixed-rate assets and your ability to manage deposit costs."

Fifth Third's interest-bearing deposit costs rose by 0.01% in the first quarter compared with the previous quarter, a much lower rise than some rivals.

"For all banks in an environment like this one, your ability to continue to control interest expense is going to be a big driver of your ability to hit your outlook," Spence said.

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>>> Move Aside, Big Banks: Giant Funds Now Rule Wall Street


The Wall Street Journal

by Matt Wirz

4-22-24


https://www.msn.com/en-us/money/news/move-aside-big-banks-giant-funds-now-rule-wall-street/ar-AA1npR11?cvid=9604790d90024acef4ec5a709c7bd156&ei=35


Giant investment companies are taking over the financial system.

Top firms now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines.

Today, traditional and alternative asset managers control twice as many assets as U.S. banks, giving them increasing control over the purse strings of the U.S. economy.

The firms—such as Blackstone, Franklin Templeton, BlackRock and KKR—are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before.

Fund-manager executives insist the expansion, as striking as it is, remains in its early innings. Good news for them because fast growth is bringing them vast wealth, especially in private, or “alternative,” investing. Private equity has minted more billionaires than any other industry in recent years, according to data from Forbes.

Here’s a look at how the field is shifting:

Trillion-dollar titans

Huge fund-management companies are bulking up by offering new types of products to capture market share. The biggest are evolving into financial supermarkets, mostly for institutions and the wealthy, but increasingly for middle-class investors as well. Banks consolidated similarly in the decade leading up to the financial crisis.

Private-equity and private-debt funds, such as Apollo Global Management and Blackstone, mostly manage money for institutions, but are increasingly selling products to individual investors. Mutual-fund behemoths, including BlackRock, are growing bigger still by building or buying private-fund operations.

Asset managers are also supplanting banks as lenders to U.S. companies and consumers and intertwining with the insurance industry.

Top private-fund executives say they require long-term client commitments, making them more stable than deposit-dependent banks such as Silicon Valley Bank.

“We’re moving into a gray area as asset-management businesses move into different silos of financial services,” said Tyler Cloherty, a managing director at consulting firm Deloitte who advises fund managers. “The big question I’m getting is ‘What do we do around getting alternatives to retail clients?’ There’s a lot of complexity there.”

The growth spurt came out of the 2008 financial crisis, when new regulation curtailed investing and lending by banks, making room for fund managers to expand. Central banks kept interest rates low for most of the following decade, driving investors out of savings accounts and Treasury bonds and into managed funds.

Blurring the lines

In 2008, U.S. banks and fund managers were roughly neck and neck at about $12 billion of assets. Today, traditional asset managers, private-fund managers and hedge funds control about $43.5 trillion, nearly twice the banks’ $23 trillion, according to a Wall Street Journal analysis of data from the Federal Reserve, HFR, ICI and Preqin.

Large banks have responded by becoming more like fund managers, beefing up investment teams. Goldman Sachs reported this month revenue of about $4 billion from asset and wealth management in the first quarter, twice the earnings from its storied investment-banking division.

Public-fund managers, meanwhile, became huge, mostly by offering low-fee mutual and exchange-traded funds that track indexes. Four of the biggest—BlackRock, Fidelity, State Street and Vanguard—control about $26 trillion, equivalent to the entire annual U.S. economic output.

But over the past four years, private equity and debt fund assets doubled to almost $6 trillion, far outpacing the 31% growth rate for public funds. The firms began selling private-credit funds to their core clients—pension funds and endowments that had maxed out on private equity. The fund managers also made inroads with new investors, such as insurance companies and individuals.

As the funds grow bigger, their founders make more money. Private-equity fund managers took 41 spots on Forbes magazine’s list of U.S. billionaires published this month, more than any other profession. The investors make up 5.5% of all the country’s billionaires, almost twice the 3% they comprised just 10 years ago.

The surge could continue. KKR Co-CEO Scott Nuttall—a 2022 addition to the Forbes billionaires list—told shareholders at a meeting this month that KKR will double the money it controls to $1 trillion by 2029. Only 2% of wealthy individuals currently invest in alternative funds and that will jump to 6% by 2027, he said.

Rival Marc Rowan, CEO of Apollo Global Management, says his firm will increase its roughly $650 billion under management to $1 trillion by 2026. Blackstone, which crossed the $1 trillion threshold in July, launched this year its first private-equity fund targeted at individual investors. The fund has raised about $3 billion so far, the fastest start ever for a retail fund by the firm, a person familiar with the matter said. Blackstone has raised more than $100 billion through private debt and real-estate funds aimed at individuals.

Public-fund managers are much bigger than their private counterparts, but also less profitable after years of lowering fees to gain market share. A growing number, including Franklin Templeton and T. Rowe Price, are buying alternative managers to boost profits.

The trend hit a fever pitch in January, when BlackRock struck a deal to buy Global Infrastructure Partners for $12.5 billion, the highest price ever for an alternative-asset manager, according to Dealogic. If the acquisition goes through as expected, it will mint another six billionaires for the Forbes list from among Global Infrastructure’s founding partners.

Other traditional fund managers have taken a slower—and less expensive—approach, building their own private-fund businesses.

Regulating private equity for the masses

Neuberger Berman, a traditional fund manager born out of Lehman Brothers’ collapse, has about one-third of its $463 billion in investments in alternatives, up from about 10% a decade ago. The employee-owned firm raised the bulk of the assets from institutional investors.

“Much of the future growth will be driven by individuals who don’t have either the experience or professional staff to help them,” said Neuberger Chief Executive George Walker. The onus is on fund managers to educate the new buyers and provide them with well-diversified products to reduce risk, he said.

Neuberger launched in 2021 a product it calls Access that pools dozens of private funds and their investments to give clients with low buy-ins a diversified portfolio. The fund doubled in size over the past year to about $1 billion.

Bond-fund powerhouse Pacific Investment Management Co., which manages about $2 trillion, has increased alternative investments to $165 billion from $10.7 billion in 2010, a company spokeswoman said. TCW, another bond-fund manager, doubled alternative investments over the past four years to $20 billion, about 10% of total assets, a person familiar with the matter said. Both firms hired portfolio managers away from private-equity and hedge-fund firms to help staff the efforts.

Regulators are tackling titanic fund managers from several angles. The Securities and Exchange Commission approved in August new rules for private funds requiring more investor disclosures and proscribing side deals with institutional clients.

Rising sales of private funds to individuals come as leveraged buyouts by private equity returned 8% last year, the lowest level since 2011, according to Preqin. Higher interest rates have made it harder for the funds to sell companies they own and more expensive to buy new ones.

Traditional fund managers are being scrutinized over their outsize influence in shareholder votes. In November, an interagency regulator passed a rule allowing large fund managers to potentially be regulated as systemically important institutions, as large banks are. Still, the decision only reinstates an Obama-era measure overturned by the Trump administration.

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>>> Why big Medicare Advantage insurers may root for Biden to lose in 2024

The Biden administration has delivered consecutive blows to the industry that offers private-sector Medicare alternatives


Yahoo Finance

by Janna Herron

Apr 11, 2024


https://finance.yahoo.com/news/why-big-medicare-advantage-insurers-may-root-for-biden-to-lose-in-2024-080028510.html


Insurance giants have a bigger stake in this year’s presidential election after recent moves by the Biden administration cut into the profitability of Medicare Advantage plans.

In the last week, the Centers for Medicare and Medicaid Services (CMS) delivered consecutive blows to the industry that offers these private-sector Medicare alternatives, denting insurance stocks and pulling down estimates of future earnings.

Insurers will get paid less than expected next year for providing these plans, while, at the same time, they must abide by new, and probably costlier, regulations. Other key changes rolling out over the next three years could also nick their bottom lines.

The industry expects a second term for President Joe Biden would bring more of the same at a time when the youngest baby boomers become Medicare-eligible and more of the older ones seek healthcare services.

"Do I want to say it's a historic level of regulations? If it's not, it's got to be close to it," Whit Mayo, an analyst with Leerink Partners, told Yahoo Finance. "Biden is no friend to the industry right now."

'A major change'

The new regulations have come hard and fast recently.

Last week, the government said it would increase its payments to Medicare Advantage (MA) insurers by 3.7% in 2025. That’s "marginally worse" than the earlier proposed rate, Mayo said, and “inconsistent with almost any historic precedent.”

It also caught the industry by surprise because many expected CMS to incorporate the uptick in healthcare service volumes in the fourth quarter.

A few days later, CMS finalized other rules around health equity, behavioral healthcare services, and supplemental benefits that would require more action from insurers.

The agency also established new rules on how much insurers can compensate a broker selling Medicare Advantage plans to ensure seniors are steered into plans that best meet their needs — not into ones that are most profitable.

“CMS does not want an agent to have preference over any plan based on commissions…so this is a major change,” Mayo said.

These efforts are weighing down insurer stocks.

Year to date, shares of Humana (HUM) — which has the largest exposure with MA accounts making up 77% of its total revenue — are down 30%.

The stock of UnitedHealthcare (UNH) has declined nearly 13% since the beginning of the year. MA accounts make up 31% of UnitedHealthcare's total revenue, according to Ann Hynes, managing director at Mizuho Americas.

In a note last week to investors, Hynes estimated the 3.7% increase in the MA payment rate could be a 2% and 4% "headwind" for UnitedHealthcare’s 2025 earnings, a 2% to 6% drag on both CVS Healthcare Corp.’s (CVS) and Centene Corp.’s (CNC) profits, and an 8% anchor on Humana’s bottom line.

One of the three "key upcoming catalysts" for Humana’s stock, Hynes wrote, is “the 2024 Presidential election.”

On the horizon

More change is on its way under the Biden administration’s CMS that could also upend insurance profits.

The agency recently put out a new patient risk coding model. Each patient receives a risk score based on the number and severity of their health conditions. The unhealthier the patient, the higher the risk score and the more money CMS pays to insurers.

Under the new model, risk scores will overall likely decline, meaning fewer dollars will flow to insurers. How much exactly? The model, which will be fully phased in 2025, is expected to save Medicare $11 billion this year, per CMS estimates. Next year, it will likely be more.

How Medicare Advantage plans are rated by CMS is also changing.

CMS ranks each plan annually using a one-to-five-star scale, with five being the best, based on a variety of metrics. The idea is to reward plans that provide quality care with reimbursement and bonuses while cracking down on mediocre plans by reducing CMS payments and restricting their marketing.

Over the next three years, CMS plans to increase or decrease the weighting of some measures, eliminate others, and add a health equity index to the ranking. Insurers work hard to maintain at least a four-star rating on their plans to get a 5% quality bonus, which, by law, must be invested into plan benefits.

"That's what gives you a competitive advantage in the market," Mayo said.

Insurers also remain under pressure from increasingly vocal healthcare providers, which are dropping some Medicare Advantage plans due to too many denials, delays, and refusals to pay for care that Original Medicare would usually cover.

October surprise, anyone?

Under Donald Trump, those changes may not be carried out.

"I think the perception among the investment community is that, under a Trump administration, the environment would be more favorable,” Mayo said. “Just not as much regulation, maybe even roll back."

It may be seniors — historically one of the most reliable voting blocs — who may get the last word.

Mayo expects insurers will readjust some of the MA benefits so they can grow — or at least hold — their margins in light of the recent changes, a reversal of the years-long cycle of "massive" investment in these perks.

Extras like a supplemental grocery benefit could be eliminated for next year, while the share that patients pay out of pocket for services such as dental or vision care could increase.

Seniors will see those reductions in benefits or increases in co-insurance during Medicare’s annual open enrollment period, when they choose their health insurance for next year. Open enrollment kicks off Oct. 15, less than a month before the presidential election on Nov. 5.

That means the 33 million Americans now enrolled in Medicare Advantage plans, making up over half of Medicare-eligible adults, may get mad after their plan drops benefits that enticed them to sign up in the first place.

They may carry that anger into the voting booth. That may be what insurers are hoping for.

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Global Life - >>> Billionaire Warren Buffett Recently Cut This Stock From Berkshire Hathaway's Portfolio. It Just Dropped 53% In 1 Day. Here's What Investors Need to Know.


by Courtney Carlsen

Motley Fool

Apr 17, 2024


https://finance.yahoo.com/news/billionaire-warren-buffett-recently-cut-101500983.html


Globe Life (NYSE: GL) stock plummeted by more than 53% in a single day last week after short-seller Fuzzy Panda Research accused the life insurance company of fraud. The claims piled onto the already struggling stock, which had previously been a longtime holding of Warren Buffett's conglomerate, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).

If you're thinking about buying the dip in the stock, there are some things you'll want to know.

Globe Life's troubles began last year

Globe Life was one of Berkshire Hathaway's longest-held investments, having been part of the conglomerate's portfolio for more than two decades. Berkshire held Globe Life through several difficult economic periods, including the COVID-19 pandemic, which put tremendous pressure on life insurers by elevating claims costs.

Buffett examines a management team's character and trustworthiness when investing. Buffett and his team have an excellent track record of evaluating management, which is a big reason for the conglomerate's long-term success. When Globe Life became the subject of several lawsuits accusing it of misconduct, Berkshire pulled the plug on its investment.

Last year, two Globe Life subsidiaries, American Income Life Insurance Co. and Arias Agencies, faced a lawsuit accusing them of inappropriate workplace conduct; this included rampant drug use, sexual abuse, and degradation of agents who didn't hit sales targets.

Globe Life's struggles continued when a former executive claimed he was fired for blowing the whistle on "potentially illegal" sales practices at the subsidiary. It appears that the accusations were why Berkshire sold its stake in the insurer last year.

Here's what short seller Fuzzy Panda had to say about the insurer

Fast-forward to this year, and Globe Life's troubles have gone from bad to worse. On March 6, the U.S. Department of Justice issued subpoenas to Globe Life and American Income Life. The subpoena is part of an investigation into allegations of fraud and misconduct at the (renamed) Arias Organization, now one of American Income Life's agencies.

Last week, the dam broke after short-seller Fuzzy Panda Research accused Globe Life of "extensive" insurance fraud that was ignored by management. According to Breakout Point and reported by Bloomberg, Fuzzy Panda Research was the best-performing active short-seller in 2023. Although short-sellers -- investors who try to profit from falling share prices -- suffered deep losses during the long bull market of the 2010s, they can help expose harmful or downright fraudulent business practices.

Fuzzy Panda reviewed hundreds of court documents and interviewed former executives and agents "who showed us where the fraud was hidden." According to the short-seller, the fraud was ignored by management despite being "obvious and reported hundreds of times." After the short report was released, Globe Life's stock plummeted 53% in a single day.

Following the serious accusations from Fuzzy Panda, Globe Life responded by saying:

We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements ... The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false, misleading and defamatory.

Buy the dip?

According to The Fly, analysts believe the stock sell-off is overdone, but big question marks remain. Investment bank and investment firm Piper Sandler said that Globe Life's response "serves to assuage concerns but does not completely remove the vacuum that remains absent a broader communication about this matter with the investment community."

Another investment firm, Evercore, meanwhile, sees limited downside from here but says there is still "significant uncertainty for the shares."

Globe Life faces serious allegations, and the stock price reflects this. After its significant sell-off, aggressive investors may find the stock ripe for the picking. If you're willing to tolerate this risk, though, don't bet more than you're willing to lose.

However, given the uncertainty around the situation and the Department of Justice's investigation, most investors are better off waiting to see how things shake out; they should avoid the stock for now.

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>>> Globe Life Inc. Issues Statement Refuting Short Seller Allegations


PRNewswire

April 11, 2024


https://finance.yahoo.com/news/globe-life-inc-issues-statement-210200680.html


MCKINNEY, Texas, April 11, 2024 /PRNewswire/ -- Globe Life Inc. (NYSE: GL) today issued the following statement refuting the allegations raised in a report issued today by Fuzzy Panda Research:

For over 70 years, our business model has stood the test of the time and we continue to generate sustainable earnings growth that provides long-term value for our shareholders. With over 17 million policies in force, our millions of customers value the protection of the Company's products, and we strive to be there when our customers need us most.

We are disappointed today to see self-motivated short sellers push inflammatory allegations in order to drive down Globe Life's stock price. We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements. The motivations behind this short seller's report are driven solely by short-term profit earned on the backs of the thousands of shareholders, hardworking employees, independent contractor sales agents and customers who know and trust our brand and strong track record. We have successfully defended ourselves against these types of claims. The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false, misleading and defamatory. Globe Life intends to explore all means of legal recourse against the parties responsible.

Globe Life strives to act in accordance with the highest level of ethics and integrity at all levels of the organization and to comply with all government regulations. American Income Life (AIL) has processes in place to review, investigate and address all allegations brought to the Company's attention concerning unethical business practices, sexual harassment and inappropriate conduct and we do not tolerate such behavior.

We intend to more fully rebut these allegations in the near future. Rest assured we are steadfast in our commitment to delivering sustainable earnings growth that provides substantial value for our shareholders. Our dedication to providing the highest quality to our customers remains unwavering.

Globe Life Inc. is a holding company specializing in life and supplemental health insurance for the middle-income market distributed through multiple channels, including direct to consumer and exclusive and independent agencies.

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>>> Blackstone to take Apartment Income REIT private in $10 billion deal


Reuters

Apr 8, 2024


https://finance.yahoo.com/news/blackstone-apartment-income-reit-private-122428050.html


(Reuters) -Asset manager Blackstone said on Monday it would take private rental housing firm Apartment Income REIT, known as AIR Communities, for $10 billion in cash, including debt, in what analysts see as a bet on easing pressure within the commercial real estate market.

Under the deal, Blackstone will pay $39.12 for each share of the real estate investment trust, representing a premium of about 25% to its closing price on Friday. Shares of the REIT jumped about 23%.

Elevated interest rates have put pressure on landlords with loans on rental housing and other commercial real estate properties. Monday's deal was seen by some analysts as a vote of confidence that this pressure has begun easing.

"With this transaction, we believe Blackstone is messaging they view interest rates as stabilizing and access to capital as improved, acting as a positive read-through for the sub-sector," Jefferies analysts wrote.

A top real estate investor, Blackstone has been sharpening its focus on rental housing, betting on its revival as the supply of apartments in the U.S. is expected to decline due to a slowdown in construction.

This was likely to lift rental growth, which has over the past few months remained flat or declined modestly due to fresh supply in many U.S. markets.

AIR Communities, which has a relatively diversified portfolio with apartments in both Eastern and Western coastal markets, has been largely insulated from such pressures.

"(It) represents the highest quality, large scale apartment portfolio we have ever acquired, and is located in markets where multifamily fundamentals are strong," said Nadeem Meghji, global co-head of Blackstone Real Estate.

The rental housing provider reported a 6.2% rise in same-store rental revenue in the fourth quarter, higher than the 2%-4% growth by other publicly listed REITs such as Mid-America Apartments and Equity Residential.

Blackstone plans to invest another $400 million to improve the firm's 76 rental housing communities. Its flagship Blackstone Real Estate Income Trust, which stabilized after some turbulence in late 2022, has outperformed non-listed peers by 600 basis points in 2023.

The company, whose real estate portfolio is valued at $586 billion, had in January agreed to take private Canadian single-family rental housing firm Tricon Residential.

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>>> UnitedHealth unit will start processing $14 billion medical claims backlog after hack


Reuters

by Leroy Leo


https://www.msn.com/en-us/money/companies/unitedhealth-unit-will-start-processing-14-billion-medical-claims-backlog-after-hack/ar-BB1kntGE?OCID=ansmsnnews11


(Reuters) - UnitedHealth Group said on Friday its Change Healthcare unit will start to process the medical claims backlog of more than $14 billion as it resumes some software services disrupted by a cyberattack last month.

The company has been scrambling to resume services at the technology unit that was hit by a cyberattack on Feb. 21, disrupting payments to U.S. doctors and healthcare facilities and forcing the U.S. government to launch a probe.

Community health centers that serve more than 30 million poor and uninsured patients have been especially hit.

The company has advanced payments of more than $2.5 billion so far to provide assistance to healthcare providers financially affected by the disruption, an increase from the over $2 billion it had disclosed on Monday. UnitedHealth also extended the repayment period for providers, who will now have 45 business days to return the relief funds.

Change Healthcare is a key player in the U.S. healthcare system that depends heavily on insurance, processing about 50% of medical claims for around 900,000 physicians, 33,000 pharmacies, 5,500 hospitals and 600 laboratories.

The unit was breached by a hacking group called ALPHV, also known as "BlackCat", creating a knock-on effect that the largest U.S. health insurer is expected to take several months from which to fully recover.

The health insurer said its software for preparing medical claims Assurance went online on Monday, while its largest clearinghouse Relay Exchange will resume on the weekend of March 23.

A clearinghouse acts as a middleman between a healthcare provider and a health plan that checks claims to ensure they do not contain errors before forwarding them for payment.

The insurer said it will work with payers to ensure there are a maximum number of available locations for claims and is actively coordinating with other clearinghouses to make sure there are no capacity issues.

UnitedHealth had suspended paperwork required to get approval for insurance coverage for most outpatient services, as well as review of inpatient admissions for government-backed Medicare Advantage plans to help those impacted.

UnitedHealth also expects to engage all those who submitted claims during the week of March 25.

The company's other products that handle eligibility of claims such as Clearance and Coverage Insight as well as pharmacy claims submission software MedRx and Reimbursement Manager are expected to go online next week.

Several more products are likely to go online over the weeks of April 1 and April 8, the company said.

Some products, however, were not listed in Friday's update as it does not yet have clarity of when they will be restored, the company said, adding it will provide updated information as those timelines become clear.

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ADP, PAYX, BR - >>> 3 Stocks to Watch From a Growing Outsourcing Industry


Zacks

by Soumyadeep Bose

February 19, 2024


https://finance.yahoo.com/news/3-stocks-watch-growing-outsourcing-153300569.html


The Zacks Outsourcing industry has experienced significant growth, driven by various economic, technological and business factors. Key drivers include the pursuit of cost savings, access to a pool of skilled talent and the opportunity to focus on core competencies. According to a report by ReportLinker, the outsourcing sector is projected to see substantial expansion, with an estimated growth of $75.89 trillion between 2023 and 2027. This growth is expected to maintain a steady compound annual growth rate (CAGR) of 6.5%, reflecting the industry's resilience and attractiveness to businesses seeking efficient solutions.

Automatic Data Processing, Inc. ADP, Paychex, Inc. PAYX and Broadridge Financial Solutions, Inc. BR can be considered by investors from the in-focus Outsourcing market.

About the Industry

Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, you'll find companies that provide human capital, business management and IT solutions, primarily catering to small- and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, benefits administration, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.

5 Trends Shaping the Future of Outsourcing Industry

Rising Demand Environment: The industry has gained traction over the past year, thanks to the recent advancements in the field of technology and the onset of remote work. Revenues, income and cash flows have been growing in the past year, aiding many industry players to pay out stable dividends.

Continued Growth of Business Process Outsourcing (BPO): Most outsourcing activities occur at lower levels within the organizational hierarchy. Per Grand View Research, the global market for BPO reached a valuation of $261.9 billion in 2022 and is expected to witness a compound annual growth rate (CAGR) of 9.4% from 2023 to 2030. The demand for these services remains high due to their advantages, including greater flexibility, cost reduction and improved service quality.

Relevance of IT Outsourcing: The IT Outsourcing market is projected to generate revenues of approximately $460.10 billion in 2023, with an anticipated CAGR of 11.07% from 2023 to 2028. The upside is expected to lead to a market size of about $777.70 billion by 2028. In the future, outsourced IT services will cover a wide range of functions, including programming and technical support. Organizations can outsource entire IT departments to cut costs and focus on core tasks. A significant driver of outsourcing trends will be the shortage of in-house engineering talent.

Rising Importance of Cybersecurity: Heightened public awareness and evolving cyber threats, like ransomware and national-level cyberattacks, have led to a growing demand for robust data encryption and cybersecurity measures. Companies prioritize employee security awareness training and breach detection systems to prevent cybersecurity incidents. To address these challenges, businesses increasingly turn to outsourced cybersecurity services to mitigate risks, maintain compliance and support scalability in their operations.

Emerging Technology Trends: Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are on the verge of reshaping the outsourcing sector. These innovations propel efficiency, foster innovation and bolster competitiveness, altering the delivery of outsourcing services and opening novel avenues for businesses to enhance their operational efficiency. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide faster, more efficient and consistent customer support while optimizing operational costs.

Zacks Industry Rank Indicates Encouraging Prospects

The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #93. This rank places it in the top 37% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 1.9%.

Before we discuss several stocks that investors may consider holding due to their growth potential, let's first examine the recent performance of the industry in the stock market and its current valuation.

Industry's Price Performance

The Zacks Outsourcing industry has lagged the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.

The industry has gained 13.5% over this period compared with 22.4% gain of the broader sector and a 23% increase of the Zacks S&P 500 composite.

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 20.41X compared with the S&P 500’s 20.72X and the sector’s 26.21X.

In the past five years, the industry has traded as high as 30.82X, as low as 18.23X and at the median of 24.4X, as the charts below show.

3 Outsourcing Stocks to Consider

Here are three stocks from the outsourcing space with bright near-term prospects. Paychex currently has a Zacks Rank #2 (Buy), while BR and ADP have a Zacks Rank #3 (Hold) each.


Paychex is a prominent provider of integrated HCM solutions, offering payroll, human resource, retirement and insurance services tailored to the needs of small- to medium-sized businesses. Paychex exhibits strength, driven by robust revenue growth and its commanding position in the outsourcing market. The company is actively pursuing opportunities in the professional employer organization industry. At the same time, its steadfast commitment to consistent dividend payouts and share buybacks enhances investor confidence and contributes to earnings per share.

Paychex provided its fiscal 2024 outlook wherein adjusted earnings per share are expected to register 10-11% growth, up from 9-11% expected previously. PAYX reaffirmed its expectation of total revenues to register 6-7% growth.

Management Solutions’ revenues are expected to grow around 5-6%. PEO and Insurance Solutions revenues are expected to grow 7-9%, up from the previously guided 6-9%. Interest on funds held for clients is anticipated to be in the range of $140-$150 million. The company expects operating margin in the range of 41-42%.

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, indicating a 6.5% increase from the year-ago reported figure. The consensus mark for earnings is pegged at $4.72, indicating growth of 10.5% from the year-ago reported figure. The estimate has been slightly revised northward in the past 60 days.


Broadridge Financial is a global fintech firm known for providing tech-driven solutions and investor communication services to banks, broker-dealers, asset managers and issuers, with a reputation for producing and distributing critical financial documents. Its robust business model, driven by growing recurring fee revenues and strategic acquisitions, positions it well for revenue growth, supported by a diverse product portfolio. Broadridge excels in implementing its growth strategy in governance, capital markets and wealth management, seizing opportunities in the tech solutions space, including digital, AI, cloud and blockchain, through acquisitions.

For fiscal 2024, Broadridge expects recurring revenue growth in the range of 6-9%. Adjusted earnings per share growth is expected to be in the 8-12% range. Adjusted operating income margin is estimated to be around 20%. Closed sales are anticipated between $280 million and $320 million.

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $6.54 billion, suggesting an increase of 7.9% from the year-ago reported figure. The consensus mark for earnings is pegged at $7.72, indicating growth of 10.1% from the year-ago figure. The estimate has remained unchanged in the past 60 days.


Automatic Data Processing is a top-tier provider of cloud-based Human Capital Management (HCM) technology solutions, offering global employers comprehensive services such as payroll, talent management, HR, benefits administration, and time and attendance management. By strategically acquiring firms like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company, the company sustains its dominant position in the HCM market, underpinned by a robust business model, significant recurring revenues, attractive profit margins, outstanding client retention and minimal capital outlays.

For fiscal 2024, ADP still expects revenues to register 6-7% growth. Adjusted EPS is expected to register 10-12% growth. The adjusted effective tax rate is estimated to be approximately 23%. Adjusted EBIT margin is expected to grow 60-70 bps, down from the previously guided 60-80 bps.

Automatic Data Processing expects Employer Services revenues to grow at a rate of about 7-8%, while PEO Services revenues are expected to grow 3-4%.

The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $19.15 billion, calling for a 6.3% rise from the year-ago reported figure. The consensus mark for earnings per share is pegged at $9.14, indicating growth of 11.1% from the year-ago reported figure. The estimate has remained unchanged in the past 60 days.

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>>> S&P Global to buy Visible Alpha in latest push for data dominance


Reuters

2-20-24


https://www.msn.com/en-us/money/companies/s-p-global-to-buy-visible-alpha-in-latest-push-for-data-dominance/ar-BB1iA9t6?OCID=ansmsnnews11


(Reuters) -S&P Global said on Tuesday it had agreed to buy consensus provider Visible Alpha for an undisclosed sum, the business intelligence company's latest deal to expand into a data powerhouse.

New York-based S&P Global declined to comment on the deal value. The Financial Times was the first to report that the firms were nearing a deal for more than $500 million on Monday.

The company also said it was exploring options for its digital solutions unit Fincentric, formerly known as Markit Digital, in line with its attempts to streamline focus to its core businesses.

S&P Global has struck a slew of deals over the last few years to attract big clients at a time when rivals are competing to create one-stop shops and invest in artificial intelligence and machine learning.

In 2021, it won antitrust approval to buy market intelligence provider IHS Markit in a $44 billion deal after both firms offloaded several units to satisfy regulatory requirements.

It acquired environmental, social, and governance (ESG) data provider Climate Service in 2022, while its commodity insights unit bought UK-based technology firm Tradenet and its live vessel-tracking platform Market Intelligence Network (MINT) in 2023.

Founded in 2015, Visible Alpha operates a platform that collates investment research and financial models from brokerages. It provides consensus estimates and analytics, and competes with Bloomberg and LSEG.

It is backed by 12 global investment banks, including Citigroup, Bank of America and Goldman Sachs.

S&P Global is prominently known for its credit ratings business and equity indices.

The deal for Visible Alpha, expected to close this year, and the consideration of options for Fincentric are part of measures to accelerate focus in key areas of strategic growth, S&P said.

It sold its engineering solutions business to KKR in 2023 for $975 million to focus on its growth-driving businesses.

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Progressive (PGR) - >>> Berkshire Hathaway's Mystery Stock: Have Buffett and Munger Finally Bought the Stock They Can't Stop Praising?


Motley Fool

By Courtney Carlsen

Nov 24, 2023


https://www.fool.com/investing/2023/11/24/berkshire-hathaways-mystery-stock-have-buffett-and/


KEY POINTS

Berkshire Hathaway requested confidentiality on some third-quarter stock purchases of $1.7 billion. It frequently uses such measures when accumulating large positions, to avoid being front-run by market participants.

The purchase is likely a stock in the banking, insurance, or financial sector, based on its quarterly earnings report.

The conglomerate is quietly accumulating over $1 billion in stock in a mystery company. Could it be this longtime competitor?

Berkshire Hathaway's (BRK.A 0.51%) (BRK.B 0.63%) legendary performance is undeniable. Since CEO Warren Buffett took over the failing textile business in 1965, the stock has returned investors 20% compounded annually -- doubling the S&P 500's average annual return in the same period.

This track record of success is why investors eagerly await Berkshire Hathaway's quarterly form 13-F, a required filing by the Securities and Exchange Commission (SEC) that discloses institutional investors' investing activity during the period. In the third quarter, Berkshire Hathaway purchased $1.7 billion in stock. However, a sizeable chunk of that amount is in a mystery stock on which Berkshire has requested confidential treatment.

Buffett and his team at Berkshire occasionally request confidentiality when they accumulate a stock position and don't want to tip off the markets until they finish buying. The company last requested confidentiality when building stakes in Chevron and Verizon Communications in 2020.

The move has investors speculating over what could be the next big position for Berkshire Hathaway. One company that could be on the short list has previously earned high praise from Buffett and Berkshire Hathaway Vice Chairman Charlie Munger. Here's what that stock is and why it could be the next stock in Berkshire's $354 billion portfolio.

Is this the mystery stock that Berkshire Hathaway bought in the third quarter?

In the third quarter, Berkshire Hathaway sold off part of its holdings in Globe Life, Markel, and Aon, all insurance companies within the financial sector. However, in its third-quarter earnings report, the conglomerate reported that its cost basis for investments in banks, insurance, and finance stocks increased by about $1.2 billion.

There are numerous potential investments that Buffett and his team could've bought. One intriguing stock that the conglomerate could have added during the period is Progressive (PGR). Progressive is the second-largest auto insurance company in the U.S., trailing only State Farm. The third-largest auto insurance company is Berkshire Hathaway's own GEICO, which it acquired in 1996.

When it comes to future leaders in the industry, Buffett sees it as a two-horse race between Progressive and GEICO. During Berkshire’s 2019 annual shareholder meeting, Buffett said

I have always thought for a very long time [that] Progressive has been very well run. They have an appetite for growth. Sometimes they copy us. Sometimes we copy them. And I think that will be true five years from now, ten years from now.

Even Munger sang Progressive's praises, saying, "In the nature of things, every once in a while, somebody is a little better at something than we are."

Progressive's underwriting discipline makes it a top dog in a highly competitive industry

To understand Progressive's stellar performance, you have to go back to 1965, when Peter B. Lewis, son of one of the co-founders, Joseph Lewis, took over the company. At the time, insurers commonly accepted that they would break even on their policies, and the actual returns would come from their investment portfolios. Lewis rejected this notion and instead set a goal that Progressive would earn an underwriting profit on its policies, even if it meant forgoing drivers who wanted lower-cost policies.

When it went public in 1971, the company prioritized achieving a combined ratio of 96, meaning it would earn $0.04 of profit for every dollar of premium earned. This philosophy has been core to Progressive's disciplined underwriting and is a big reason for the insurer's massive success.

You can analyze Progressive's disciplined underwriting by looking at its loss ratio. This ratio is one component of the combined ratio (the expense ratio being the other) and calculates the percentage of losses to premiums earned. Good companies can control losses and keep loss ratios in check, which Progressive has done exceptionally well. Over the last eight years, Progressive's loss ratio has averaged 72%, an excellent number in the highly competitive auto insurance industry. GEICO, also a solid underwriter, averaged 83% over that period.

Berkshire Hathaway's head of insurance had this to say about Progressive's outperformance

Ajit Jain is Berkshire Hathaway's Vice Chair of Insurance Operations and is also on the board of directors. Jain has worked for Berkshire since 1986 and has extensive knowledge about its insurance operations. Buffett has showered Jain with praise, mentioning in his 2012 annual letter to shareholders: "Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the business."

Jain appreciates Progressive's underwriting performance and has credited its outperformance to several factors, including its use of telematics. Telematics uses driver data like mileage driven, speed, and braking time and personalizes rates for drivers based on this information.

When it comes to pricing models, more data helps Progressive make more informed decisions, manage its risk well, and keep loss ratios low. In 2019, Jain said that GEICO is working on its telematics program and hoped to catch up to Progressive over time. However, as you can see above, Progressive continues to outperform on the important loss ratio metric.

A stellar stock to own, regardless of whether Berkshire is buying it

It's possible that Berkshire Hathaway sees Progressive's ongoing outperformance and decided to add shares to its $354 billion portfolio. Progressive's long history of collecting driver data is one part of its stellar underwriting performance, and maybe Buffett and his team caved and wanted a piece of the action.

However, investors can't know for sure if Berkshire is buying Progressive until the company posts its fourth-quarter filing (assuming the purchase is not still marked as confidential), which won't come out until mid-February. Regardless, Progressive has been an excellent long-term performer for investors, and even if Berkshire isn't buying it, it can make an excellent addition to your portfolio today.

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>>> Commercial real estate a 'manageable' problem but some banks will close: Powell


Yahoo Finance

by David Hollerith

Feb 5, 2024


https://finance.yahoo.com/news/commercial-real-estate-a-manageable-problem-but-some-banks-will-close-powell-161201936.html


Federal Reserve Chair Jerome Powell is predicting that more small banks will likely close or merge due to commercial real estate weaknesses, but that the problem is ultimately "manageable."

The central bank official made this point during a "60 Minutes" interview that aired Sunday night. It was Powell’s first comments about the industry following a new bout of turmoil cascading through the stocks of many regional banks.

"I don't think there's much risk of a repeat of 2008," Powell said, referring to a financial crisis 16 years ago that took down some of the biggest institutions on Wall Street as well as hundreds of banks across the US.

"I do think it’s a manageable problem," he added.

The new concerns about regional banks were triggered by $116 billion commercial real estate lender New York Community Bancorp (NYCB), which shocked Wall Street last Wednesday when it slashed its dividend, reported a surprise quarterly loss, and stockpiled millions for future loan losses related to commercial real estate holdings.

The stock of the Hicksville, N.Y.-based lender fell 38% on Wednesday and another 11% on Thursday, dragging the rest of the sector down with it. The stocks recovered Friday but dropped once again on Monday as New York Community Bancorp fell more than 10%.

Powell acknowledged in his "60 Minutes" interview that some smaller banks will "have to be closed" or merged "out of existence" due to losses tied to the falling values of properties across the US that are suddenly worth much less due to the Fed’s elevated interest rates and the effect of a pandemic that emptied out many city-center buildings.

But "we looked at the larger banks' balance sheets, and it appears to be a manageable problem," Powell said.

"There's some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we're working with them. This is something we've been aware of for, you know, a long time, and we're working with them to make sure that they have the resources and a plan to work their way through the expected losses."

Regional banks are particularly vulnerable because they hold a lot more exposure to these properties than larger rivals. For banks with more than $100 billion in assets, commercial real estate loans only account for 13% of total credit. For smaller banks, they account for 44% of total bank credit.

Loans tied to offices and certain multifamily housing properties are showing the most weakness. Not all segments of commercial real estate are expected to face the same problems.

Demand for commercial real estate loans from US banks, meanwhile, weakened in the fourth quarter of 2023 as bank officers tightened their standards, according to a new Fed report released Monday. These officers expect standards to stay tight in 2024 on all loan categories except for residential real estate.

David Chiaverini, a regional and midsized bank analyst for Wedbush Securities, told Yahoo Finance that commercial real estate "will be managed better at some of the other banks" than at New York Community Bancorp, which also has a high level of exposure to rent-controlled apartment complexes in New York City. Those buildings account for 22% of its loans.

Chiaverini said the bank should have set aside more in reserves last year while booking a gain from its purchase of assets from the failed Signature Bank.

"The severity of the issue is, I would say, mostly idiosyncratic to New York Community Bank because they were so under-reserved relative to the risk in their portfolio," he added.

The "perfect storm" that could create problems for the rest of the industry, according to Chiaverini, is if inflation goes back up, forcing the Fed to keep rates higher for longer, and the US economy enters a recession. Borrowers would then have problems keeping up with their loans.

If those things don’t happen, the commercial real estate pain should be "manageable" for the banks, he added.

The Fed chair repeated that same word three times in his "60 Minutes" interview.

"It should be manageable," Powell said.

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Upstart - >>> 3 Artificial Intelligence (AI) Stocks That Could Help Make You a Millionaire


by Will Healy

Motley Fool

Feb 7, 2024


https://finance.yahoo.com/news/3-artificial-intelligence-ai-stocks-114500306.html


Much like the technology trends of the past, artificial intelligence (AI) could potentially help turn investors into millionaires. The performance of stocks like Nvidia and the recoveries of numerous other stocks from their 2022 bear market lows reflects the tremendous growth that these new technologies are driving for the companies involved, and the willingness of investors to pay for it.

Recently, investors have begun to gravitate toward smaller companies with the potential for massive growth. As AI makes more headway among investors, businesses, and consumers, these AI stocks could deliver outsized gains to investors.


Palantir

Investors should not ignore the AI-driven opportunity in Palantir (NYSE: PLTR). The company has long used machine learning and other AI tools to deliver analytical insights to clients in the national defense and commercial realms. The success of its platforms has helped it grow its revenue and profits.

However, the Palantir Artificial Intelligence Platform (AIP) may take its AI prowess to a much higher level. AIP employs generative AI technology, and the company has heavily promoted the product recently through what it calls "boot camps," where it helps prospective customers find real-world ways to use the technology to their benefit. Clients that attend these boot camps have reported eye-popping productivity gains from them, such as producing outputs 10 times faster with one-third of the resources.

Admittedly, the impacts of AIP have not yet shown up in the company's headline numbers. In the first three quarters of 2023, its revenue rose 16% to $1.6 billion. Also, Palantir limited operating expense growth, resulting in a net income of $120 million during that timeframe. Due to investors' optimism about the company's future, its stock has risen by about 110% over the last year.

With that gain behind it, the stock now trades at a price-to-sales ratio of 17, a valuation that may give some investors pause. Still, when factoring in the growth potential, others might see it as a relative bargain based on its forward P/E ratio of 55. If AIP's successes start translating into revenue gains, a surge in the stock could bring investors closer to millionaire status.


Supermicro

Super Micro Computer (NASDAQ: SMCI) -- better known simply as Supermicro -- has existed for over 30 years, but it may finally be getting its moment in the sunshine amid the AI revolution. It describes itself as a "rack-scale total IT solutions provider," building servers for big data, cloud computing, enterprise, 5G, and other applications.

However, it has drawn particular attention with its servers for data centers powered by Nvidia's AI chips. With more than 6 million square feet of manufacturing space and operations in over 100 countries, it has positioned itself to take this technology wherever customers demand it.

Indeed, interest in its products has begun to skyrocket. In the first six months of its fiscal 2024 (a period that ended Dec. 31), its revenue rose 58% year over year to $5.8 billion. But because operating expenses also rose rapidly, its net income increased by just 25% to $453 million.

Since those higher operating expenses appear to have been primarily related to improvements, investors seem to be less concerned about them, and more focused on the company's burgeoning AI opportunity. The stock has risen by an eye-popping 695% over the past year, and doubled since the beginning of 2024.

Despite that gain, its price-to-earnings ratio is around 43, a relatively moderate level considering its revenue growth. Considering that the stock trades at just 26 times forward earnings, it is probably not too late for investors to see further substantial gains in Supermicro.


Upstart

Upstart Holdings (NASDAQ: UPST) seeks to upend the loan evaluation business using AI. According to internal studies, it has found loan opportunities overlooked by Fair Isaac's FICO scoring tool, allowing Upstart's lending clients to approve more loans without increasing their risks.

The FICO score is particularly vulnerable to disruption since its processes have changed little since Fair Isaac launched the scoring tool in 1989. Also, because Upstart seeks to earn revenue on evaluations only, it should carry little credit risk, in theory.

Unfortunately for the company, its period of fast growth and profitability ended abruptly as interest rates rose. Its fairly small client base and high dependence on two large clients have also hampered Upstart, as did its decision to widen its business model and become the lender on some of the loans its platform approved.

Consequently, its revenue in the first nine months of 2023 fell 46% year over year to $408 million. Nonetheless, in Q3, its revenue rose 3% from the previous quarter to $147 million, suggesting that the worst may be over. Also, the stock's price-to-sales ratio stands at just 5, a small fraction of where it stood in the previous bull market.

Upstart carries significant risk, but its platform's ability to approve more loans without increasing lenders' credit risk could offer tremendous value, especially if more banks use it to replace the FICO score model. If more banks adopt its tool and interest rates head lower, Upstart could deliver massive shareholder returns.

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>>> Insurers Rake In Profits as Customers Pay Soaring Premiums


The Wall Street Journal

by Jean Eaglesham

January 25, 2024


https://finance.yahoo.com/m/422624f8-879a-33ab-ae1a-6c8e2cc0d00d/insurers-rake-in-profits-as.html


The pain for home- and auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks in part to steep rate hikes. The jump came after the company reported a record profit for its fourth quarter, boosted by double-digit rate increases in its business and personal insurance units...

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>>> The ghosts of last year's regional bank collapse still haunt the banking sector


Yahoo Finance

by David Hollerith

February 2, 2024


https://finance.yahoo.com/news/the-ghosts-of-last-years-regional-bank-collapse-still-haunt-the-banking-sector-090028587.html


Federal Reserve officials on Wednesday removed language from a key policy statement qualifying the US banking system as "sound and resilient," a phrase it had used since March 2023 to reassure the public that regional lending problems were contained.

That same day, fresh turmoil at a New York regional bank offered a reminder that those problems are far from over.

New York Community Bancorp (NYCB) shocked Wall Street when it slashed its dividend, reported a surprise quarterly loss, and stockpiled millions for future loan losses. The stock of the Hicksville, N.Y.-based lender fell 37% on Wednesday and another 11% on Thursday, dragging the rest of the sector down with it.

Stocks of many other mid-sized lenders, such as Valley National Bancorp (VLY), BankUnited (BKU), and Western Alliance (WAL), also took big hits Wednesday and Thursday as investors punished many of the sector's names. An index that tracks mid-sized banks also plummeted by 9% in two days.

"It's definitely sell now, ask questions later," Alexander Yokum, a regional bank analyst with CFRA, told Yahoo Finance.

Some experts urged caution, noting that the challenges at New York Community Bancorp do not apply to the entire sector. And many regional bank stocks recovered some losses during Friday's trading as New York Community Bancorp rose 5%.

"We see the issues impacting NYCB as being specific to the company with little read-through to the broader regional banks," Steven Alexopoulos, a JPMorgan Chase (JPM) regional bank analyst, said in a Thursday note.

The chaos on Wednesday and Thursday offered a mini-flashback to 11 months ago, when fears about the safety regional banks spread across the country. Eventually, those fears brought down three sizable institutions — Silicon Valley Bank, Signature Bank, and First Republic — that were seized by regulators.

There are a number of factors that help explain the market's new worries, from concerns about commercial real estate weaknesses to stricter regulatory rules placed on regional lenders of a certain size.

But the core questions about this section of the banking industry are the same as they were last March: How weak are the balance sheets at regional lenders? Can they withstand the pain of the Fed's aggressive interest rate hikes?

And can they ultimately be profitable and survive in the pocket that exists between a coast-to-coast colossus like JPMorgan and thousands of tiny community banks in small towns across America?

A crisis that created another crisis

The irony of New York Community Bancorp’s current predicament is that it can be partly traced back to the company's attempts to play the role of rescuer during the 2023 crisis when it stepped in to purchase assets of the fallen Signature Bank from regulators just months after acquiring another rival.

The rapid consolidation doubled the size of the institution and pushed the bank above an important asset threshold of $100 billion that brought stricter regulatory requirements applied to lenders of that size.

Those requirements, the company said, help explain why it had to bolster its balance sheet by cutting its dividend and boosting the money it set aside for future loan losses.

"They picked up the Signature assets at a discount, which seemed quite good, but my concern now is that it’s just been too much to handle, unfortunately," Yokum said. "If you're larger and more diversified, you're less likely to have one of these shocks hit you directly."

This new challenge for one of the country's top 30 banks may help stoke a larger debate in the regional banking world about whether it's better to pursue consolidation and get bigger, or get smaller as a way of avoiding new regulatory demands that could crimp profits.

PNC Financial Services Group CEO Bill Demchak took the former view last month when he told analysts that corporate customers will eventually migrate to national giants with implied government backing.

So it's "critical," he said, that his Pittsburgh-based bank "move into that next level" and be known "coast to coast as a ubiquitous standard brand."

"Scale matters," he added. "We’re going to have to play that game."

But getting bigger, as New York Community Bancorp found out, also brings new hurdles that can quickly turn into profitability problems. Regulators are also currently considering new rules that would make capital demands on regional banks even stricter.

Some regional banks, as a result, are trying to get smaller by shedding loans, investments, and business lines.

When regional lender US Bancorp (USB) announced last October that it had agreed to a cap on its assets and a shrinking of its balance sheet as a way of avoiding tougher regulations from the Fed, its stock moved higher by 7% in one day.

"You need to shrink if you’re not healthy," Yokum said.

Commercial real estate worries

The new turmoil for New York Community Bancorp is raising another specific concern for the sector: commercial real estate.

NYCB is largely a commercial real estate lender, and there have been concerns about the pain for such banks as office and multifamily apartment properties fall in value due to elevated interest rates and the effect of a pandemic that emptied out many city-center buildings.

Regional banks are particularly vulnerable because they hold a lot more exposure to those properties than larger rivals. Trillions of these loans are expected to come due in the next several years.

The issue is under scrutiny by regulators. "All of the bank regulators are working with banks that have, you know, concentrations of troubled real estate to work it out," Federal Reserve Chairman Jerome Powell said late last year at the New York Economics Club.

In the case of New York Community Bancorp, it was largely one office loan and one co-op loan that were responsible for a steep rise in net charge-offs to $185 million from $1 million in the year-earlier period.

It also set aside $552 million for future loan losses, a sign it expects credit to deteriorate further.

"They have to build reserves," said Christopher Marinac, an analyst with Janney Montgomery Scott, who has covered banks for more than three decades. "They're catching up. And I don't think the company truly has losses that they're going to incur, but they have to build their protection around the unknowns of credit risk."

There were other reminders Thursday outside the US of the potential for more problems to come. Germany's Deutsche Bank and Japan's Aozora Bank disclosed new commercial real estate weaknesses Thursday that stoked investor concerns.

But the boss of another US regional lender, Citizens (CFG), downplayed larger worries about the industry in an interview with Bloomberg TV.

"For the most part, everything’s in the rear-view mirror now," CEO Bruce Van Saun said during a day when his bank's stock fell by more than 4%.

Most regional banks, he said, have been able to manage their interest rate risk while the deposit pressures of 2023 have eased.

"So things are starting to feel a lot more normal," he said. The NYCB announcement "was a bit of a surprise. I think that’s an outlier."

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>>> Tap Into the Insurance Industry's Momentum With These ETFs


Zacks

by Yashwardhan Jain

January 23, 2024


https://finance.yahoo.com/news/tap-insurance-industrys-momentum-etfs-212500904.html


The rising frequency and seriousness of potential global challenges, ranging from climate change to cybercrime, secures the insurance industry’s ability to act as a financial cushion. According to Deloitte, insurers realizing the need to proactively prevent losses from occurring in the initial stages is driving the industry’s growth.

After experiencing a positive shift in its trend in the second half of last year, the U.S. property and casualty industry has continued with its robust momentum entering 2024. Significant premium increases, a slowdown in the growth of claims costs and improved investment returns have all had a beneficial effect on the sector, giving a boost to profitability.

The S&P Insurance Select Industry Index has gained 8.54% over the past year, as of 17 Jan 2024, compared to the broader S&P 500 Financials Index, which added about 3.82% over the past year.

Growth in Digits

According to Swiss Re, the industry ROE is estimated to surge to 9.5% in 2024 and reach 10% in 2025, hinting at a substantial increase from the 5% recorded in 2023, backed by robust premium growth and reduced inflationary pressures. Estimates for ROE are supported by solid premium growth expectations of 7% and 4.5% for 2024 and 2025, respectively.

Combined ratio, a comprehensive measure of an insurance company’s profitability, used to evaluate how well the company is operating on a daily basis, is anticipated to improve significantly. The ratio is projected to be 98.5% for both 2024 and 2025, implying a notable improvement from the estimated 103% for 2023. A ratio below 100% signifies that the company is realizing an underwriting profit.

Direct premium written (DPW), which represents the growth of a company’s insurance business during a particular period, is forecast to grow at 7% in 2024, indicating an upward revision from 5.5% in 2023.

Industry’s Anticipated Earnings Success

According to Factset, the insurance industry is expected to be the primary driver of positive year-over-year earnings growth for the financial sector, growing by a staggering 26%. Year-on-year earnings growth at the sub-industry level is led by the property & casualty insurance, growing at 48%, followed by reinsurance (30%) and multi-line insurance (17%).

Seventeen out of the top 20 insurers trading on major U.S. exchanges experienced an uptick in market capitalization during the fourth quarter of 2023, per S&P Global Market Intelligence, with most insurers exhibiting increases of 6% or more.

According to Zacks Earnings Trend, Insurance - Multi Line and Insurance - Property And Casualty have a growth rate of 8.04% and 8.02%, respectively.

ETFs in Focus

Below, we highlight a few insurance ETFs for investors to capitalize on the industry’s continuing momentum.

SPDR S&P Insurance ETF (KIE)

SPDR S&P Insurance ETF seeks to track the performance of the S&P Insurance Select Industry Index with a basket of 48 securities. The fund has amassed an asset base of $738.17 million and charges an annual fee of 0.35%.

SPDR S&P Insurance ETF has a major exposure of 50.43% in property and casualty insurance, followed by life and health insurance, with a share of 24.84% of its assets. The fund has gained 6.78% over the past three months and 12.12% over the past year.

iShares U.S. Insurance ETF (IAK)

iShares U.S. Insurance ETF seeks to track the performance of the Dow Jones U.S. Select Insurance Index, with a basket of 55 securities. The fund has gathered an asset base of $476.5 million and charges an annual fee of 0.40%.

iShares U.S. Insurance ETF has major exposure of 67.88% in property and casualty insurance, followed by life and health insurance, with a share of 24.13% of its assets. The fund has gained 9.67% over the past three months and 11.22% over the past year.

Invesco KBW Property & Casualty Insurance ETF (KBWP)

Invesco KBW Property & Casualty Insurance ETF seeks to track the KBW Nasdaq Property & Casualty Index, with a basket of 26 securities. The fund has amassed an asset base of $200.9 million and charges an annual fee of 0.35%.

Invesco KBW Property & Casualty Insurance ETF has an exposure of 60.09% in large-cap securities. The fund has gained 8.01% over the past three months and 7.06% over the past year.

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>>> Why one giant regional bank no longer wants to be a regional bank

The boss of PNC is making it clear that his Pittsburgh bank needs to get bigger in the wake of a 2023 industry crisis


Yahoo Finance

by David Hollerith

January 25, 2024


https://finance.yahoo.com/news/why-one-giant-regional-bank-no-longer-wants-to-be-a-regional-bank-090015924.html


The boss of the sixth-largest lender in the US is making it clear that he no longer wants it to be viewed as a regional bank.

On a conference call with analysts last week, PNC Financial Services Group (PNC) CEO Bill Demchak made a case for why it’s "critical" that his company gets bigger in the wake of a crisis last spring that roiled regional banks across the country.

Corporate depositors, he said, no longer trust US regulators can keep all banks safe, and these customers will likely migrate to national giants with implied government backing. So Demchak wants his Pittsburgh-based bank to "move into that next level" and be known "coast to coast as a ubiquitous standard brand."

"Scale matters," he added. "We’re going to have to play that game."

Demchak’s comments are stoking a new debate about the path forward for the nation’s biggest regional banks following the turmoil of 2023. Can they still thrive in that pocket between a colossus like JPMorgan Chase (JPM) and thousands of tiny community banks, or do they need to consolidate and get much bigger to ensure their long-term survival?

Many of these banks are generally on more stable ground than they were during the first half of last year when the failures of Silicon Valley Bank, Signature Bank, and First Republic triggered panic about the strength of many other mid-sized financial institutions across the US.

Their stocks even surged late in 2023 as investors became more convinced the Federal Reserve was ready to start cutting sky-high interest rates as early as March. Such a move would help mid-sized banks that watched their profits plunge as deposits became more expensive.

But it is not yet clear when or if those cuts will happen, and bank stocks have fallen back at the start of 2024 as policymakers push back on market expectations for a loosening in the first quarter.

This uncertainty means regional banks will continue to struggle with a key profitability measure known as net interest income — which measures the difference between what banks earn on their loans and pay out on their deposits.

Income fell at many regional banks during the fourth quarter, and some said they expect it to fall during 2024 as well. That includes PNC, which said it expects net interest income to drop 5% this year.

'Wow'

But Demchak’s bigger concern is existential: He said last week that his bank needs to get bigger so it can exist in a category that would give PNC the "quasi support that the giant banks have" during times of crisis.

This was not the first time Demchak has made this point. He also did so in December while speaking at the Goldman Sachs Financial Services Conference in New York. When asked then if he would consider acquiring another bank, he said, "Scale matters today more than it ever has."

Wells Fargo banking analyst Mike Mayo decided to ask Demchak about this topic again last week during PNC’s fourth quarter earnings conference call, and Mayo summed up his reaction to the CEO’s survival-of-the-fittest guidance with one word: "Wow."

Demchak’s comments served as "a very clear advertisement" that PNC is looking to buy other banks over time, Mayo told Yahoo Finance.

"I see this advertisement to buy targets as more of an announcement for the next three years, not the next three quarters," he added.

Not all of Demchak’s regional rivals agree with his view. "I do not think scale is the answer for a bank like Key," KeyCorp (KEY) CEO Chris Gorman told analysts last week. Key is a regional bank based in Cleveland.

"It's not something you have to have," added M&T Bank (MTB) CFO Daryl Bible. M&T is a Buffalo, N.Y.-based regional lender.

PNC has in the past used acquisitions to get bigger during times of industry-wide stress. During the 2008 financial crisis, it was encouraged by the US government to buy Cleveland rival National City for $5.2 billion, which basically doubled its size.

Demchak has since used more acquisitions over the last decade to establish a foothold in nearly every top metro area in the country. His last was a $11.6 billion deal for the US operations of Spanish banking giant BBVA that closed in 2021. PNC now has roughly $561 billion in assets.

The CEO tried last year to get even bigger. PNC was asked by the FDIC to submit a bid to acquire the operations of San Francisco lender First Republic, which would have given it a much larger foothold on the West Coast.

But it lost that auction in the early hours of May 1 to JPMorgan, the nation’s biggest and most profitable lender.

From Wall Street to Main Street

Demchak, 61 years old, was a late arrival to the world of regional banking. He got his start on Wall Street, working for JPMorgan in the 1990s. While there, he became head of structured finance and was well known for helping develop credit default swaps and selling them to investors.

Demchak arrived at PNC, a bank based in the area where he grew up, when he was 40. He served as CFO and head of corporate and institutional banking before becoming CEO in 2013.

He has periodically been mentioned or considered as a potential candidate to run much bigger banks before Bank of America (BAC) chose Brian Moynihan as its CEO and Wells Fargo (WFC) appointed its current boss Charlie Scharf. But he has chosen to stay in Pittsburgh.

Not all industry observers agree with Demchak’s latest argument that regional banks will drag unless they merge.

"It's a great soundbite," said Gerard Cassidy, bank analyst for RBC, but "that's not reality. The reality is that banks have relationships."

Market share — or "density" in specific businesses — trumps national scale, Bank of America analyst Ebrahim Poonawala told Yahoo Finance.

Scott Siefers, an analyst with Piper Sandler, agreed that "the whole game seemed to change in 2023," and that "what most people have concluded is that banks are just simply going to have to get bigger to compete."

But there are a lot of hurdles to that consolidation, he said, from high interest rates to the Biden administration’s skeptical view of big mergers.

"Longer term, I don’t think there’s much dispute that PNC will be active in the consolidation of the industry," he added. "In the immediate term, however, I think a lot of investors have time to figure that out."

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>>> Humana’s dire forecast shows private Medicare boom is ending


Bloomberg

by John Tozzi

January 26, 2024


https://finance.yahoo.com/news/humana-plunges-2024-forecast-misses-120703264.html


(Bloomberg) — Private Medicare plans that drove years of growth for US health insurers are getting less profitable and may cost seniors more money, Humana Inc.’s results showed, sending shares down across the sector.

The second-largest Medicare Advantage company, Humana struck a dire tone as it pulled its earnings guidance for 2025 and forecast 2024 profits short of analysts’ most pessimistic outlooks. The shares fell as much as 15% in New York, the most intraday since June.

As medical costs rise, Humana will have to raise prices and pull back on benefits to shore up profit margins, executives said Thursday on a conference call, and they expect competitors to do the same. If that happens, it may be the end of health insurers’ Medicare Advantage boom.

“The whole industry will possibly reprice” plans for next year, outgoing Chief Executive Officer Bruce Broussard said on a conference call. “I don’t know how the industry will take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026.”

Humana now sees adjusted earnings of approximately $16 a share in 2024, according to a statement Thursday. That would set its per-share profit back to a level not seen since 2018, shocking some analysts.

“We did not think $16 was possible,” Jefferies analyst David Windley wrote in a research note. From that level, Humana plans for growth of $6 to $10 a share in 2025.

Rivals have given different explanations for the jump in medical costs, adding uncertainty to the buffeted sector. UnitedHealth Group Inc., the largest seller of Medicare Advantage plans, told investors Jan. 12 that higher costs seen late last year were seasonal and wouldn’t persist through 2024. Elevance Health Inc., a smaller player in Medicare, indicated this week it had priced to cover rising costs.

Still, Humana’s forecast dragged on the sector. UnitedHealth fell as much as 6.6%, Cigna Group as much as 4.3%, CVS Health Corp. as much as 5.4% and Centene Corp. as much as 4.9%.

Worse than feared

More than half of US seniors on Medicare now get their benefits through private plans. Humana is more exposed to changes in the Medicare Advantage market than major competitors. Last week, a preview of fourth-quarter results showed accelerating medical expenses.

The US last year proposed new rates and other changes to restrict how insurers get paid. The government also finalized plans to claw back past overpayments, a policy Humana is challenging in court. Those changes are colliding with an uptick in costs as some patients resume seeking care they had deferred during the pandemic.

The changes to government billing are being phased in over three years starting in 2024, which means more pressure on the business is coming. The US is expected to announce its initial 2025 rate update for Medicare Advantage plans in the coming weeks.

Humana’s 2024 outlook assumes the higher medical costs that materialized in the fourth quarter will persist for the year. It’s a “wholesale rebasing of expectations” for the Medicare Advantage segment, RBC Capital Markets analyst Ben Hendrix wrote in a research note.

Humana executives said Thursday that they expect to remain focused on Medicare. The company was reported to be in talks with Cigna late last year to assemble a bigger, more diversified business, but discussions quickly fell apart.

“We do believe today being a specialty player in the fastest-growing part of the industry is the best value for the shareholders,” Broussard said.

Long-term questions

As recently as Nov. 1, Humana affirmed its 2025 profit target of $37 a share. Yet those expectations unraveled swiftly, even as risks to Medicare Advantage became clearer through 2023.

Rising cost trends took hold as insurers set prices for 2024 plans, and Humana told investors it considered their “initial emergence” in its pricing. Medical expenses jumped beyond what the company prepared for in late 2023, as Humana cited higher inpatient stays, doctor visits and outpatient surgeries.

The company is looking at years of adjustments to get back to the earnings trajectory investors were betting on. Humana executives including Chief Operating Officer Jim Rechtin, who is set to take the CEO seat later this year, projected optimism about the company’s long-term prospects.

JPMorgan Securities analyst Lisa Gill wrote that it’s difficult to see Humana returning to its long-term multiple, the level the stock trades relative to earnings. By the time Humana overcomes the rough spot ahead “we think investors could be focusing more on slowing demographic trends, as growth in the 65+ market is expected to moderate” in the second-half of the 2020s, she wrote.

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>>> Aon Agrees to Buy NFP for About $13.4 Billion in Cash, Stock


Bloomberg

by Josyana Joshua and Allison Nicole Smith

December 20, 2023


https://finance.yahoo.com/news/aon-agrees-buy-nfp-13-213641576.html


(Bloomberg) -- Aon Plc agreed to buy NFP Corp. for about $13.4 billion in cash and stock as part of a push into the middle-market segment of the insurance brokerage and wealth-management business.

Funds affiliated with Madison Dearborn Partners and HPS Investment Partners are the sellers, the companies said in a statement Wednesday. The transaction will be funded by $7 billion of cash and $6.4 billion of Aon’s stock.

Aon expects to fund the cash portion with around $7 billion of new debt, according to a filing. It plans for $5 billion of it to be raised in 2024 and $2 billion raised when it completes the transaction. The new debt will span a range of maturities, subject to market conditions. NFP Chief Executive Officer Doug Hammond will continue to lead the business as an independent, connected platform within Aon, reporting to Aon President Eric Andersen.

Aon said it expects about $400 million in one-time transaction and integration costs. The combination is expected to dilute adjusted earnings per share in 2025, and break even in 2026. It will add to earnings starting in 2027, according to the statement. The deal is expected to be completed in the middle of next year.

The sale is welcome news for holders of the NFP’s high-yield debt. The company’s 6.875% bond due 2028 rose more than 8 cents on the dollar, making it Wednesday’s biggest gainer, according to Trace data.

“Every now and then Santa Claus visits the high yield market in the form of investment grade M&A,” David Knutson, senior investment director at Schroder Investment Management, said in an interview. “Not something you plan for, but it is a nice surprise.”

From Aon’s perspective, “investment-grade spreads are very compelling right now for issuers,” said Bloomberg Intelligence’s Noel Hebert, “so the funding market is as compelling as it’s been in a while.”

Similarly, the high-yield bonds of United States Steel Corp. rallied after Nippon Steel Corp., an investment-grade company, agreed Tuesday to buy the Pittsburgh-based firm for $14.1 billion.

However, the sudden wave of investment-grade M&A won’t necessarily last, said Knutson.

“The market has embraced the ‘soft landing’ narrative. This has fueled an ‘everything rally,’” said Knutson. “If future data doesn’t support this narrative, the market and buyers will lose their appetite for risk.”

UBS Group AG served as financial adviser to Aon, and Cravath, Swaine & Moore and McDermott Will & Emery were external legal counsel. Evercore Inc. acted as lead financial adviser to NFP, while Skadden, Arps, Slate, Meagher & Flom and Ropes & Gray were external legal counsel.

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>>> American Express Company (AXP)


https://www.insidermonkey.com/blog/5-best-mario-gabelli-stocks-other-billionaires-are-also-piling-into-1235826/3/


Number of Billionaire Investors In Q3 2023: 15

American Express Company (NYSE:AXP) is an iconic American travel services and financial products provider. Amidst speculation in the market that it might be Apple’s next company of choice for the Apple Card, the firm’s CEO wasn’t too excited about the prospect at a financial conference in December 2023.

As 2023’s third quarter ended, out of the 910 hedge funds part of Insider Monkey’s database, 74 were American Express Company (NYSE:AXP) investors. Warren Buffett’s Berkshire Hathaway was the largest shareholder due to its $22.6 billion investment.

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Re-post -- Ally Financial - >>> Buffett's Berkshire Hathaway sees opportunity in Ally Financial amid rate hikes

By: Investing | November 22, 2023


https://investorshub.advfn.com/boards/read_msg.aspx?message_id=173277367


Warren Buffett's investment conglomerate, Berkshire Hathaway (NYSE:BRKa), maintains a significant stake in Ally Financial (NYSE: NYSE:ALLY), valued at approximately $798 million. Despite the auto financing sector being hit by rising interest rates, which has led to a decline in Ally's stock value, Berkshire Hathaway owns nearly 10% of the company. This move signals Buffett's recognition of an undervalued opportunity in the market.

Ally Financial operates a branchless digital banking model, which has been instrumental in offering competitive interest rates to customers while keeping operational costs low. This strategy has contributed to the company amassing over $161 billion in assets and achieving an impressive customer retention rate of 96%. The bank's innovative approach was rewarded with a top industry accolade this year.

Buffett is drawn to Ally due to its valuation at just 86% of tangible book value, along with its strong dividend history. Since mid-2016, Ally has increased its dividend payouts by 275%, showcasing robust financial health even as challenges persist. These challenges include tighter net interest margins and a rise in loan delinquencies, which are indicative of broader economic strain.

Nonetheless, analysts remain optimistic about Ally's future profitability, projecting an increase in earnings per share (EPS) from $3.16 in 2023 to $3.83 in 2024. The bank has also set aside $508 million for credit losses, reflecting prudent financial management during uncertain times.

Berkshire Hathaway itself boasts an impressive annual yield of around 20%, translating to cumulative returns of 3,787,464%. The firm's substantial investment in Ally Financial comes amid a period where the company's value has been slashed by half due to the impact of high-interest rates on the auto loan industry. Despite these headwinds, the consensus among Wall Street analysts supports a positive outlook for Ally Financial's path to profitability recovery.

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Rickards - >>> Another Bank Bites the Dust!


BY JAMES RICKARDS

NOVEMBER 6, 2023

Another Bank Bites the Dust!

Citizens Bank was a small bank in Iowa with about $66 million in assets. Its loan portfolio consisted largely of commercial and industrial loans.

Well, this past Friday the Federal Deposit Insurance Corporation (FDIC) announced that Citizens Bank had failed due to significant hidden loan losses totaling about $15 million.

Because Citizens Bank was not a member of FDIC, the bank’s losses will be the responsibility of the state of Iowa.

This is the sixth notable bank failure this year. As you might recall, the first five were Silicon Valley Bank (back in March), Silvergate Bank (a bridge from the crypto world), Signature Bank (another crypto conduit to the regular banking world), First Republic Bank and the giant Credit Suisse.

I warned in March that the failure of Silicon Valley Bank would be just the start. Now we’ve had five additional bank failures.

And this latest failure won’t be the last.

Veterans of such crises (and I include myself in that category) know that once the dominoes start falling, they keep falling until some government intervention of a particularly draconian kind is imposed.

We’ve seen some significant regulatory actions from the Federal Reserve, the FDIC, the U.S. Treasury and the Swiss National Bank, but the fixes have been temporary and followed quickly by new failures.

The FDIC abandoned its $250,000 deposit insurance limit and effectively guaranteed all the depositors in Silicon Valley Bank and Signature Bank, a guarantee of over $200 billion in deposits. This has impacted the FDIC insurance fund and required higher insurance premiums from solvent banks, the cost of which is ultimately borne by consumers (you).

The Federal Reserve went further and offered to lend money at par for any government securities tendered as collateral by member banks even if the collateral was worth only 80% or 90% of par. These collateralized loans are financed with newly printed money, which might exceed $1 trillion.

These actions have thrown the U.S. banking system and bank depositors into utter confusion. Are all bank deposits now insured or just the ones Janet Yellen decides are “systemically important”? What’s the basis for that decision? What about the fact that unrealized losses on U.S. bank portfolios of government securities now exceed $700 billion?

If those losses are realized to provide cash to fleeing depositors, it could wipe out much of the capital of the banking system.

Unrealized losses on securities held by FDIC-insured banks exceed $620 billion. That’s the amount of bank capital that would be wiped out if the banks were forced to sell those securities to meet demands from depositors who wanted their money back.

That would cause additional bank failures and continue the panic that began in March indefinitely.

We’re not out of the woods, and the confusion will continue.

What’s important to bear in mind is that crises of this type are not over in days or weeks.

A slow-motion rolling panic that takes a year or longer is more typical.

The 1998 crisis reached the acute stage on Sept. 28, 1998, just before the rescue of LTCM. We were hours away from the sequential shutdown of every stock and bond exchange in the world.

But that crisis began in June 1997 with the devaluation of the Thai baht and massive capital flight from Asia and then Russia. It took 15 months to go from a serious crisis to an existential threat.

Likewise, the 2008 crisis reached the acute stage on Sept. 15, 2008, with the bankruptcy filing of Lehman Bros. But that crisis began in the spring of 2007 when HSBC surprised markets with an announcement that mortgage losses had exceeded expectations.

It then continued through the summer of 2007 with the failures of two Bear Steans high-yield mortgage funds, and the closure of a Société Générale money market fund. The panic then caused the failures of Bear Stearns (March 2008), Fannie Mae and Freddie Mac (June 2008) and other institutions before reaching Lehman Bros.

For that matter, the panic continued after Lehman to include AIG, General Electric, the commercial paper market and General Motors before finally subsiding on March 9, 2009. Starting with the HSBC announcement, the subprime mortgage panic and domino effects lasted 24 months from March 2007 to March 2009.

Averaging our two examples (1998, 2008) the average duration of these financial crises is about 20 months. Since this crisis began in March (eight months ago), it could have a long way to run.

In other words, crises can unfold for a long time before they’re finally squashed by massive regulatory intervention.

Get ready for more bank failures.

I’ve written a lot about what I call Biden Bucks. That’s my term for the central bank digital currency (CBDC) the government is currently preparing.

What does the ongoing banking crisis have to do with Biden Bucks? Well, plenty, as it turns out.

Read on to see why…

Bank Runs, Biden Bucks and Money Jail

By Jim Rickards

Whether an account is in CBDC or a regular checking account doesn’t make that much difference. Bank runs today are no different than in the 1930s from a behavioral perspective.

It’s all about lost confidence, fear, not wanting to be the last person out of a burning building, rumors, word of mouth and a host of psychological factors that are part of human nature.

That part hasn’t changed since at least the 14th century with the failure of the Bardi and Peruzzi banks around 1345. What has changed is technology. Marshall McLuhan said in the 1960s that in the global village, everyone knows everything at the same time. He was right. That means when a bank run begins, there’s an immediate reaction.

The difference with the 1930s is that you don’t line up around the corner and wait for the chance to demand cash from the teller. You take out your iPhone, make a few taps and, whether it’s Venmo or a wire transfer, the money is on its way out the door.

Whether you’re a retail depositor with $1,000 or a maven with $8 billion, everyone was online moving money all at once. In that sense, CBDCs don’t matter much. Whether it’s CBDC, Venmo, wire transfer or cash from an ATM, everyone is cashing out at the same time via digital channels. But there is one huge impact of CBDCs that is entirely new and sets them apart from what’s described above…

CBDCs are programmable and controlled by the government.

This means when a run develops, the government can stop the run just by freezing CBDC account transfers. They can even claw back earlier transfers. Since the government controls the CBDC ledger, they can see where the early withdrawals went and simply reinstate them on the account of the failing bank and debit them from the accounts of the transferees. The government can do this with a few keystrokes because they see everything.

This means that once Biden Bucks is implemented, you’re locked into a system controlled by the government. You’re in a money jail.

There’s no point even starting a bank run because the government can track your movements and put the money back where it started. It’s one of many ways that Biden Bucks gives the government total control of your money and can monitor your thoughts and movements.

Cash is likely to be eliminated sooner rather than later in order to pave the way for the dominance of central bank digital currencies. A U.S. dollar CBDC is coming soon. Cash will have to be eliminated to force individuals into the CBDC world. For better or worse, the only way citizens will be able to avoid the mandatory use of CBDCs will be to use gold, silver or cryptocurrencies.

I put comparisons of gold (and silver) and Bitcoin in the same category as comparing fish and bicycles. You can do it, but what’s the point? Gold is money and Bitcoin is a hallucinogen;(or more precisely an acoustic hypnotic spell).

The idea that the U.S. Treasury, Fed and other mainstream monetary institutions are hostile to crypto is absolutely correct. For 10 years they have taken the view that they don’t like it but don’t know what to do about it. Now they know.

The solution is to kill it.

Of course, Bitcoin and other cryptos have their own ecosystem of exchanges, derivatives, custodians, payment channels, tickers, etc., etc. But so what? Cryptos are like chips in a casino.

You can make money or lose money gambling with the chips. But if you walk outside with chips in your pocket, they’re worthless.

You can change tables at the casino but you can’t leave the casino. Chips only have value inside. If you want to spend money outside, you have to visit the cashier first to cash in your chips. The cashier is the portal from the crypto world to the real world of money.

That’s why the FDIC took over Signature Bank on Sunday, March 12, when they shut down Silicon Valley Bank. Signature Bank was no worse off than a lot of other banks. If it had survived until Monday, March 13, it would have been rescued by the Federal Reserve’s Bank Term Funding Program (BTFP) along with the entire U.S. banking system. Why did Signature Bank get whacked under those circumstances?

Signature Bank got whacked because it was offering a portal to the crypto world called Signet. Once the FDIC announced a blanket deposit guarantee and the Fed offered an unlimited ability to swap bonds for cash at par, Signature would have been fine like any other bank.

Yellen used a panicked weekend to wipe out the Signet portal. As Rahm Emanuel said, never let a crisis go to waste. This is one example of how crypto is getting strangled globally. CBDCs are being set up to replace cryptos as a digital currency.

As for gold, you can manipulate the price for short periods of time by dumping gold, painting the tape, acting in concert, etc. But those techniques are not sustainable (unless you want to sell all your gold, in which case you end up with no gold and the market still goes its way).

The London Gold Pool price rigging agreement collapsed in 1968. British Chancellor of the Exchequer Gordon Brown sold almost half of the U.K.’s gold in 1999 at a near 50-year low, a notorious effort at price manipulation known as Brown’s Bottom.

Both are good examples of how manipulation always fails in the end. The government could try a replay of FDR’s gold confiscation from 1933, but it won’t work this time because there’s no trust in the government’s promises.

There are many reasons for this. No one trusts the government today, whereas in 1933 there was a belief that FDR knew what he was doing and was trying to end the Great Depression. COVID is a good example of how people were lied to about vaccines, masks, etc.

The rule today is “Don’t get fooled again.’ No one will surrender their gold except perhaps the people still wearing masks. But they probably don’t have any gold to begin with.

The other reason gold confiscation won’t work is that gold is not fixed in price as it was in 1933. Very few saw the dollar devaluation from $20/oz to $35/oz of gold coming that FDR orchestrated in 1933.

That gold price increase (really a dollar devaluation) wasn’t announced until months after the confiscation. It was the ultimate in insider trading organized by FDR. Informed citizens won’t fall for that a second time.

In a non-pegged market as we have today, the crisis will come first and gold will go to $5,000 or $10,000 per ounce or higher before the government gets around to an attempted confiscation. By that point the damage is done and gold owners have their winnings.

How should everyday Americans evaluate the crisis choice between gold and cryptos as alternatives to the dollar? Ask the following questions:

Can crypto get whacked by governments? Yes. Can gold be manipulated in the long-run? No.

Those questions and answers really answer the bigger question of how to survive the collapse of the dollar.

Gold works. Crypto doesn’t. ‘Nuff said.

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CME Group - >>> 2 Top Financial Services Stocks to Buy in October


Motley Fool

By Courtney Carlsen

Oct 7, 2023


https://www.fool.com/investing/2023/10/07/2-top-financial-services-stocks-to-buy-in-october/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

Financial markets rely on a multitude of companies to grow and evolve.

CME Group is the top derivatives exchange operator and benefits from volatile markets.

FactSet Research's trove of data helps investment professionals and provides recurring subscription revenue.

These finance companies have strong moats and are cash-generating machines.

Financial services companies form the backbone of markets, offering solutions from exchanges where market participants can buy or sell assets to data providers who help investment professionals make sense of troves of data. Companies that provide these crucial services can make solid investments because of their steady cash flows and ability to profit in different market conditions.

CME Group (CME 0.15%) and FactSet Research Systems (FDS 0.43%) are two stocks with excellent businesses. These companies have strong competitive advantages and favorable trends that benefit their business.

Here's why investors should consider buying these two stocks today.

CME Group dominates derivatives and has seen robust demand

CME Group operates a financial exchange that allows investors to buy and sell derivatives, which are financial instruments that get their value from some underlying asset, like stocks or bonds. Derivative contracts include futures, forwards, and options traded on CME Group-owned exchanges, including the Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile Exchange.

CME Group is the world's largest operator of derivatives exchanges and has a strong moat, or competitive advantage, due to its dominant position. The company acts as a clearinghouse for all trades on its exchanges and earns clearing fees in return for guaranteeing these contracts will be honored.

Last year was solid for the exchange operator. Volatility was ever-present in financial markets, driving robust demand for derivative products. In 2022, CME Group's average daily volume was $23 million, boosting clearing and transaction fees, which increased 10%.

Moving forward, CME Group should continue benefiting from volatile bond and stock markets. Interest rates have been especially volatile, with the 10-year Treasury bond reaching its highest yield since 2007. This year, CME Group's revenue has grown 8%. Robust trading activity continued in the third quarter, and its average daily volume of 22.3 million contracts was its second-highest third-quarter volume ever.

CME Group has a strong moat and dominates the global derivatives market. Its earnings can fluctuate based on volume. However, as the top derivatives exchange operator, its business has steady demand. As volatile market conditions persist, participants will continue to look to derivatives to protect themselves from stock and bond volatility, making CME Group a solid buy this October.

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FactSet Research - >>> 2 Top Financial Services Stocks to Buy in October


Motley Fool

By Courtney Carlsen

Oct 7, 2023


https://www.fool.com/investing/2023/10/07/2-top-financial-services-stocks-to-buy-in-october/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

Financial markets rely on a multitude of companies to grow and evolve.

CME Group is the top derivatives exchange operator and benefits from volatile markets.

FactSet Research's trove of data helps investment professionals and provides recurring subscription revenue.

These finance companies have strong moats and are cash-generating machines.

Financial services companies form the backbone of markets, offering solutions from exchanges where market participants can buy or sell assets to data providers who help investment professionals make sense of troves of data. Companies that provide these crucial services can make solid investments because of their steady cash flows and ability to profit in different market conditions.

CME Group (CME 0.15%) and FactSet Research Systems (FDS 0.43%) are two stocks with excellent businesses. These companies have strong competitive advantages and favorable trends that benefit their business.

Here's why investors should consider buying these two stocks today.

FactSet Research Systems' data advantage has it positioned for long-term growth

FactSet Research Systems provides data and analytics to investors, including banks, hedge funds, asset managers, and individuals, to name a few. Its slew of economic and investment data is in high demand, giving it a robust economic moat. The company charges subscription fees for access to its data and software, which are a steady stream of recurring revenue.

Demand for FactSet's data is undeniable. Over the last decade, the company's annual revenue has gone from $870 million to $2.08 billion. Its free cash flow, or the cash flow left over after paying operating expenses and maintaining capital assets, has grown over the past 10 years from $250 million to $585 million.

There have been concerns that customers could cut costs, including data subscriptions. Thus far, that hasn't been the case. Through the first nine months of FactSet's fiscal year (ended May 31), FactSet's revenue of $1.5 billion and net income of $403 million are up 15% and 38%, respectively.

FactSet's data and software are in strong demand and should continue to experience growth in the years ahead. According to a report by Fortune Business Insights, the global financial analytics market is expected to grow by 11% annually through 2030. This should provide a long-term tailwind to FactSet's expansive data business, making this financial services stock another solid addition to your portfolio this October.

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>>> RLI sees up to $75 mln in catastrophe losses from Hawaiian wildfires in Q3


Reuters

August 23, 2023


https://finance.yahoo.com/news/1-rli-sees-75-mln-204740196.html


Aug 23 (Reuters) - Property and casualty insurer RLI Corp said on Wednesday it expects to record pretax net catastrophe losses of between $65 million and $75 million from Hawaiian wildfires in the third quarter of 2023.

Wildfires earlier this month on Hawaii's Maui, killed hundreds of people, forced tens of thousands of residents and tourists to evacuate the island and devastated the historic resort city of Lahaina.

The fires became the deadliest natural disaster in the state's history, surpassing that of a tsunami that killed 61 people on the Big Island of Hawaii in 1960, a year after Hawaii joined the United States.

The catastrophe risk modeling business of Moody's on Tuesday said that it estimates the economic loss from the Hawaiian wildfires to be in the range of $4 billion to $6 billion.

The range, which is net of reinsurance recoverables and includes reinstatement premiums, is based on the impact to about 200 structures where RLI provided primarily homeowners insurance, the company said in a statement.

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>>> Severe Crash Is Coming for US Office Properties, Investors Say


https://finance.yahoo.com/news/severe-crash-coming-us-office-000003441.html


(Bloomberg) -- Office prices in the US are due for a crash, and the commercial real estate market faces at least another nine months of declines, according to Bloomberg’s latest Markets Live Pulse survey.

About two-thirds of the 919 respondents surveyed by Bloomberg believe that the US office market will only rebound after a severe collapse. An even greater majority says that US commercial real estate prices won’t hit bottom until the second half of 2024 or later.

That’s bad news for the $1.5 trillion of commercial real estate debt that according to Morgan Stanley is due before the end of 2025. Refinancing it won’t be easy, particularly the roughly 25% of commercial property that is office buildings. A Green Street index of commercial property prices has already fallen 16% from its peak in March 2022.

Commercial property values are getting hit hard by the Federal Reserve’s aggressive tightening campaign, which lifts a key cost of owning property — the expense of financing. But lenders looking to offload their exposure now are finding few palatable options, because there aren’t many buyers convinced the market is close to a bottom.

“Nobody wants to sell at a huge loss,” said Lea Overby, an analyst at Barclays Plc. “These are properties that don’t need to be sold for long periods of time, and that means holders are likely to delay a sale as long as they can.”

Adding to the trouble is stress among regional banks, which held about 30% of office building debt as of 2022, according to a March report from Goldman Sachs Group Inc. Smaller banks saw their deposits shrink by nearly 2% over the 12 months ended in August, according to the Fed, after Silicon Valley Bank and Signature Bank collapsed. That translates to less funding for the banks, giving them less capacity to lend.

Pain from higher interest rates can take years to filter through to owners of the US commercial real estate, which Morgan Stanley values at $11 trillion in total. Investors in office buildings, for example, often have long-term fixed-rate financing in place, and their tenants can be subject to long-term leases as well.

It will take until 2027 for leases that are in place today to roll over to lower revenue expectations, according to research by Moody’s Investors Service published in March. If current trends hold, then revenues by then will be 10% lower than today.

“It tends to be a slow reckoning for US real estate when rates change,” Barclays’s Overby said. “And the office sector is deeply distressed, which will take a long time to work out.”

Even if there is a serious and prolonged downturn in US commercial real estate, including major loan losses from a cratering office sector, Overby isn’t worried it will threaten overall market stability. The property sector is large, but the debt is spread across a wide enough array of investors to absorb losses, she said.

Besides high interest rates, offices are struggling with tenants cutting back or moving out, with the trend especially strong in the US, where office workers are more reluctant to badge in than in Europe or Asia. Some of the resistance to the return to offices could be attributed to commuting pains. More than 40% of MLIV Pulse respondents said they would be enticed to come to the office more often if they had better public transit options available. Faster, more frequent or cheaper public transit options may be of particular appeal to Americans and Canadians. Among 649 respondents from that region, about half said they currently use a car to get to the office.

About 20% of respondents said that they moved farther away from their office during the pandemic and only 3% regretted their escape. Nearly a third said their commutes got longer than before Covid, probably either because they moved, or because of pandemic-era transit service cuts.

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>>> CBIZ ACQUIRES AMERICAN PENSION ADVISORS

PR Newswire

July 5, 2023


https://finance.yahoo.com/news/cbiz-acquires-american-pension-advisors-200100069.html


CLEVELAND, July 5, 2023 /PRNewswire/ -- CBIZ, Inc. (NYSE: CBZ) ("the Company"), a leading provider of financial, insurance and advisory services, announced today that it has acquired American Pension Advisors, Ltd. ("APA") of Indianapolis, IN, effective July 1, 2023.

Founded in 1997, APA provides full-service retirement plan consulting and administration assisting more than 1,200 clients in the design, implementation, and administration of all types of retirement plans including 401(k), 403(b), 457(b), defined benefit and cash balance. APA has 14 employees and approximately $2.9 million in revenue.

Jerry Grisko, President and CEO of CBIZ, said, "The acquisition of American Pension Advisors brings valuable talent, expertise, and capacity to bolster our growing Retirement Investment Services business. At the same time, this acquisition also strengthens our presence and visibility in the Indianapolis metro market and complements another acquisition in the same market we completed earlier this year. Working together, we will be able to offer our collective clients a broader array of services. I am pleased to welcome the APA team to CBIZ."

David Behrmann, of APA, stated, "We are so excited to join forces with a nationally recognized company like CBIZ. We look forward to offering the additional services and expertise of CBIZ to help our clients grow and succeed. I'm pleased that our team members will now have access to additional technical support, resources and tools that will make them more successful and better serve our clients."

About CBIZ

CBIZ, Inc. is a leading provider of financial, insurance, and advisory services to businesses throughout the United States. Financial services include accounting, tax, government health care consulting, transaction advisory, risk advisory, and valuation services. Insurance services include employee benefits consulting, retirement plan consulting, property and casualty insurance, payroll, and human capital consulting. With more than 120 Company offices in 33 states, CBIZ is one of the largest accounting and insurance brokerage providers in the U.S. For more information, visit www.cbiz.com.

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Marsh & McClennan - >>> Warren Buffett Just Sold the Rest of His Stake in This Dividend Stock. Should You Follow His Lead?


Motley Fool

By Courtney Carlsen

Sep 1, 2023


https://www.fool.com/investing/2023/09/01/warren-buffett-just-sold-the-rest-of-his-stake-in/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


KEY POINTS

Berkshire Hathaway's most recent 13-F form showed the company closed its position in insurance broker Marsh & McLennan.

Berkshire first bought shares of the company in Q4 2020.

Marsh & McLennan stock rose 60% during the period that Berkshire Hathaway held it.

This stock was one of three that Berkshire Hathaway completely liquidated in the second quarter.

Warren Buffett has proven to be one of the best investors ever. Since taking over as chief executive officer of Berkshire Hathaway in 1965, Buffett has delivered returns of 20% compounded annually. Put differently, if you had invested $1,000 in the company when Buffett took over, that investment would be worth $3,787,564 at the end of last year!

This track record of long-term success is why investors eagerly await Berkshire Hathaway's quarterly form 13-F. The Securities and Exchange Commission requires institutional investors to file a form 13-F, which discloses their quarterly securities trading activity.

Berkshire Hathaway completely closed out of three of its holdings in the second quarter, and one stock in that group was Marsh & McLennan (MMC -1.60%). Berkshire first bought the insurance broker in the fourth quarter of 2020. Here we'll explore why Buffett sold and whether investors should follow his lead.

Marsh & McLennan's insurance brokerage business has performed quite well

Marsh & McLennan's former CEO Dan Glaser perfectly summed up the business last year when he said, "When the world is unsettled, demand for our services rises." Marsh & McLennan advises companies on managing risks and connects them with insurers to help mitigate them. It also advises companies on corporate strategy, investments, and workplace issues.

Marsh & McLennan's insurance brokerage business is its bread and butter, and has been a key source of growth for the company. Although insurance may seem boring, insurance products will always be in demand, and these businesses can grow well during economic expansions and inflationary periods. In fact, this demand, which brings steady cash flows, is a big reason Buffett loves owning insurance businesses.

The past few years have been great for Marsh & McLennan's brokerage business, which earns commissions when it refers customers to an insurer. According to its Marsh Global Market Index, global insurance prices have risen for 23 consecutive quarters. As insurance prices rise, so do Marsh's earnings. So far this year the company's risk and insurance services revenue has increased 11% from the same period last year, and was the key to the company's 8% total revenue growth.

It was an excellent holding for Berkshire Hathaway

Berkshire Hathaway first acquired shares of Marsh & McLennan in the fourth quarter of 2020 and began trimming its position throughout 2021, but continued to hold a portion of it until the most recent quarter. From the end of 2020 to the end of this year's second quarter, Marsh & McLennan's stock rose 60% and proved to be another solid Buffett investment.

Marsh & McLennan was an excellent performer for Berkshire Hathaway, so I was a little surprised to see Buffett and his team completely close out the position. While Berkshire tends to hold its largest positions for a long time, it's not unusual for Buffett to open and close its smaller holdings more frequently.

Marsh & McLennan trades at a high valuation

While I can't say for sure why Berkshire sold Marsh & McLennan, one possible explanation is its valuation. Marsh & McLennan has become slightly more expensive since Buffett's first purchase. At the end of 2020, the company traded at about 3.5 times sales. Today it's valued at more than 4.5 times sales, its highest valuation during the past decade.

Perhaps Buffett doesn't believe the insurance brokerage business will continue to perform as strongly as it has. Maybe Buffett and his team anticipate a slowing economy ahead, and they believe Marsh's lofty valuation isn't justifiable in that type of environment.

Should you follow Buffett's lead?

Berkshire made a nice profit on its Marsh & McLennan holdings. While we can't know exactly why Buffett and his team sold their position, it's not due to anything wrong with the business, which is still humming. The sale did free up more money for Berkshire, which is currently sitting on $147 billion in cash and short-term securities.

As far as Marsh & McLennan goes, the company has posted steady growth for years, currently has a 1.4% dividend yield, and has raised its payout for 14 years. So while Berkshire trimmed its stake in the company, Marsh & McLennan remains a solid stock to hold in the long term.

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>>> Bank results flash warning signs for Wall Street


Yahoo Finance

by David Hollerith

July 15, 2023


https://finance.yahoo.com/news/bank-results-flash-warning-signs-for-wall-street-114703541.html


Citigroup (C) CEO Jane Fraser did not mince words on Friday when discussing how the Wall Street side of her bank performed during the second quarter of 2023.

"The long-awaited rebound in investment banking has yet to materialize," she said in a release, "making for a disappointing quarter."

The early results are in from some of the country’s biggest banks, and they are flashing warning signs of a rough week ahead for Wall Street.

Morgan Stanley (MS) and Goldman Sachs (GS), two of the world’s biggest dealmakers, are due to report Tuesday and Wednesday. Bank of America (BAC), which has a big Wall Street operation, also reports Tuesday. All are expected to show drops in investment banking and trading from the first quarter.

What Friday’s results showed is that big banks like JPMorgan (JPM) and Wells Fargo (WFC) that have sprawling consumer franchises are performing well because they are able to charge more for their loans and benefit from a surge in credit-card borrowing by Americans who still have extra money.

"The consumer is in good shape," JPMorgan CEO Jamie Dimon told analysts. “They are spending down their excess cash.”

But Friday also revealed that corporate clients are not providing as much of a lift, which is hurting the banks that rely more heavily on them.

CEOs remain cautious about everything from the direction of interest rates to relations with China to the larger US economy, dampening the optimism needed to buy other companies, go public or take on more debt.

"Corporates are pretty cautious," Fraser told analysts Friday, citing the prospect of another Federal Reserve interest rate hike, tensions with China and concerns about limited economic growth.

"I think clients have been trying to understand and get their arms around both the macro and the market outlook for a while. I think they now seem to accept the current environment is the new normal and are beginning to position themselves globally."

This caution was most evident in the performance of Citigroup’s corporate and investment banking unit, which helped push overall profits at the bank down 36%. Investment banking revenue fell by 24% in the second quarter, to $612 million.

It wasn’t just Citigroup, though. Even JPMorgan, which churned out massive profits in its consumer business, saw investment banking fees fall by 6% from a year ago, to $1.5 billion.

Trading, which was stronger earlier in the year, also turned weaker. Citigroup’s revenue from that business fell 13%. JPMorgan’s revenue associated with trading equities and fixed income also dropped.

“Most of the investors stayed on the sidelines” during the second quarter, Fraser said.

Solomon under scrutiny

These results do not bode well for Goldman or Morgan Stanley, which rely heavily on deal making and trading for their revenue.

Goldman is expected to show an investment banking revenue decline of 32% from a year ago and a trading decline of 17%, according to analyst estimates.

That could intensify the scrutiny of CEO David Solomon, who is wrestling with partner unrest and concerns about strategy as he tries to put a consumer-banking experiment behind the company.

Goldman is "indicating that the second quarter might be ‘throw the kitchen sink in’ with larger write offs of some of these non-core businesses," Ken Leon, CFRA research director of equity research, told Yahoo Finance Friday.

Thus there will be a focus on Solomon and "whether he can show the strategy they have is going to work," Leon said. "It is going to be a tough issue" for the CEO.

Morgan Stanley is also expected by analysts to show a decline in some of its core businesses, with a 4% drop in investment banking and a 19% decline in trading.

'We will see'

The global slowdown in dealmaking began last year, following a boom in 2021, causing firms across Wall Street to slash bonuses and staff. Worldwide investment banking revenues for the second quarter fell 52% from a year ago, according to Dealogic.

Citigroup, Morgan Stanley, Goldman and other firms with big investment banking and trading units have made or announced cuts of roughly 12,000 jobs since the end of 2022.

Some observers are still predicting “green shoots” ahead, citing an improvement during the latter half of the second quarter.

JPMorgan Chief Financial Officer Jeremy Barnum said investment banking was better than expected in June, but cautioned analysts on Friday that it was “too early” to label it a trend.

“We will see,” he said. For overall capital markets "July should be a good indicator for the remainder of the year."

Smaller banks in the weeks ahead could also show new challenges posed by the behavior of corporate clients.

That's what happened Friday to State Street (STT), which serves a lot of institutional clients and was the nation's 12th largest bank as of March 31. It disclosed Friday that its net interest income, which measures the difference between what it earns from loans and pays out in deposits, fell 10% when compared to the first quarter.

That's largely because of rising deposit rates and a rotation by State Street customers out of non-interest bearing deposits as they seek higher yields. The bank now expects net interest income to drop 12% to 18% in the coming quarter.

Its stock dropped 12% Friday.

"What we found is that our larger clients, and we primarily have large, sophisticated clients, are quite active in thinking about their alternatives,” said Eric Aboaf, State Street CFO. “That has been accelerated by the swiftness of this cycle and the place that we've come to and the speed.”

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>>> Why a $1.5 trillion source of corporate financing is choking on higher interest rates


Reuters

by Naomi Rovnick and Chiara Elisei

July 5, 2023


https://finance.yahoo.com/news/why-1-5-trillion-source-051309710.html


LONDON (Reuters) — A financial stream that helped fund the world's riskiest companies and grew into a market estimated at $1.5 trillion in the low interest rate years is drying up, as aggressive rate hikes bring tougher borrowing conditions and uncertainty.

The pace of issuance of so-called collateralised loan obligations (CLOs), which bundle loans of the weakest corporates and repackage them as bonds, has stalled.

Specialist asset managers minted CLOs worth more than half a trillion dollars in 2021, a year of heavy post-pandemic monetary stimulus. Almost $69 billion worth were launched or refinanced during the first half of this year, down 41% on the same period in 2022, JP Morgan data shows.

These vehicles, popular with hedge funds, insurers and asset managers when borrowing costs are low and investors hunt for yield, account for up to 60% of demand for the junk loans rated single B or below, according to S&P Global Ratings.

But the market has sputtered just as companies whose debt is considered a speculative investment face a mountain of refinancing needs in coming years.

The sharpest rise in global interest rates in decades, an anticipated global recession and fewer new CLOs to support junk rated borrowers potentially create a toxic cocktail of corporate distress.

"There haven't been large credit losses yet, but the expectation is that bankruptcy rates [for corporate loans] will go up," said Rob Shrekgast, a director at KopenTech, an electronic trading and analytics platform for CLOs.

STORM CLOUDS

CLOs have grown into a market worth about $1.5 trillion, KopenTech said.

Looking ahead, demand for the bonds issued by these vehicles will "decline meaningfully," Bank of America (BofA) credit strategist Neha Khoda noted, with potential for higher default rates.

While low now, debt defaults are rising. A restructuring at French retailer Casino (CO.PA) and the bankruptcy of U.S. retailer Bed Bath & Beyond expose cracks in business models that were previously insulated by abundant money supply and low rates, analysts said.

S&P Global estimates that more than one in 25 U.S. businesses and almost one in 25 European companies will default by March 2024.

It's going to be a slow burn of rising distress, said Marta Stojanova, leveraged finance director at S&P, of junk-rated borrowers.

A "downside risk," she said, would be "the lack of funding at an affordable level," for weak cashflow borrowers whose existing loans are due for refinancing.

Weak cashflow companies, whose debt is considered junk, are already paying the highest average interest rate on floating rate debts in 13 years, S&P added.

U.S. companies with speculative credit ratings, who dominate global CLO loan pools, need to refinance around $354 billion of debts by end-2024, then a further $813 billion in 2025 to 2026, S&P estimates.

OBSTACLES

The CLO market has slowed because investors want higher payouts as compensation for the risk of lending to weaker borrowers.

"You've got more risk now and you want to be compensated for that risk," said Aza Teeuwen, portfolio manager at fixed income specialist asset manager TwentyFour.

When forming CLOs, the managers of these vehicles use the loans as backing for bonds with varying prices and different degrees of safety. Investors in the tranches considered safest get the lowest returns, while those in the riskiest equity portion receive excess cashflows after other investors are paid out.

Now, fund managers who buy the highest rated tranches are demanding higher yields. That has squeezed equity returns, and without equity investors, CLOs cannot be put together.

S&P calculates that while CLO equity investors were able to get a 15% annual return before 2022, deals priced now would offer about 7%.

"You can no longer put together a (new) portfolio," said Laila Kollmorgen, a managing director and CLO specialist at PineBridge Investments.

Kollmorgen said she was still finding good opportunities in highly rated CLO tranches sold in the secondary market.

"We know there will be (loan) defaults at some stage," said Teeuwen. "The (CLO) equity doesn't make enough money to justify buying it."

CLOs have a reinvestment period of up to five years, after which they cannot buy new loans. According to BoFA, 38% of CLOs in existence will reach that expiry date by end-2023.

That's another source of shrinking demand for junk debt, and a factor BofA's Khoda defines as "a red-flag for issuers with near-term maturities."

PineBridge's Kollmorgen sees uncertain times for high-risk borrowers ahead.

"Increases in interest rates will have an impact on companies and their balance sheets, its just simply a question of when this actually comes through."

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>>> US Senator Warren questions Goldman's role in SVB failure


Reuters

June 30, 2023


https://finance.yahoo.com/news/us-senator-warren-questions-goldmans-182332235.html


(Reuters) - U.S. Senator Elizabeth Warren has questioned Goldman Sachs' role in the failure of Silicon Valley Bank (SVB) and the profits it allegedly made in the process.

"Goldman Sachs, serving as both the buyer of SVB-held bonds and the architect of failed efforts to raise capital for the bank, raked in profits and fees even as SVB was seized by the Federal Deposit Insurance Corporation (FDIC)," Warren said in a June 29 letter to the Wall Street bank.

The letter said Goldman Sachs benefited further as market turmoil following SVB's failure increased the value of the discounted bond portfolio by an estimated $100 million.

Goldman acquired a bond portfolio on which SVB booked a $1.8 billion loss, a transaction that preceded a failed share sale by the lender for which the Wall Street bank was an underwriter.

"We're reviewing the letter. But it's well known that banks don't collect fees when capital raises are canceled," said Tony Fratto, a spokesman for Goldman Sachs.

He reiterated that Goldman expects proceeds from the SVB portfolio sale to be closer to $50 million, and not $100 million.

SVB Financial Group on March 17 filed for a court-supervised reorganization under Chapter 11 bankruptcy protection to seek buyers for its assets, days after its former unit, Silicon Valley Bank, was taken over by U.S. regulators.

Goldman in May disclosed that it was among the underwriters named as defendants in a securities class action lawsuit related to several SVB Financial Group share offerings in 2021 and 2022.

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>>> EU proposes payments sector shake-up to boost fintechs


Reuters

by By Huw Jones

June 28, 2023


https://www.msn.com/en-us/money/companies/eu-proposes-payments-sector-shake-up-to-boost-fintechs/ar-AA1d9K9h?OCID=ansmsnnews11


LONDON (Reuters) -The European Union on Wednesday proposed making the payments sector more competitive, giving legal backing to a digital euro, and preserving the role of cash as fewer people use coins and notes.

The package of European Commission reforms seeks to further prise open a payments market long dominated by banks and U.S. duo Visa and Mastercard, which are now being challenged by fintechs that offer rival services using data from customers' bank accounts.

"In practice, this proposal will lead to more innovative financial products and services for users and it will stimulate competition," the Commission said in a statement.

EU states and the European Parliament have the final say on the package, with some changes likely.

The reforms aim to make it harder for banks to stop fintechs from opening an account with them, and give fintechs easier access to customer data and to payments infrastructure.

"We are going to clearly identify the obstacles that the fintechs should never have been encountering," an EU official said.

Electronic payments in the EU have grown from 184.2 trillion euros ($201.7 trillion) in 2017 to 240 trillion euros in 2021, a process accelerated by COVID-19.

Protections on data would be strengthened to encourage consumers to use rival services, with redress for unauthorised transactions such as "spoofing" or fraudsters pretending to be a customer's bank.

To reinforce the sector's collective capacity to tackle scams, the legal basis for banks and other payment firms to share information without breaking data protection rules is also being made clearer, the EU official said.

Fintech company Klarna said traditional banks have undermined existing payments rules to lock customers into poor quality services, and that a proposal to allow banks to charge fintechs for accessing data raised concerns.

The proposal says fees for fintechs to access banking data should be "reasonable".

"There are steps in the right direction when it comes to ensuring fair competition between market participants with a fair distribution of value and risk," the European Banking Federation, a banking industry body, said.

The European Central Bank is due in October to decide whether to push ahead with a digital euro. The separate rules also proposed on Wednesday would make it legal tender, meaning it would have to be accepted as a form of payment.

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Biggest U.S. Companies by Number of Employees

https://stockanalysis.com/list/most-employees/

>>> Weiss Ratings Warns: 4,243 US Banks and Credit Unions Vulnerable to Failure


Weiss Ratings

15 May, 2023


https://www.prnewswire.com/news-releases/weiss-ratings-warns-4-243-us-banks-and-credit-unions-vulnerable-to-failure-301823979.html


PALM BEACH GARDENS, Fla., May 15, 2023 /PRNewswire/ -- Weiss Ratings, the nation's only independent ratings agency that regularly evaluates the relative safety of U.S. banks and credit unions, has warned that 4,243 could be vulnerable to failure.

Among them, 1,210 institutions (or 12.8%) got a red warning flag, signaling risk of imminent failure, while 3,043 received a yellow warning flag, indicating risk of failure in a financial crisis or recession. In sum, 45% of all banks and credit unions were deemed vulnerable.

"Since 2008, among the 539 banks that have failed, Weiss Ratings has provided advance warning on 535, or 99.3%."

Dallas Brown, Weiss Ratings CCO, says, "The underlying financial weaknesses in the U.S. banking industry are widespread, and the FDIC's newly expanded guarantee of all deposits does nothing to protect shareholders in bank holding companies, who could still lose most or all of their money. Moreover, if the U.S. Treasury cannot even pay its own bills, it could be hard-pressed to cover the expanded liabilities of the FDIC."

To check the current Weiss rating of their bank or credit union, depositors and investors can go to https://weissratings.com/en/banking.

About Weiss Ratings: The U.S. Government Accountability Office (GAO) reported that the Weiss safety ratings of U.S. life and health insurers outperformed those of A.M. Best by three to one in warning of future financial difficulties, while also greatly outperforming those of Moody's and Standard & Poor's. The New York Times reported that Weiss "was the first to warn of the dangers, and say so unambiguously." Barron's called Weiss Ratings "The leader in identifying vulnerable companies."

In total, Weiss covers 53,000 institutions and investments, including safety ratings on banks, credit unions, and insurers, as well as investment ratings on stocks, ETFs, mutual funds and cryptocurrencies. Since its founding in 1971, Weiss Ratings has never accepted any form of payment from rated entities for its research or ratings. All Weiss ratings are available at https://weissratings.com/.

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>>> Bundesbank denies it may need recapitalisation on bond-buying losses


Reuters

June 26, 2023


https://www.reuters.com/markets/europe/bundesbank-may-need-recapitalisation-cover-bond-buying-losses-ft-2023-06-26/


FRANKFURT, June 26 (Reuters) - Germany's Bundesbank denied on Monday a report that it might need a bailout to cover losses arising from the European Central Bank's bond-buying scheme.

Earlier, the Financial Times had cited a report by Germany's federal audit office as saying possible Bundesbank losses were substantial and could required recapitalisation of the bank with budgetary funds.

The Bundesbank said its balance sheet would probably be considerably burdened in the future by the rapid and strong rise in interest rates in connection with large bond holdings.

In 2023, the financial buffers would probably still be sufficient, it said. After that, the burdens could temporarily exceed the buffers.

However, it said that would not necessarily cause a need for recapitalisation by the federal government. Instead, the Bundesbank would report losses carried forward, which it could offset with future profits.

Even in the case of a loss carry-forward, the Bundesbank's balance sheet would be sound, it said, adding it had considerable own funds, including valuation reserves.

Last year the Bundesbank recorded its first loss in more than four decades as a string of ECB rate hikes cut the value of its bond holdings and generated a loss on ultra cheap loans to commercial banks.

It said at the time that further losses were likely as interest rates keep rising, reducing the value of bonds accumulated during the years when inflation was very low.

The German federal audit office declined to comment on the FT report.

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>>> Goldman Sachs Plans To Lay Off 125 Managing Directors Worldwide: Report


Benzinga

by Akanksha Bakshi

June 26, 2023


https://finance.yahoo.com/news/goldman-sachs-plans-lay-off-153340300.html


Goldman Sachs Group Inc (NYSE: GS) reportedly has begun laying off managing directors globally.

Goldman has started cutting managing directors across the globe as the firm reduces its headcount amid deals slump, reported Bloomberg, citing people familiar with the matter.

Around 125 MDs, including some in investment banking, will lose their jobs, stated the source.

Investment banks have been reducing the headcount, as the slump in deals led to declines in fees and revenues at all major institutions.

The cutbacks are part of a major cost-cutting campaign to reduce costs by $1 billion. In less than a year, Goldman has seen at least three rounds of layoffs.

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>>> Commercial real estate poses risks to US banks - and lenders should brace for higher interest rates, JPMorgan CEO Jamie Dimon warns


Business Insider

by Zahra Tayeb

May 23, 2023


https://finance.yahoo.com/news/commercial-real-estate-poses-risks-185708735.html


JPMorgan CEO Jamie Dimon warned commercial-real estate loans could cause problems for US banks.

"There's always an off-sides," he said. "The off-sides in this case will probably be real estate."

The bank's chief also said US lenders should be prepared for benchmark interest rates to climb as high as 7%.

The US banking sector is still recovering from the worst turmoil since the 2008 financial crisis, but its troubles may be far from over.


JPMorgan & Chase CEO Jamie Dimon has warned that the next jolt to the American banking system could come from commercial real-estate (CRE) loans.

Stress has been mounting for months in the commercial property industry, which is being buffeted by headwinds including high interest rates, tighter credit conditions, and work-from-home trends causing office vacancies. That's fueling concerns about potential loan defaults by the more vulnerable borrowers in the sector.

"There's always an off-sides," Dimon said during the bank's investor conference on Monday, per CNBC. "The off-sides in this case will probably be real estate. It'll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won't be every bank," he added.

Additionally, banks - especially smaller ones - should also brace for the risk of benchmark interest rates rising even higher, possibly up to 6% or 7%, according to Dimon. The Federal Reserve has boosted its policy rate to more than 5% currently, from near-zero levels in the first quarter of 2022.

"I think everyone should be prepared for rates going higher from here," Dimon said, according to CNBC.

Small and mid-sized US regional lenders are highly exposed to the CRE industry - financing around 70% of all debt in the sector - and that's made investors anxious about the overall health of the US financial system given the risk of CRE loan defaults.

Dimon said the banking industry is already building capital for potential losses by squeezing its lending activity.

"You're already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan," he said.

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>>> The Patent That Helped Vanguard Clients Pocket Big Gains Expires


Bloomberg

by Emily Graffeo

May 16, 2023


https://finance.yahoo.com/news/patent-helped-vanguard-clients-pocket-181111744.html


(Bloomberg) — The patent that’s given Vanguard Group an edge over competitors for the past 20 years — and helped its clients pull in more than $100 billion worth of additional investment gains — expired today.

Rival fund managers are now free to replicate a unique but controversial fund structure created by the Jack Bogle-founded firm in 2001 that allows mutual funds to act like exchange-traded funds by generating returns for investors while minimizing taxes.

It’s unclear if the expiration marks a minor footnote in history or a pivotal moment for fund managers looking for a fresh edge in an increasingly cutthroat market. The answer in large part is riding on the US Securities and Exchange Commission and the stance it takes. Just because it allowed Vanguard to start using the tactic two decades ago doesn’t mean it will allow others to do the same now.

“The SEC is the clear lynchpin here,” said Nate Geraci, president of The ETF Store, an advisory firm. “If they green-light this structure, I expect a number of traditional mutual fund companies to seriously explore using it.”

The regulator needs to grant companies exemptive relief from current rules that would let them use the fund structure that effectively gives a mutual fund access to the famous tax efficiency of ETFs.

“The SEC has no obligation to grant the requested relief,” said Jeremy Senderowicz, a shareholder at law firm Vedder Price. “Because there are no formal requirements for the SEC to even respond in a given time to applications for exemptive relief, there is no guarantee that there will be feedback from the SEC in any specific timeframe.”

So far, only one other company, PGIA, the US-arm of Australian asset manager Perpetual Ltd., has asked the SEC to add ETFs to the share classes of its actively-managed mutual funds. That’s slightly different from Vanguard, which has only ever used the structure in index-following funds.

“It’s been constructive,” said Robert Kenyon, the chief operating officer of PGIA, adding that the SEC has asked for additional days to review the filing. He expects to hear a response from the regulator in August.

The SEC declined to comment.

To be sure, prior to today, the ETF-within-a-mutual-fund structure was available to issuers that agreed to a licensing arrangement with Vanguard, alongside gaining exemptive relief from the SEC. But no other fund managers have been successful. VanEck filed for exemptive relief to offer index ETF share classes through 2012 and 2015, but it was never granted.

Given the explosive growth of the ETF industry, it’s unclear how much demand there would ultimately be for the new structure. In 2022, the gap between money flowing out of mutual funds and inflows into ETFs grew to a record $1.5 trillion, according to data compiled by Bloomberg.

Most major fund issuers now offer ETFs, which are popular with investors because they’re easy to access and tend to be cheaper to trade. And in a recent trend, billions of dollars of mutual fund assets have been converted into ETFs.

Still, Douglas Yones, head of exchange-traded products at the New York Stock Exchange, said that several other asset managers are planning to file with the SEC for permission to create exchange-traded funds as a share class of mutual funds.

“In some cases we’re doing exploratory conversations with asset managers to just talk through what a multi-share class ETF would look like,” said Yones, who helps managers with complex or novel filings that require SEC approval.

In recent years, US regulators introduced sweeping rule changes to make launching ETFs easier, and the SEC deliberately retained the need for issuers to apply for an exemption if they wanted to pursue ETFs in a multiple share class structure.

“If the SEC doesn’t allow this structure for additional asset management firms, there will be real questions raised as to whether the SEC is perpetuating an unlevel playing field by only allowing the already dominant Vanguard sole use of this expired patent,” said Geraci.

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>>> Commercial Real Estate Prices in the US Fall for First Time Since 2011


Bloomberg

by Rich Miller

May 17, 2023


https://finance.yahoo.com/news/commercial-real-estate-prices-us-210410652.html


(Bloomberg) -- US commercial real estate prices fell in the first quarter for the first time in more than a decade, according to Moody’s Analytics, heightening the risk of more financial stress in the banking industry.

The less than 1% decline was led by drops in multifamily residences and office buildings, data culled by Moody’s from courthouse records of transactions showed.

“Lots more price declines are coming,” Mark Zandi, Moody’s Analytics chief economist, said.

The danger is that will compound the difficulties confronting many banks at a time when they are fighting to retain deposits in the face of a steep rise in interest rates over the past year.

Excluding farms and residential properties, banks accounted for more than 60% of the $3.6 trillion in commercial real estate loans outstanding in the fourth quarter of 2022, with smaller institutions particularly exposed, according to the Federal Reserve’s semi-annual Financial Stability Report published last week.

“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses” at banks, the report said.

Fed Vice Chair for Supervision Michael Barr told lawmakers on Tuesday that supervisors have increased their oversight of financial institutions with significant exposure to the sector. “We’re looking quite carefully at commercial real estate risks,” he said.

The price declines seen so far have been more marked for higher-priced properties, according to commercial property company CoStar Group. Its value-weighted price index has fallen for eight straight months and in March stood 5.2% lower than a year ago.

Transactions though have been limited in a market still coping with the aftershocks of the pandemic.

The rise in employees working from home has driven some downtown retailers and restaurants out of business and forced owners of office buildings to reduce rents to retain tenants or to sell all together.

What Bloomberg Economics Says

“Regional and community banks currently account for a disproportionately large share of office real estate lending. Further consolidation of the banking industry may prove to be the solution that allows the banking industry at-large to work out problem loans.”

- Stuart Paul (economist)

Post Brothers recently bought a Washington office building that went for $92.5 million in the fall of 2019 for $67 million, while Clarion Partners is offering a San Francisco office tower for roughly half of what it paid around a decade ago.

Banks held more than $700 billion in loans on office buildings and downtown retailers in the fourth quarter of last year, according to the Fed. More than $500 billion of that was extended by smaller lenders.

Lending officers at banks told the Fed that they further tightened credit standards on commercial real estate loans in the first quarter.

Paul Ashworth, chief North America economist for Capital Economics, sees the risk of a “doom loop” developing, with a pull-back in lending by banks leading to a steeper drop in commercial real estate prices, in turn prompting even further cuts in credit.

One potential bright spot: The big run-up in prices in past years has left many borrowers with substantial equity cushions in the properties they own. That reduces the dangers of defaults and limits the potential losses for lenders.

The loan-to-value ratio of mortgages backed by office buildings and downtown retail properties was in the range of 50% to 60% on average at the end of last year for credit extended by bigger banks, based on data collected by the Fed.

“Delinquencies and defaults will rise, but I don’t think we’ll see a lot of forced sales,” Zandi said.

He forecasts prices dropping about 10%, assuming the US skirts a recession. If it doesn’t, the declines could get a lot worse.

“We’re on a razor’s edge here,” he said.

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>>> Marsh & McLennan provides insurance brokerage and consulting services to corporations and governments worldwide. The company's revenue is split, with 60% coming from risk and insurance services and 40% from consulting.


https://www.fool.com/investing/2023/04/29/got-1500-you-can-confidently-add-these-3-stocks-to/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Marsh & McLennan's business is robust because it thrives on risk in the economy and markets. In the past few years, companies have seen supply chain disruptions, inventory buildups, labor shortages, cyber attacks, and a shift toward greener energy. Marsh & McLennan's job is to help companies navigate these disruptions while protecting them from the risks they pose.

In the first quarter, the company posted revenue of $5.9 billion, up nearly 7% from the year before. Consulting saw 1% growth. If the economy does slow, this segment could see revenue decline as companies cut costs. However, its insurance business grew 10% in the quarter and should continue providing stability and cash flow in any recession.

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>>> Progressive is a cash-generating machine


https://www.fool.com/investing/2023/04/29/got-1500-you-can-confidently-add-these-3-stocks-to/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


Insurance stocks can be solid investments because they have steady demand and can consistently generate cash flow. Don't just take my word for it. Berkshire Hathaway Chief Executive Officer Warren Buffett has said his company's insurance investments are a key component of its long-term success. Progressive is one of the best insurers, consistently churning profits and cash flow for its investors while delivering excellent stock returns.

What makes the business solid is its resilience in different economic conditions. The company has navigated the inflationary environment quite well, raising its premiums and achieving industry-beating profitability once again.

Its net written premiums grew 22% in the first quarter to $16.1 billion. While it saw an uptick in loss expenses in the quarter, the effect will likely be temporary -- presenting investors with an excellent opportunity to buy the dip on this solid insurer.

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>>> Why Shares of W. R. Berkley Corporation Are Falling Today


Motley Fool

By Bram Berkowitz

Apr 21, 2023


KEY POINTS

Earnings missed estimates, while revenue beat.

W.R. Berkley saw its combined ratio in the quarter rise.


https://www.fool.com/investing/2023/04/21/why-shares-of-w-r-berkley-corporation-are-falling/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article


The company reported earnings results for the first quarter of 2023.

What happened

Shares of commercial property and casualty insurer W.R. Berkley Corporation (WRB) traded nearly 10% lower as of 12:51 p.m. ET today after the company reported earnings results for the first quarter of 2023.

So what

W.R. Berkley reported diluted earnings per share of $1.06 on total revenue of close to $2.9 billion in the first quarter. Earnings missed estimates, while revenue beat.

The company wrote net premiums of $2.57 billion, which is up about 6.7% year over year. The company's combined ratio, which looks at an insurance firm's incurred expenses and losses divided by earned premiums, was 90.6%. That's up from 87.8% in the first quarter of 2022, implying that the insurer has seen more losses.

"The company is off to a strong start with the first quarter of 2023 despite the significant catastrophe losses facing the industry. Our scale, specialization and disciplined management approach positioned us well to report an annualized return on equity of 17.4%," W.R. Berkley's EVP and CFO, Richard Baio, said on the company's earnings call.

Now what

I think investors might be concerned about the rising combined ratio and the uncertain environment for commercial properties, with losses expected to rise across the industry.

But the company still generated a 17.4% return on equity, and a combined ratio of 90.6% isn't necessarily bad by any means. Excluding catastrophes, the ratio would have been 87.7%. Given management and the company's track record, I am not overly concerned here.

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>>> S&P Global Inc. (NYSE:SPGI) - Number of Hedge Fund Holders: 97


https://finance.yahoo.com/news/15-best-financial-stocks-buy-125633619.html


Shares of S&P Global Inc. (NYSE:SPGI) have appreciated by 16.97% over the past 6 months, as of April 14, and the stock is offering a forward dividend yield of 1.03%. S&P Global Inc. (NYSE:SPGI) is placed seventh among the best financial stocks to buy now.

On February 10, Baird analyst Jeffrey Meuler raised his price target on S&P Global Inc. (NYSE:SPGI) to $401 from $393 and maintained an Outperform rating on the shares.

At the end of the fourth quarter of 2022, 97 hedge funds were long S&P Global Inc. (NYSE:SPGI) and disclosed stakes worth $7.8 billion in the company. Of those, TCI Fund Management was the leading shareholder in the company and held a position worth $3 billion.

Baron Funds made the following comment about S&P Global Inc. (NYSE:SPGI) in its Q4 2022 investor letter:

“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) increased 10.1% during the quarter as investors looked past weak debt issuance activity and anticipated a potential issuance rebound in 2023. Equity markets rose during the quarter, offering some reprieve to asset-based revenue headwinds. The company also hosted an Investor Day during which management provided medium-term financial guidance of 7% to 9% annual revenue growth and low to mid-teens annual EPS growth. We continue to own the stock due to the company’s durable growth characteristics that are underpinned by the secular trends of increasing bond issuance, growth in passive investing, and demand for data and analytics, while also benefiting from significant competitive advantages.”

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>>> The Progressive Corporation (NYSE:PGR) - Number of Hedge Fund Holders: 71


https://finance.yahoo.com/news/15-best-financial-stocks-buy-125633619.html


On April 13, The Progressive Corporation (NYSE:PGR) released earnings for the first quarter of fiscal 2023. The company's EPS for the quarter was $0.66. The Progressive Corporation (NYSE:PGR) generated a revenue of $16.11 billion, up 22.22% year over year and ahead of market consensus by $97 million.

The Progressive Corporation (NYSE:PGR) is one of the best financial stocks to buy now. As of April 14, the stock has appreciated by 23.91% over the past 12 months.

This April, BofA analyst Joshua Shanker raised his price target on The Progressive Corporation (NYSE:PGR) to $188 from $178 and reiterated a Buy rating on the shares.

71 hedge funds disclosed having stakes in The Progressive Corporation (NYSE:PGR) at the close of Q4 2022. The total value of these stakes amounted to $2.3 billion. As of December 31, Orbis Investment Management is the top shareholder in the company and has a position worth $455 million.

Giverny Capital made the following comment about The Progressive Corporation (NYSE:PGR) in its Q4 2022 investor letter:

“At the top of our performance list, The Progressive Corporation (NYSE:PGR) rose 26% for the year as it generated outstanding results relative to other large auto insurers. Markel and Berkshire Hathaway rose modestly. The three companies compete in diverse lines of insurance, but they all benefit from rising rates for property coverage after an extended period of weather catastrophes, rising jury awards in lawsuits and inflated loss costs. Our insurers tend to be careful underwriters, so their profitability rises with rates. Our insurers also benefit from rising interest rates because they tend to invest premiums paid by customers into fixed income securities until they pay claims.

Our largest holding at year-end was Progressive, ascending to the top spot thanks to 26% appreciation in a year when most of our holdings lost value.

The auto insurance industry is in turmoil, with most companies losing money as soaring used car prices drive up the cost of accident repairs and replacements. It is hard to overstate Progressive’s superiority to its peer group. It is the most sophisticated underwriter in the country, and it began raising insurance premiums earlier than its peers did as driving patterns and repair costs worsened in 2021. It did other smart things, too, including reducing advertising and sales efforts in markets where it could not get rate increases – thus choosing where it would compete hardest for customers – and not renewing the policies of high-risk drivers. This may seem elementary, but most other major insurers did the opposite: they used the windfall profits earned during pandemic quarantine to ratchet up their marketing efforts to attract new customers. They cut rates to try to grow faster.

A recent report from JP Morgan estimated the top 10 US auto insurers recently paid out 81 cents in auto repair costs for every dollar of premiums collected in 2022. That 81% figure does not include corporate overhead, agent commissions, advertising or any other cost of running the business. Progressive’s tally was 71 cents on the dollar. The industry is in the process of unwinding its bad decisions – everybody is raising rates now. Progressive traditionally benefits when customers shop around more in response to rate hikes. We think Progressive’s growth rate is likely to accelerate in 2023 as it wins business from other insurers while maintaining industry-leading profitability. We would also note that used car prices finally have begun to fall, suggesting auto insurers could get relief on their loss costs even as they start charging higher rates.

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>>> Fiserv, Inc. (FISV) - Number of Hedge Fund Holders: 65


https://finance.yahoo.com/news/15-best-financial-stocks-buy-125633619.html


On April 11, Barclays analyst Ramsey El-Assal raised his price target on Fiserv, Inc. (NASDAQ:FISV) to $150 from $140 and maintained an Overweight rating on the shares.

Fiserv, Inc. (NASDAQ:FISV) is one of the best financial stocks to buy now according to hedge funds. As of April 14, the stock has returned 18.71% to investors over the past 6 months.

At the end of the fourth quarter of 2022, 65 hedge funds were long Fiserv, Inc. (NASDAQ:FISV) and disclosed stakes worth $4.3 billion in the company. Of those, Harris Associates was the leading shareholder and held a stake worth $1.9 billion.

Renaissance Investment Management made the following comment about Fiserv, Inc. (NASDAQ:FISV) in its Q4 2022 investor letter:

“We made one change to the portfolio in the fourth quarter, adding a new position in the Information Technology sector with Fiserv, Inc. (NASDAQ:FISV), a leading financial services technology company that facilitates the movement of money, helping to run the financial operations of banks and merchants. The company enjoys a leading market position in a rational oligopoly in which the top three companies control 70% of the entire market. We also like the company’s strategy of being a “one-stop-shop” for banks and merchants, resulting in a large financial platform that has the operating scale to outcompete smaller rivals and a recurring revenue model that is highly attractive in uncertain macroeconomic environments.”

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WOW . Big break outs WAL up 23 percent. FRC Over 10 percent. PACW up big as well 14 percent mid day.

WOW . Big break outs WAL up 23 percent. FRC Over 10 percent. PACW up big as well 14 percent mid day.

Bar Harbor Bankshares (BHB) - >>> Remember the Maine


https://realmoney.thestreet.com/investing/stocks/svb-collapse-3-regional-bank-stocks-to-buy-16118210?puc=yahoo&cm_ven=YAHOO


Bar Harbor Bankshares (BHB) is a bank holding company. The company's operating subsidiary, Bar Harbor Bank & Trust, is a community bank that offers a range of deposit, loan, and related banking products, as well as brokerage services provided through a third-party brokerage arrangement. In addition, the company offers trust and investment management services through this subsidiary, as well as wealth management services through its subsidiary Bar Harbor Wealth Management.

Operating over 50 locations across Maine, New Hampshire, and Vermont, Bar Harbor Bank & Trust is headquartered in Bar Harbor, Maine since 1887 and has more than $3.6 billion in assets.

Bar Harbor Bank & Trust is the only community bank headquartered in Northern New England with branches in Maine, New Hampshire, and Vermont. The bank has a good track record in both earnings and dividend growth combined with a good dividend yield which makes the shares attractive for dividend investors. The company is well-positioned and has been able to create a strong loan pipeline and grow its loan portfolio while maintaining credit quality.

On January 19, Bar Harbor released its fourth-quarter 2022 results for the period ending December 31, 2022. For the quarter the company reported revenue of $41.2 million, compared with revenue $38.7 million in Q3 2022 and $34.97 million in Q4 2022. This result was driven by 11% annualized commercial loan growth and 19% commercial loan growth for 2022, compared to 2021. The fourth-quarter core earnings per diluted share equaled $0.83, compared to $0.76 last quarter and $0.65 in the year-ago period.

Bar Harbor's return on assets came in at 1.20% versus 1.14% last year, while the net interest margin equaled 3.76% compared to 2.79% the prior year. The non-performing asset ratio was 0.17% versus 0.27% in 2021. For the full year of 2022, net income was $43.6 million, or $2.88 per diluted share, compared to $39.3 million, or $2.61 per diluted share for 2021, an increase of 11%.

During the past five years, the company's dividend payout ratio has averaged around 42%. Bar Harbor's dividend is comfortably covered by earnings. Given the expected earnings growth, there is room for the dividend to continue to grow at the same pace and keep the payout ratio around the same levels which is safe.

The shares currently yield 3.9%.

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Schwab - >>> >>> State Street tumbles as it loses key deposits

The giant Boston bank became the latest to show first-quarter outflows as turmoil raged


Yahoo Finance

by David Hollerith

April 17, 2023


https://finance.yahoo.com/state-street-tumbles-as-it-loses-key-deposits-122940909.html?.tsrc=fin-notif


The stock of State Street (STT) dropped 9% Monday as the giant Boston custody bank said net interest income, deposits and fee revenue dropped during the first three months of the year.

The market reaction was the latest sign of unease among investors as they examine how banks performed during one of the most tumultuous periods for the industry since the 2008 financial crisis. Banks of all sizes will be scrambling over the coming weeks to show they survived the chaos of the first quarter and are better positioned than rivals to weather any future turmoil.

State Street was not the only large bank in focus Monday. The stock of Charles Schwab (SCHW) initially fell 3% after it said it lost $41 billion in deposits in the first three months of 2023, but ended the day up nearly 4%. The stock of a regional lender based in Buffalo, M&T (MTB), was initially down as much as 1.6% after it said net interest income and deposits dropped during the first quarter, but ended the day up nearly 8%.

What is clear so far from the results is that net interest income—a key measure of profitability that shows the difference between what a bank earns on its assets and pays out to depositors—is emerging a key focus of this earnings season as investors fret about the future profitability of the industry.

The concern is that banks will have to pay more for deposits as interest rates rise and competition for customers intensifies, thereby reducing their margins. Depositors over the last year have been moving their money to higher-yielding options at money market funds, and those outflows only accelerated in March following the failure of Silicon Valley Bank.

Such a shift impacted State Street during the first quarter. Its net interest income was down 3% when compared to the fourth quarter of 2022, and its deposits fell by 5%. Flows into its money market funds increased.

The drop in net interest income was primarily due to lower balances of non-interest bearing deposits, a form of free funding where State Street pays no interest to customers. Those deposits fell to $39 billion from $44 billion.

State Street Chief Financial Officer Eric Aboaf told analysts he expects those deposits to drop by another $4-$5 billion in the second quarter before there is "some stabilization" and that that each drop of $1 billion costs the company $12-$15 million. Wells Fargo analyst Mike Mayo said in a worst-case scenario these deposits could fall to $30 billion, costing the company $200 million.

“If you’re calculating the worst case, I think you’re math roughly is correct. We’re doing all we can to avoid the worst case,” said CEO Ron O’Hanley. And, he noted, “there’s nothing that approaches a liquidity issue."

State Street's total fourth-quarter income of $549 million was down 9% from a year ago and 25% from the fourth quarter. Its earnings were worse than analysts expected. Assets under management in its investment division also dropped, and its fee revenue was down 1% from the fourth quarter and 9% from the year-ago quarter.

The results from Charles Schwab offered another look at how a firm at the center of last month’s banking crisis performed. Investors punished Schwab following the March 10 failure of Silicon Valley Bank as they looked for other institutions that could face an outflow of depositors or had sizable paper losses on their debt securities due to rising interest rates. Its stock dropped more than 30% in March.

The concern was that Schwab’s bank clients might move their money from “sweep accounts” into higher-yielding alternatives, and that could force the company to sell some of its bonds at a loss.

During the peak of the turmoil in March, Schwab felt compelled to come out publicly and reassure investors its liquidity remained strong. Its CEO Walt Bettinger told The Wall Street Journal the brokerage could continue to operate even if it lost most of its deposits over the next year “without having to sell a single security.”

On Monday he told analysts: “I would certainly hope that by this point in time, the short term driven speculation that we would find ourselves in a position where we would be forced to sell securities that have temporary paper losses has been put to bed."

Schwab ended the first quarter with $325 billion in deposits. That was down 11% from the fourth quarter and 30% from the year-ago quarter. But it was also roughly what analysts expected.

The brokerage giant also said first-quarter profit of $1.6 billion and revenue of $5.1 billion were down when compared to the fourth quarter but up from the first quarter of 2022.

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