Morning Reads
- French Government Unveils Plan to Raise Retirement Age to 64
- U.S., Allies Prepare Fresh Sanctions on Russian Oil Industry
- Oil and Gas Are Back and Booming
- Powell Says Fed Will Not Be a ‘Climate Policymaker’
- World Bank Cuts 2023 Global Growth Projection as Inflation Persists
- Two Global Recessions in One Decade? That Hasn’t Happened in Over 80 Years
- Wall Street Is Going All In on the Euro
- Fed’s No-Rate-Cut Mantra Rejected by Markets Seeing Recession
- Gundlach Says Listen to Bond Market Rather Than Fed on Rates
- FAA Orders Airlines to Ground All Domestic Flights Until 9AM ET
- Super-Prime Real Estate in New York and Florida Has Hit a Wall
- Mortgage Refinance Demand Surges, As Homeowners Take Advantage of Lower Interest Rates
- Apple to Begin Making In-House Screens in 2024 in Shift Away From Samsung
- Inside Intel’s Delays in Delivering a Crucial New Microprocessor
- Korean Solar Company Plans to Build $2.5 Billion Plant in Georgia
- Several Top Rivian Executives Depart the Electric-Vehicle Startup
- Elon Musk’s Love of Debt Is Destroying His Record Wealth
- Trump’s Tax Returns Show He Was a Bigger Risk Than We Realized
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Once one of the biggest mortgage lenders in the U.S., Wells Fargo (WFC) has unveiled plans to step back from the housing market. Instead of going after the entire industry (its previous goal was a 40%-50% market share), the bank is shrinking its mortgage portfolio by restricting loans to only bank clients and minority borrowers. While the business was one of the company's biggest profit generators over the years, things have gotten tougher amid regulatory pressure and higher interest rates.
That's not all: Wells Fargo is shuttering its Correspondent lending business, in which the bank lends capital to other firms that sell mortgages as distinct providers. It's a big deal, as the division accounted for nearly 40% of its mortgage volume as of Q3 2022. Wells Fargo is also reducing the size of its Servicing portfolio by selling billions of dollars worth of mortgage servicing rights to other players in the sector.
"We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus," said Kleber Santos, CEO of Consumer Lending. "Mortgage is an important relationship product... and we are acutely aware of Wells Fargo's history since [the cross-selling scandal in] 2016 and the work we need to do to restore public confidence. As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope."
Go deeper: In August, Seeking Alpha covered reports that Wells Fargo would dramatically reduce the size of its mortgage unit and would retrench from its commitment to be No. 1 in the business. It has also taken other steps to simplify its mortgage division over the past three years, like scaling back the refinancing of jumbo mortgages in 2020. As traditional banks continue to withdraw from the industry (JPMorgan (JPM) and BofA (BAC) surrendered mortgage share after the financial crisis), non-bank entities like Rocket Mortgage (RKT) and United Wholesale Mortgage (UWMC) have filled the void, though they are not as regulated and some say it could expose borrowers to additional risks. (9 comments)
The World Bank has slashed its 2023 global growth forecast by almost half - from 3% to 1.7% - as elevated inflation, higher interest rates, reduced investment and Russia's invasion of Ukraine constrain economic activity. If that wasn't enough, the Washington-based lender warned that any new adverse shocks could push the global economy into recession, which would mark the first time in more than 80 years that two global recessions occurred within the same decade.
Global Economic Prospects: "The crisis facing development is intensifying as the global growth outlook deteriorates," explained World Bank Group President David Malpass. "Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change."
Over in the U.S., the economy is expected to experience 0.5% growth in 2023, 1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. "There is a lot of debate about whether the U.S. and the eurozone will go into recession," noted Ayhan Kose, the World Bank economist responsible for the report. "But whether they do or not in technical terms, they are going to feel like they are experiencing a recession."
Case in point: Mass layoffs continue to come thick and fast. Following its earnings report on Tuesday, Bed Bath & Beyond (BBBY) said it had begun its latest round of job cuts as the home goods retailer teeters on the brink of bankruptcy. Coinbase (COIN) revealed that it would also lay off nearly 1,000 employees, or 25% of its staff, while Goldman Sachs (GS) is expected to announce plans today to cut up to 3,200 jobs, or roughly 6% of its workforce. (3 comments)
Fed Chair Jerome Powell didn't make any specific comments yesterday on the U.S. economy or the path of rate hikes, which didn't come as a surprise, given that the international symposium he attended focused on "central bank independence." As such, he did say that independence was critical to central banks, especially in times of inflation and when dealing with the price stability part of the central bank's dual mandate (the other being full employment).
Quote: "Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors."
Powell also discussed the Fed's role in incorporating perceived risks associated with climate change after tiptoeing around the subject in recent years. While he said policies directly addressing climate change should be made by elected branches of government, "the Fed does have narrow, but important, responsibilities regarding climate-related financial risks." Those are "tightly linked" to its responsibilities for bank supervision.
Fine print: "Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals," Powell continued. "We are not, and will not be, a 'climate policymaker.'" (8 comments)
Boeing (BA) delivered 69 commercial airplanes last month to finish the year with 480 deliveries, up 41% from 340 in 2021. That figure wasn't enough to beat archrival Airbus (OTCPK:EADSY), which delivered 661 aircraft to customers in 2022 and took the crown in the annual contest for the fourth consecutive year. "I do look forward to making it five in the coming year," Airbus Chief Commercial Officer Christian Scherer said on a conference call.
Backdrop: Boeing has fallen behind in the race for several reasons after decades of dominance in the commercial aircraft market. Two crashes involving its 737 MAX pushed the planemaker into the biggest crisis in its history, while production and regulatory setbacks of the 787 Dreamliner haven't helped the situation. The coronavirus pandemic also upended supply chains and output of new planes, while resurgent travel has increased the appetite for new jets, making it harder for supply to catch up to demand.
While Boeing shares closed down 1% on Tuesday, the stock has recently been on a rip, soaring about 40% since Nov. 2. That's when top brass unveiled a turnaround plan to increase free cash flow and pay down debt, while upping production and deliveries. Boeing will still have to play catch-up, with hopes to produce around 47 single-aisle 737 MAX units per month by the end of 2023, compared to Airbus' monthly production target of 64 A320neo jets.
From the SA comments section: "The more that deliveries exceed production the more the parking lot in Arizona desert gets emptied and production rate will get ramped up," wrote SA contributor Andrew Shapiro. "Not only better fixed cost absorption and enhanced margin for BA but increased sales and fixed cost absorption and enhanced margin for suppliers like SPR and undervalued micro-cap PFIN." (9 comments)
Today's Markets
In Asia, Japan +1%. Hong Kong +0.5%. China -0.2%. India flat.
In Europe, at midday, London +0.6%. Paris +0.7%. Frankfurt +0.9%.
Futures at 6:30, Dow +0.2%. S&P +0.2%. Nasdaq +0.2%. Crude +0.4% to $75.39. Gold +0.6% to $1888.10. Bitcoin +1% to $17,438.
Ten-year Treasury Yield -4 bps to 3.58%
Today's Economic Calendar
7:00 MBA Mortgage Applications
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $32B, 10-Year Note Auction
Companies reporting earnings today »
What else is happening...
U.S. stocks' dividend payouts slow in Q4 as macro concerns mount.
Disney (DIS) eases policies at theme parks after patron complaints.
BofA sees improving story at Warner Bros. Discovery (WBD).
Coca-Cola (KO) and PepsiCo (PEP) could face FTC pricing probe.
Broadcom (AVGO) hit in reaction to Apple's (AAPL) chip plans.
Bed Bath (BBBY) targets store closings, cost savings as sales crumble.
Amazon (AMZN) to shut three U.K. warehouses, impacting 1,200 jobs.
Tesla (TSLA) preps for huge expansion of Austin Gigafactory.
Rivian Automotive (RIVN) sees several long-time top execs depart.
WHO declares the end of deadly Ebola outbreak in Uganda.