Wall Street Breakfast: Stress Tests In The Pandemic Era

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The Federal Reserve is putting fresh limits on the U.S. banking industry after annual stress tests found that several institutions could get close to minimum capital levels in scenarios tied to the coronavirus pandemic. Big banks will be required to suspend share buybacks for the third quarter (most of them already paused repurchases in Q2) and limit dividend payments at their current level. While “all large banks remain strongly capitalized,” the Fed – for the first time in the decade-long history of the stress test – is requiring banks to resubmit updated capital plans later this year.

Surprise loss for Nike

Shares of the sneaker giant are down nearly 4% premarket on the back of an unexpected quarterly loss and a sales decline of 38% Y/Y. Results were significantly impacted by the closings of stores during global lockdowns, though digital sales soared 75%, representing about 30% of total revenue. Expenses for shipping and returns also put more pressure on Nike’s (NYSE:NKE) profits – gross margin came in at 37.3% of sales vs. 45.7% a year ago and 43.3% consensus.


Verizon (NYSE:VZ) is next to pull advertising from Facebook (NASDAQ:FB) in the “Stop Hate for Profit” campaign, following in the footsteps of Ben & Jerry’s, REI, Patagonia and The North Face. Last week, six organizations, including the ADL and NAACP, called on companies to pause advertising on the social network for July “to show they will not support a company that puts profit over safety.” A Verizon spokesperson said the decision would stand until Facebook and Instagram “can create an acceptable solution that makes us comfortable.”

Past the worst, transformational recovery

“We are probably past the lowest point” of the economic crisis caused by the coronavirus pandemic, ECB President Christine Lagarde said in a webinar overnight, boosting markets across Europe. She still warned of the possibility of “a severe second wave” and cautioned that some industries like airlines, hospitality and entertainment will come out of the “recovery process in a different shape.” To cope with the recession, the ECB in June extended its Pandemic Emergency Purchase Program (PEPP) until mid-2021 and increased it by €600B to €1.35T.

Next move for stocks

U.S. equity futures are little changed in early morning action following a late-day surge yesterday that helped major averages recover some of the steep losses seen mid-week. A fresh record of more than 37,000 new coronavirus cases was reported nationwide on Thursday, prompting Texas Governor Greg Abbott to pause further phases of the state’s reopening. “We’re stuck in a bit of a range,” said Shane Oliver, chief economist at AMP Capital. “There’s a degree of optimism that any second wave will be offset by stimulus… but if we have to go back to a renewed lockdown then it’s a different story, and markets face a lot more downside risk.”

Fight over Obamacare

The Trump administration is urging the Supreme Court to overturn the Affordable Care Act in a case that’s set to be heard around the time of the November election. The brief argues that because the law’s requirement to have health insurance was upheld in court as a tax in 2012 – and Congress has since repealed the financial penalty for violating that requirement in 2017 – it is no longer a tax and therefore no longer constitutional. “The entire ACA thus must fall with the individual mandate, though the scope of relief entered in this case should be limited to provisions shown to injure the plaintiffs,” Solicitor General Noel Francisco wrote in the filing.

Contact tracing

35 states are now using Salesforce’s (NYSE:CRM) Work.com technology to carry out contact tracing, CEO Marc Benioff told CNBC, calling the platform a “critical technology.” The service launched in May to help businesses reopen their offices and operate during the coronavirus pandemic. “This is a time where every company needs to reassess its relevance to maintain its market share and innovation,” he added. “Right now for Salesforce that’s a major focus on Work.com.”

Albertsons IPO

Shares of the grocery chain operator will begin trading this morning on the NYSE, which was shuttered for two months because of the coronavirus pandemic. Existing shareholders like Cerberus Capital raised $800M on Thursday, less than anticipated, after the company’s IPO priced at $16 apiece, below its $18-$20 per share target range and valuing Albertsons (ACI) at around $9.3B. Even at that size, the listing will be one of the larger IPOs at the Big Board so far this year.

Aviation industry watch

CEOs of American Airlines (NASDAQ:AAL), Delta (NYSE:DAL), United (NASDAQ:UAL), Southwest (NYSE:LUV) and JetBlue (NASDAQ:JBLU) are heading to the White House today to discuss a range of coronavirus-related travel issues with VP Mike Pence and other senior U.S. officials. They include the industry’s push for federally mandate temperature checks, EU travel restrictions on U.S. travelers, contract tracing of passengers and the impact of COVID-19 on travel demand. Meanwhile, U.S. aviation unions are asking Congress for another $32B bailout to keep hundreds of thousands of workers employed past Sept. 30 as a resurgence in coronavirus cases raises fears that air travel may not rebound this year.
Go deeper: Bain makes big bet on Virgin Australia.

What else is happening…

Warner Bros. (NYSE:T) postpones ‘Tenet’ release to August.

Unilever (UL, UN) drops ‘Fair & Lovely’ skin lightening product name.

Virgin Galactic (NYSE:SPCE) completes second New Mexico glide test.

Details revealed for the 2021 Ford (NYSE:F) F-150.

Amazon (NASDAQ:AMZN) pays over $1B to buy self-driving startup Zoox.

Macy’s (NYSE:M) to cut 3,900 jobs in push to save cash.

ETF price wars: BlackRock (NYSE:BLK) cuts fee on largest fund.

How far will White House go to secure 5G future?

Originally published on MarketWatch

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