What Bank Earnings Reveal About the Health of the Economy

Can the banks bounce back?

JPMorgan Chase and Wells Fargo, two of America’s biggest banks, reported solid earnings and revenue gains on Friday, pushing their stock prices higher in premarket trading. PNC Bank, a smaller lender, also posted a big jump in profit.

Despite the upbeat results, which exceeded analysts’ expectations, it’s too early to say that the worst of the banking crisis is over.

Banks’ financial results are closely followed for what they say about the health of the wider economy. With the U.S. potentially on the brink of recession, inflation running hot, and investors anxious for details on the damage to the sector wrought by the collapse of Silicon Valley Bank, the coming wave of bank earnings takes on particular importance.

“The things that we’re nervous about are all the things that we don’t have a lot of hard data about,” Karen Dynan, a Harvard economist and former Treasury official, told The Times. Bank earnings could be the final puzzle piece to give clarity on where the economy is heading.

A big focus will be on deposits. Fed data shows that customers pulled more than $600 billion worth of deposits from their accounts in the first quarter of this year, with most of that exodus occurring in the days after the fall of SVB last month. A big chunk of that appears to be flowing into money-market funds, a move that would give individuals a solid return on their deposits, but could choke off lending and investing in the wider economy.

It’s not just small and midsize lenders in the spotlight. Wall Street analysts estimate that the big three — JPMorgan, Bank of America and Wells Fargo — saw a $61 billion decline in deposits in the first quarter. Expect big bank chiefs to be grilled on deposit flows, and the impact of the decline of midsize lenders on their business.

The pressure to strengthen balance sheets could put a chill on lending. That pullback, combined with higher interest rates, may push companies to cut back on spending and speed up layoffs, economists fear.

“Bank lending is arguably the most important component of a strong economy, so insights from bank C.E.O.s are critical right now, as investors keep an eye on the trajectory of bank lending after the recent crisis of confidence in the banking sector,” David Trainer, C.E.O. of New Constructs, an investment research firm, said in a note this week.

At 7 a.m. Eastern, the JPMorgan Chase stock was up nearly 6 percent in pre-market trading. Following the collapse of Silicon Valley Bank, its shares had slumped into the red, along with much of the sector.

HERE’S WHAT’S HAPPENING

National Guardsman is arrested in connection with Ukraine war documents leak. Jack Teixeira, a 21-year-old airman, was taken into custody after the federal authorities said he had shared sensitive intelligence to an online gaming chat group. The leaks have involved an array of national security secrets, including U.S. surveillance linked to the war in Ukraine. He is scheduled to appear in federal court on Friday.

Inflation F.A.Q.

What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.

What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.

Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.

How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.

Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.

The D.O.J. will ask the Supreme Court to block a ruling on abortion pills. The decision follows last week’s ruling by a judge in Texas that mifepristone should be pulled from the market more than 20 years after it was approved by the F.D.A. Separately, Florida banned abortions after six weeks of pregnancy.

Boeing stock sinks on 737 Max warning. The plane maker warned on Thursday that production issues would affect its delivery of the narrow-body jets. The problem: one of Boeing’s suppliers, Spirit AeroSystems, used “non standard” fittings in assembling the fuselage. The company said that could create a compliance issue, though not necessarily a safety problem.

Infectious disease experts brace for the next Covid-like pandemic. Superspreader viruses like Covid-19 are emerging more rapidly in an era of global travel and climate change. Airfinity, a predictive disease specialist, forecasts that the odds of such a pandemic striking in the next decade are greater than one in four.

A blockbuster deal shakes up the N.F.L.

Another record is set to fall in the world of professional sports: Dan Snyder has reached a deal to sell the N.F.L.’s Washington Commanders to the billionaire investor Josh Harris for $6 billion.

Valuations of N.F.L. franchises are surging. Last year, Rob Walton and members of the Walton and Penner families bought the Denver Broncos for $4.65 billion. Over the past decade, prices for N.F.L. franchises have increased more than fourfold.

Here’s how a Commanders deal would stack up:

Washington Commanders (2023?): $6 billion

Denver Broncos (2022): $4.65 billion

Carolina Panthers (2018): $2.22 billion

Buffalo Bills (2014): $1.4 billion

Money is pouring into the league. The N.F.L. cut a landmark broadcast deal valued at over $100 billion in 2021, the most lucrative in U.S. professional sports. The game is also at the height of its popularity. Broadcasts continually rank as many of the most watched live T.V. programs, and advertisers are eager to buy into the action. This year’s Super Bowl saw a boom in ad prices, with a 30-second slot priced at more than $7 million.

N.F.L. clubs are the “Rolls-Royce of American sports leagues,” said Salvatore Galatioto, whose firm advises investors on professional sports deals.

The Commanders deal still needs league approval. Mr. Snyder and Mr. Harris must get agreement from 24 of the 32 team owners. That may not be so difficult: Mr. Snyder has become deeply unpopular with the Commanders fan base, and the team is under investigation by the league over possible financial improprieties and accusations that it enabled a culture of sexual harassment by team executives.

If the sale gets the green light, Mr. Harris, the 58-year-old co-founder of the private equity giant Apollo Global, would land an ownership stake in his third professional sports team. He is also a co-owner of the N.B.A.’s Philadelphia 76ers and the N.H.L.’s New Jersey Devils.

The price record may not last long. Bids for Manchester United, the English Premier League soccer club, are set to enter a third round. The club’s owners, the Glazer family, are reportedly seeking a price in the $7 billion range.

Understand Inflation and How It Affects You

52 percent

— The share of Germans opposed to ending the use of nuclear power, according to a poll by Bild, the country’s biggest daily newspaper. Europe’s largest economy is scheduled to shut down its last three plants this weekend, but efforts to shift from a reliance on Russian oil have raised doubts for many consumers.

Bernard Arnault, the quiet billionaire

The business leaders who typically rank at the top of the world’s wealth list are known as master disrupters who helped create entirely new sectors. Think Jeff Bezos at Amazon, or Elon Musk, who co-founded PayPal before trying to make electric vehicles mainstream at Tesla. Bernard Arnault, the C.E.O. of the French luxury group LVMH, has surpassed them all by reinventing an old one, with investors cheering bumper quarterly results on Thursday and pushing his net worth to $210 billion.

Mr. Arnault has turned LVMH into Europe’s most valuable public company. The market capitalization of the group, whose brands include Louis Vuitton and Tiffany, has more than doubled in the last four years despite severe headwinds, to close in on the $500 billion club. That’s allowed it to surpass the oil giant Exxon Mobil and the banking behemoth JP Morgan Chase.

LVMH’s rebound since the pandemic has been impressive. Sales fell when Chinese consumers, the world’s biggest luxury spenders, were not able to travel abroad to stock up on handbags and jewelry. And lockdowns in the country hit spending.

It all began with Christian Dior. In 1984, Mr. Arnault bought the holding group that included the storied brand. In short order, he sold off most of its underperforming labels and turned the ailing Dior into a powerhouse. He helped form LVMH three years later, and soon established his supremacy as the group’s majority shareholder, C.E.O. and chairman. His business mantra was summed up in an interview with The Wall Street Journal: “Luxury, for me, is how can you create desire?”

Mr. Arnault has taken a less-flashy approach than his wealthy peers. The 74-year-old regularly appears alongside some of the world’s biggest celebrities at his brand’s fashion shows, but he has tried to maintain a lower profile. He has been described as shy and intensely private, but he has a ruthless reputation for deal-making that earned him the nickname “the wolf in cashmere.”

But there are clouds on the horizon. Demand in the U.S. is slowing. Questions about succession loom large, with Arnault’s five children occupying senior positions at the group. And his wealth has not gone down entirely well in his native France: Protesters against a pension overhaul stormed the company’s headquarters on Thursday chanting, “There is money in the pockets of billionaires!”

THE SPEED READ

Deals

Walmart has reached a deal to sell Bonobos for $75 million — $235 million less than it paid in 2017 for the men’s clothing company. (CNBC)

Credit Suisse has reportedly hired BlackRock to sell a portfolio of structured bonds worth at least $300 million. (Bloomberg)

The WTA is returning to China after suspending tournaments in the country two years ago over concerns about the safety of star player Peng Shuai. (NYT)

Policy

China said it would work with other institutions and governments to help resolve a sovereign debt crisis affecting many developing countries. (FT)

The D.O.J. urged the S.E.C. to proceed cautiously in its revamp of how equity markets operate. (Bloomberg)

Republican presidential hopefuls, including former President Donald Trump, Gov. Ron DeSantis of Florida, and Nikki Haley, a former ambassador to the United Nations, are expected to address the annual gathering of the National Rifle Association on Friday. (NYT)

Germany is reportedly pushing Intel to spend more on a $19 billion chip plant if the U.S. company wants to secure more government subsidies. (FT)

Best of the rest

“Billionaire Harlan Crow Bought Property From Clarence Thomas. The Justice Didn’t Disclose the Deal.” (ProPublica)

A VHS tape of “Rocky” just sold for $27,500, another sign of the booming business in nostalgia. (NYT)

“We must slow down the race to God-like AI” (FT)

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