WSJ : Biggest Banks Can Withstand Severe Downturn, $685 Billion in Losses, Fed S

Biggest Banks Can Withstand Severe Downturn, $685 Billion in Losses, Fed Says
Latest stress tests find banks remained above minimum capital requirements

WASHINGTON—Big U.S. banks passed their latest annual stress test, with the Federal Reserve finding they would be able to continue lending to households and businesses in a severe recession, even while suffering steeper losses than last year’s tests.

This year’s exercise measured the 31 biggest banks’ ability to maintain strong capital levels in a hypothetical recession marked by double-digit unemployment and a severe stock-market decline.

The banks would collectively lose nearly $685 billion in the Fed’s imaginary worst-case recession, the Fed said. That would be more than last year, but all the banks would still remain above their minimum capital requirements.

The banks were expected to lose more in this year’s test because they faced higher projected credit-card losses, riskier corporate loans and lower projected income, the Fed said.

The bank balance sheets are “somewhat riskier and expenses are higher,” Michael Barr, the Fed’s vice chairman for supervision, said in a statement.

“The goal of our test is to help to ensure that banks have enough capital to absorb losses in a highly stressful scenario,” he said. “This test shows that they do.”

The annual exercise aims to project confidence about the health of the banking system. If banks do poorly, they could face automatic restrictions on shareholder distributions and discretionary bonus payments. None of the banks face those limits after this round of tests.

Wednesday’s results could give banks and their lobbyists more ammunition to push back against large increases in capital requirements, which the Fed and other regulators have floated. Supporters of the plan say it will improve the overall resilience of the financial system after a spate of regional bank failures last year.

This year’s stress test included a severe global recession in which the U.S. unemployment rate jumps to 10%, housing prices crash by 36% and commercial real-estate prices drop by 40%.

Another wrinkle in this year’s tests, an “exploratory analysis” of the system suggests banks could withstand a repeat of the deposit crisis of 2023 or a potential catastrophe in hedge funds. The biggest banks could in the aggregate lose up to $85 billion if five big hedge funds failed, the Fed found.

Those scenarios have no impact on bank capital requirements.

The stress tests were introduced following the 2008-09 financial crisis, when the U.S. government bailed out some of the largest financial institutions. The results of the first tests helped restore investor confidence in the banking system.

Over the years, the annual stress tests have lost a lot of the stress they once had for big banks and are no longer as dreaded by bankers.

Daniel Tarullo, who oversaw bank regulation at the Fed from 2009 until 2017, said the tests have become more routine and predictable and questioned whether the Fed should continue to use them to set big banks’ minimum capital levels.

>>> Nokia to acquire Infinera (INFN) for $6.65/share or an enterprise value of $

Nokia to acquire Infinera (INFN) for $6.65/share or an enterprise value of $2.3 bln; deal financed from Nokia's cash on hand (3.73 +0.06)
  • Nokia (NOK) and Infinera (INFN) announce a definitive agreement under which Nokia will acquire Infinera in a transaction valuing the company at $6.65 per share or an enterprise value of US $2.3 billion to increase scale in Optical Networks and accelerate product roadmap.
    • The transaction represents a premium of 28% to Infinera's share price at the close of 26 June 2024 and a 37% premium to the trailing 180-day volume weighted average price (VWAP).
  • At least 70% of the consideration will be paid in cash and Infinera's shareholders can elect to receive up to 30% of the aggregate consideration in the form of Nokia ADSs.
  • Nokia's Board of Directors has committed to increase and accelerate Nokia's share buyback program to offset the dilution from the deal. This will be in addition to Nokia's on-going EUR 600 million buyback program.
  • The transaction aligns strongly with Nokia's strategy, as it is expected to strengthen the company's technology leadership in optical and increase exposure to webscale customers, the fastest growing segment of the market. Nokia believes the transaction has compelling financial and strategic merit. The combination with Infinera is projected to accelerate Nokia's journey to a double-digit operating margin in its Optical Networks business.
  • Nokia targets to achieve EUR 200 million of net comparable operating profit synergies by 2027. Nokia targets mid-single digit organic growth for the overall Network Infrastructure business and to improve its operating margin to mid-to-high teens level.
  • The transaction is expected to be accretive to Nokia's comparable EPS in the first year post close and to deliver over 10% comparable EPS accretion by 2027, with a return on invested capital (RoIC) comfortably above Nokia's weighted average cost of capital (WACC).
  • At or around the time of closing of the transaction Nokia will repurchase Infinera's outstanding convertible notes for an estimated total value of approximately US $760 million including estimated change of control costs which is already considered in the previously mentioned US $2.3 billion enterprise value.
  • The acquisition has been unanimously approved by the board of directors of both Nokia and Infinera. It is targeted to close during the first half of 2025, subject to approval by Infinera's shareholders, regulatory approvals including antitrust, CFIUS and other foreign direct investment approvals and other customary closing conditions.

>>> NIKE beats by $0.15, misses on revs, gross margin increased 110 bps, North A

NIKE beats by $0.15, misses on revs, gross margin increased 110 bps, North America revenue decreased 1% (94.19 +0.13)
  • Reports Q4 (May) earnings of $0.99 per share, excluding non-recurring items, $0.15 better than the FactSet Consensus of $0.84; revenues fell 1.6% year/year to $12.6 bln vs the $12.86 bln FactSet Consensus.
  • Revenues for the NIKE Brand were $12.1 billion, down 1 percent on a reported basis and up 1 percent on a currency-neutral basis, with currency-neutral growth in Greater China, APLA and EMEA, partially offset by a decline in North America.
  • North America revenue down 1%.
  • Greater China revenue up 7% in constant currency.
  • Wholesale revenues for the fourth quarter were $7.1 billion, up 5 percent on a reported basis and up 8 percent on a currency-neutral basis.
  • Gross margin for the fourth quarter increased 110 basis points to 44.7 percent.
  • Inventories for NIKE, Inc. were $7.5 billion, down 11 percent compared to the prior year, reflecting a decrease in units.

>>> US Close Dow +0.09% S&P +0.09% Nasdaq +0.30% Russell +1.00%

Closing Stock Market Summary
It was a somewhat lackluster session in the stock market. The S&P 500 (+0.1%), Dow Jones Industrial Average (+0.1%), and Nasdaq Composite (+0.3%) settled slightly higher than yesterday while the Russell 2000 outperformed, settling 1.0% higher.

Market breadth was positive, but there wasn't a lot of conviction on either side of the tape. Advancers had a roughly 3-to-2 lead over decliners at the NYSE and at the Nasdaq.

The lack of conviction today stemmed from a wait-and-see stance in front of the May Personal Income and Spending report tomorrow at 8:30 ET, which features the Fed's preferred inflation gauges in the form PCE and core-PCE price indexes.

Ongoing buying interest in the mega cap space played an integral role in index-level performance. Shares of Amazon.com (AMZN 197.85, +4.24, +2.2%) moved further into record territory after crossing $2 trillion in market cap. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.3% gain.

Meanwhile, semiconductor-related names acted as a drag on the broader market after Micron's (MU 132.26, -10.13, -7.1%) earnings report. NVIDIA (NVDA 123.99, -2.41, -1.9%) was an influential standout from the space.

Some bank stocks traded higher the Fed's stress test showed that the 31 large banks subject to the test this year have sufficient capital. The SPDR S&P Bank ETF (KBE) closed 1.0% higher and the SPDR S&P Regional Banking ETF (KRE) showed a 1.1% gain.

Still, the S&P 500 financial sector fell 0.3% today.

Treasury yields settled lower in response to this morning's data and a stellar $44 billion 7-yr note sale. The slate of economic releases today included an upward revision to Q1 GDP, the highest level of continuing jobless claims since November 2021, and better-than-expected durable orders growth for May.

The 10-yr note yield, at 4.33% shortly before 8:30 ET, settled at 4.29%, which is three basis points lower than yesterday. The 2-yr note yield, at 4.76% before 8:30 ET, settled at 4.72%.
  • Nasdaq Composite: +19.0% YTD
  • S&P 500:+15.0% YTD
  • S&P Midcap 400: +5.1% YTD
  • Dow Jones Industrial Average: +3.9% YTD
  • Russell 2000: +0.6% YTD

Reviewing today's economic data:
  • May Adv. Intl. Trade in Goods -$100.6 bln; Prior was revised to -$98.0 bln from -$99.4 bln
  • May Adv. Retail Inventories 0.7%; Prior 0.7%
  • May Adv. Wholesale Inventories 0.6%; Prior 0.2%
  • Weekly Initial Claims 233K (consensus 238K); Prior was revised to 239K from 238K; Weekly Continuing Claims 1.839 mln; Prior was revised to 1.821 mln from 1.828 mln
    • The key takeaway from the report is the elevated level of continuing jobless claims, which suggests laid-off workers are facing longer wait times before finding a new job, which would be a symptom of a softening labor market.
  • May Durable Orders 0.1% (consensus -1.2%); Prior was revised to 0.2% from 0.7%; May Durable Orders -ex transportation -0.1% (consensus 0.2%); Prior 0.4%
    • The key takeaway from the report is that new orders for nondefense capital goods excluding aircraft -- a proxy for business spending -- declined 0.6% month-over-month.
  • Q1 GDP- Third Estimate 1.4% ( consensus 1.3%); Prior 1.3%; Q1 GDP Deflator - Third Estimate 3.1% (consensus 3.1%); Prior 3.0%
    • The key takeaway from the report is that it is dated (we're just days away from the end of Q2) so its impact should be limited; however, the slowdown in personal spending is noteworthy in light of more anecdotal evidence in the interim that suggests consumers, in aggregate, are reining in their discretionary spending.
  • May Pending Home Sales -2.1% (consensus 2.3%); Prior -7.7%

Friday's economic calendar features the Fed's preferred inflation gauge in the form of PCE Price Indexes in the May Personal Income and Spending report. Other data tomorrow include:
  • 9:45 ET: June Chicago PMI (prior 35.4)
  • 10:00 ET: Final June University of Michigan Consumer Sentiment (Bconsensus 65.6; prior 65.6)

>>> NIKE running lower after posting mixed Q4 results as company beat on EPS ag

NIKE running lower after posting mixed Q4 results as company beat on EPS again, but fell short on the top-line, amplifying competitive concerns (94.19 +0.13)
  • For the fourth consecutive quarter, NIKE (NKE) beat EPS expectations, reflecting strong gross margin as the company's inventory returns to healthy levels. Gross margin expanded by 110 bps to 44.7% as inventories fell by 11%, allowing NKE to be less promotional.
  • However, the main concern surrounding NKE right now revolves around the demand picture, and in that regard, its results disappointed. Total revenue fell by 1.6% to $12.6 bln, missing expectations, with softness continuing in its core North America market where revenue dipped by 1%.
  • The revenue decline and miss will only amplify concerns that NKE is losing its competitive edge and giving up market share to up-and-coming brands like Deckers (DECK) owned HOKA and On (ONON).
  • NKE is expected to issue FY25 revenue guidance during the earnings call at 5:00 p.m. ET. Its outlook will be key in terms of where the stock goes from here. Recall that during the Q3 earnings call, NKE warned that it expected FY25 to get off to a slow start.
  • NKE shares are trading 5.6% lower in after-hours action.

The Information : Apple Explores Novel Method for Making iPhone Batteries More R

Apple Explores Novel Method for Making iPhone Batteries More Replaceable

The Takeaway
Under pressure from European regulators, Apple is exploring a new method to make iPhone battery replacement easier, potentially reducing electronic waste.

Under pressure from regulators in Europe and elsewhere, Apple in recent years has taken small steps toward making the iPhone easier for consumers to repair. But self-repair remains a cumbersome step for consumers—particularly when it comes to battery replacement.

Under a law passed by the European Union last year, phone makers have to ensure smartphone batteries can be replaced by their owners with easily accessible tools by 2025. With that in mind, Apple is exploring the use of a new technology to make battery replacement a little easier for consumers, according to five people involved in the iPhone’s manufacturing.

If successful, Apple would use the new method in at least one model of the iPhone 16 this year and possibly all versions of the iPhone 17 slated for global release next year, according to the people. But the new method—which uses electricity to dislodge the battery—will still be too complicated for most people.

An Apple spokesperson declined to comment.

The iPhone currently uses adhesive strips to hold the battery in place. To replace the battery, people must pull on these strips with tweezers to dislodge it and install a new battery using a specialized machine and tray that presses it in place. If a consumer breaks the strips while pulling them, they need to apply heat or a solvent such as rubbing alcohol to dislodge the adhesive.

The new technology—known as electrically induced adhesive debonding—involves encasing the battery in metal, rather than foil as it is currently. That would allow people to dislodge the battery from the chassis by administering a small jolt of electricity to the battery, the people said.

Consumers still have to pry open the iPhone themselves, which is not an easy process because of the adhesives and screws that keep the iPhone’s screen sealed in place.

Apple will still recommend consumers use repair professionals for battery replacement given the need to apply a low voltage to the battery to dislodge it and attach a new one, one person with direct knowledge of the process said.

“I’d love to see Apple innovate toward improved repairability,” said Kyle Wiens, CEO of iFixit, a gadget repair website. “Glue is the bane of modern device repair, and any strategies that help reverse adhesives are welcome.”

Wiens said applying a voltage to release the iPhone battery is a promising approach, as direct current power supplies—typically used for electronics testing and charging—are widely available for purchase.

Many people choose to upgrade their phone when they see the battery dying, even though Apple for many years has offered a battery replacement service, now costing $99.

Expensive and Complex

Although early mobile phones had batteries that could be swapped in and out by hand, the rise in popularity of the iPhone and other smartphones—coupled with the invention of longer lasting mobile batteries—ushered in a new era where removable batteries took back seat to a desire for better water resistance and thinner designs. This required the devices to be tightly encased using adhesives and seals, making them difficult to open for consumers.

In 2022, Apple introduced self-repair options, as part of its efforts to comply with a wave of new right-to-repair laws across the world. Consumers can buy replacement parts from Apple and rent equipment that allows them to fix their iPhones without a professional, although the tools and rentals were still prohibitively priced and bulky.

For instance, consumers can buy a battery they can install themselves for $51.48—and rent the specialized tools needed to replace it for $49. That means there is no financial advantage for consumers who want to do it themselves. It’s unclear how those prices could change if it adopted the new technology.

On Wednesday, Apple announced that its repair software for helping users diagnose problems with their devices would be available to 32 European countries after it was made available to the U.S. only last year. It also released a whitepaper spotlighting its repairability efforts, saying that it was “committed to designing all products with serviceable batteries.”

The fact that Apple is testing a new battery replacement technology suggests it feels the pressure of the new European law. That law was the latest in a series the EU has enacted requiring Apple and other tech firms to redesign their software and hardware to be more open and consumer friendly.

The EU already has mandated that Apple must offer alternative app stores and give outside payment services access to its hardware.

Possible Exemption

Apple could be exempt from the EU’s battery replacement law if the iPhone can fulfill three requirements. Those require that batteries retain at least 83% of their capacity after 500 full charges and 80% of their capacity after 1,000 full charges.

The device also needs a water and dust resistance rating of at least IP67. The iPhone has had that rating, or higher, since 2016 but only recently met the battery health criteria for 1,000 full charges with the iPhone 15. Apple didn’t reveal the battery health of the iPhone 15 after 500 full charges but the iPhone 14 and earlier models wouldn’t have met the 500-charge requirement, according to its disclosures earlier this year.

There have been some signs that Apple is working on electrically induced adhesive debonding. In November, a user on X posted photos of what they claimed was the battery for the iPhone 16 Pro. The component had a metal shell for the first time, which is a prerequisite for the bonding process to work.

Last year, Apple’s senior vice president of hardware engineering, John Ternus, said in an interview with a German YouTube channel that there were trade-offs to complying with the new European battery replacement law. If users can easily take apart their phones, that could make the iPhone less water resistant.

“We absolutely believe that if people need a battery replacement, there should be a safe and an effective way to do that, and we’ve been enabling that through various Apple Stores and also our service partners,” he said. “We always need to make sure we’re balancing the durability with that repairability.”

FT : Cocoa prices tumble as African crop fears ease

Cocoa prices tumble as African crop fears ease
Hedge funds cut bullish bets as seasonal rains improve production outlook in Ghana

Cocoa futures fell for the sixth day in a row on Thursday, the longest run of losses since 2022, as improved weather in the main growing region in west Africa takes the heat out of a record price surge.

The most active futures contracts in New York tumbled 5.6 per cent to $7,361 a tonne, and its London equivalent lost 10.3 per cent to £7,010 a tonne, as rising hopes that crops in Ghana and Ivory Coast may recover in the coming season trigger a sell-off. 

“The years long bull market in cocoa may have finally ended as prices fell by enough to trigger our risk-management liquidation rules,” said Eric Crittenden, chief investment office of Standpoint Asset Management, in his latest monthly update.

Cocoa futures in New York and London doubled in value to record highs this year, with New York prices surpassing $12,000 a ton in April as poor weather and disease devastated crops in Ghana and Ivory Coast, where two-thirds of the world’s cocoa beans are grown, and hedge funds piled into the market.  

The two west African countries, which set prices for farmers and sell forward contracts to traders to deliver the beans, also failed to meet orders for hundreds of thousands of tonnes of beans.

Carlos Mera, head of agricultural commodities at Rabobank, said that this year’s price peaks had been driven not only by “shockingly low” crops in west Africa but also the fact that “more cocoa had been sold than there was in existence”.

Years of low prices have meant cash-strapped farmers have been unable to invest in improving ageing plantations.

Mera said that Ghana had produced only 500,000 tonnes of the 800,000 tonnes it had contracted to sell to the world’s big food processors, and the remainder had to be rolled over for delivery to the next season. As the price rose, “many physical buyers had to buy back their short hedges”, he added.

But he said the market was expecting to see “some recovery” in Ghana and Ivory Coast’s crops after the arrival of the seasonal rains. New plantations in countries such as Ecuador would also help meet global demand, he said.

As the price drops from April’s record high, hedge funds have reduced their bets on the bull market continuing. Net long positions fell to 25,675 contracts in New York in the week ending June 18, compared with 70,661 in late January, according to data from the US Commodity Futures Trading Commission.

However ADM Investor Services, a UK brokerage, said that “the crop is not out of the woods yet”.

“The trade is awaiting the results of the pod counting surveys, which will come later this summer,” said Mark Bowman, an analyst at ADM.

He added that Ivory Coast’s weekly tally of fresh crop arrivals was still falling. It totalled 15,000 metric tonnes for the week ending June 23, down from 25,000 the previous week and 30,000 a year ago.