TheChek News Flow

Saks divisive debt reshuffle shows a retail sector under strain

US department store chain has made some of its creditors very unhappy with their unequal treatment

What could be more relatable than a holiday spending blunder? Last December, US department store chain Saks acquired rival Neiman Marcus for $2.7bn. To help fund the deal, it issued $2.2bn in bonds. And already, the combined business has found itself struggling to meet a $120mn interest payment due on Monday.

Saks has responded in a no less relatable way: by going deeper into debt. Late on Friday it announced a complex $600mn fundraising that provides some breathing room. But the US retail sector is floundering, and in trying to dig itself out of a hole, Saks has made some of its creditors very unhappy.

Typically when a company borrows money, investors who provide the same class of capital — say, participating in a given bond issue — get equal treatment. Saks, though, has opted to divide and conquer. A slim majority of bondholders agreed to put up much of the new money. But in return they get to hold the company’s most senior-ranked debt, meaning they gets top treatment in any bankruptcy. Some of this investor group’s existing bonds will be converted into the new type too.

Not so for the minority, who are largely left with their existing bonds pushed further down the pecking order. This kind of unequal treatment has a name in debt restructuring circles: “creditor-on-creditor violence”. 

Saks presumably bets the bruised feelings will be worth it in the end. The deal is certainly helpful to Richard Baker, Saks’ billionaire owner, since restructuring avoids a bankruptcy in which his equity could prove worthless. Baker is already busy: he also owns Hudson’s Bay, a Canadian department store retailer in the middle of bankruptcy proceedings.

The lossmaking Saks thinks it could, with cost cuts and various accounting adjustments, make $1bn of ebitda in 2026. That suggests a company worth just under $6bn, valued on the same multiple at which luxury rival Nordstrom was recently acquired. But with more than $5bn of group debt, even in this rosy scenario the equity looks to have little value.

Retail is particularly prone to kick the can exercises where companies use their intellectual property, real estate and inventory as security to raise capital when in dire straits. And still, lenders to the sector get burned. An analysis from Fitch Ratings found that 34 of 79 recent retail bankruptcies ended in liquidations instead of reorganisations, four times the rate across all sectors.

Saks can pit creditors against one another partly because its bonds came with fairly loose conditions, as often happens when financing is raised during periods of market complacency. That incentivises borrowers to try various stunts in order to avoid bankruptcy. But as with any credit-fuelled holiday splurge, the bill eventually comes due. Saks has six months until its next interest payment. A less-than-merry Christmas looms.

German lender’s risk-weighted assets could increase by one-third by 2033

Deutsche Bank has laid out a steeper than expected capital hit from new rules on how banks calculate risk, as European lenders begin to reveal the impact of Basel IV reforms.

Under the new rules, which will be fully implemented by 2033 and limit the extent to which banks can use internal models to calculate their risk-weighted assets, Deutsche’s RWAs would increase by one-third, based on figures from the lender’s latest Pillar 3 report which includes key information required from banks under the current regulatory framework.

The German bank has repeatedly clashed with regulators over its internal risk models in recent years.

Risk-weighted assets are important in determining how much capital regulators require a bank to have. Watchdogs are seeking to limit the extent to which banks can use internal models to calculate their RWAs, and so cut down the variation in capital requirements between banks.

The changes, which would take Deutsche Bank’s RWAs to €470bn, threaten to drag down Deutsche’s core capital or CET1 ratio, a measure of capital strength.

The figures in the report indicate that the ratio would drop from 13.8 per cent to about 10.4 per cent by 2033 — well below the bank’s current target of 13.5-14 per cent and less than its current regulatory minimum of 11.3 per cent.

Under the new rules, from 2030 internal model RWAs cannot be less than 72.5 per cent of the standardised calculation — or they will be subject to a so-called output floor.

Deutsche’s chief financial officer James von Moltke told investors in 2023 he anticipated a “day one impact” of about €30bn in higher RWAs by 2030, after taking steps to “offset some of the impacts of the output floor”.

But the figures from the bank’s latest Pillar 3 report indicate that, in a worst-case scenario, Deutsche’s RWAs would rise by €63bn by 2030.

Analysts at Autonomous estimate that Deutsche Bank would be among the most affected lenders in Europe.

Just 33 per cent of the bank’s RWAs are currently calculated using standardised models, compared to more than 50 per cent at BNP Paribas and UBS.

The biggest jump in RWAs from the shift to standardised models would come from Deutsche’s corporate loan book, which would rise from €101bn to €179bn. Residential mortgage RWAs would also increase from €32bn to €51bn.

The bank noted that the figures “do not reflect any mitigating impact from potential legislative revisions which are currently under discussion,” nor the effects of its own mitigation plans in the years ahead.

“In recent years we have consistently demonstrated our ability to absorb and offset the impact of regulatory changes through a combination of mitigating actions, capital efficiency measures resulting in RWA reductions, and organic capital generation,” Deutsche said.

The bank added that its strategy, financial targets, and capital return plans remained “unaffected by these amendments”.

Deutsche shares have fallen 6 per cent over the past two trading days following the publication of the disclosure late last week.

Analysts at Citi described the market reaction as “overblown”. “Given the long transition timeframe, and likelihood that the final rules will change, we see no near-term impact on capital return prospects,” they said.

Other European lenders which are expected to be affected by Basel IV include SEB, Danske Bank and UBS, according to analysts at Citi, Morgan Stanley and Autonomous.

Some banks might even benefit from the new rules initially. The RWAs of Deutsche’s local rival Commerzbank would decline from €174bn under the current methodology to €165bn by 2030 and only climb to €190bn by 2033, based on their latest Pillar 3 report.

UK banks are not expected to report under the standardised framework until 2027, when Basel IV is currently scheduled to take effect.

Elon Musk’s generative AI startup, xAI, has raised $10 billion in debt and equity, reported CNBC.

The company secured $5 billion through a strategic equity investment, according to Morgan Stanley as cited by CNBC. The remainder of the capital was obtained through term loans and secured notes.

The raise comes just over six months after xAI raised $6 billion in a Series C round of funding at a $50 billion valuation. That financing included participation from Valor Equity Partners, Vy Capital, Andreessen Horowitz, Sequoia Capital, Fidelity Management & Research Co., and Kingdom Holding Co., among others. XAI also raised $6 billion in a May 2024 Series B round that valued the company at $24 billion.

It is not known what xAI’s new valuation is after this latest financing.

The company will now have more dry powder with which to build out its ChatGPT competitor, Grok. The chatbot is trained off data from another one of Musk’s companies, X. In March, xAI acquired X. According to CNBC, xAI was valued at $80 billion in the deal, while X was valued at $33 billion.

xAI competes with a number of other startups including OpenAI, Anthropic and Mistral AI. In late March, OpenAI announced it had raised $40 billion, one of the largest private funding rounds ever raised. It was valued at $300 billion after that financing.

Meanwhile, in early March, Anthropic was valued at $61.5 billion post-money after raising $3.5 billion in a Series E round of funding.

The Paris restaurant, famous for its caviar-topped potato, has hooked up with Venetian atelier Dellaluna for a permanent collection of bags.

IN THE BAG: You can imagine an evening bag in the distinctive turquoise color of Caviar Kaspia‘s tablecloths and napkins would be a conversation starter — even if it doesn’t shelter a tin of Beluga Royal.

On Tuesday night in Paris, the landmark fashion canteen hosted a cocktail party to toast a new collaboration with Dellaluna, a Venetian maker of leather goods, perfumes and fine jewelry.

The Dellaluna x Caviar Kaspia partnership has spawned a permanent offering of Italian-made leather handbags, evening clutches, a structured document case and a men’s pouch, to be sold at all Kaspia locations and on its e-commerce platform.

“We wanted to create something lasting,” said Silvia Paulon, founder and creative director of Dellaluna, whose Venice flagship is located a blini’s throw from Harry’s Bar.

That said, there will be a limited-edition tote bag — dubbed the Spiaggina — with 50 units priced at 1,600 euros each. The summery style is made of Togo leather and finished off with silk embroidery by Dellaluna’s artisans.

Most of Paulon’s handbags, incorporating motifs evocative of Italian Gothic architecture, are hand sculpted in calfskin with 18-karat gold hardware.

For Kaspia, they are given an “after dark” allure, as the historic restaurant on Place de la Madeleine in Paris serves caviar-topped potatoes and Norwegian salmon until 1 a.m.

According to Kaspia chief executive officer Ramon Mac-Crohon, the tie-up with Dellaluna is “part of a deliberate movement into timeless objects that hold the same spirit as our tables in Paris, London or New York.”

The house has partnered with MK2 to sponsor the four-day film festival for the first time since its move from the Grand Palais.

PARIS — Fashion, film and fine art will join forces for Cinema Paradiso, a four-day film festival at the Louvre, with support from Chanel.

The house has boarded as a sponsor for this summer’s edition of the open-air film festival held in the Cour Carrée. The event, which runs Wednesday to Saturday, will transform the heart of the museum into a community space with food, concerts and evening film screenings.

Longtime Chanel ambassador Sofia Coppola will open the program, hosting a 25th anniversary screening of her debut film “The Virgin Suicides.”

The event is organized by French indie cinema group MK2. Cinema Paradiso first launched in 2013 as a private, ticketed event at the Grand Palais. In 2019, it relocated to the Louvre and shifted toward a free, public-facing event.

Chanel was on board in 2015, in part due to its longstanding ties with the Grand Palais, but this year is the house’s first time supporting the festival at the Louvre location.

“What we love about Chanel is that they are very sincere in their investment toward cinema. They are supportive of movie productions and movie restorations, and have a long-term engagement with the film industry,” MK2 chief executive officer Elisha Karmitz told WWD, noting the house has a team specifically dedicated to film partnerships.

That division is overseen by Elsa Heizmann, Chanel’s global head of fashion’s relationship with cinema. She told WWD the house’s return to the project reflects its broader belief supporting cinema.

“Inviting the public to discover or rediscover films on the big screen in the heart of iconic Parisian locations naturally aligns with Chanel’s belief that cinema should be an experience of wonder and sharing,” she said. “This year’s eclectic programming in the Cour Carrée of the Louvre once again promises four absolutely magical evenings.”

Chanel brought on board Coppola to present her cult classic on opening night.

“It was a somewhat crazy idea but one that immediately excited us,” Heizmann said of inviting the director. “Sofia Coppola is a cult filmmaker both for viewers like me who saw ‘Virgin Suicides’ when it was released 25 years ago and for a whole new generation of young directors and cinephiles who are discovering her films and are often moved or inspired by her work,” Heizmann said.

Coppola’s longstanding relationship with Chanel runs deep. Chanel recently created the wedding dress worn by Cailee Spaeny in Coppola’s film “Priscilla,” and she directed the teaser for Chanel’s most recent Cruise collection.

“The relationship between Chanel and Sofia has been long established and has grown over time through multiple creative collaborations,” Heizmann said.

Chanel’s renewed involvement with Cinema Paradiso highlights the House’s deep and ongoing ties with the industry, a relationship that extends beyond red carpet dressing. “This [event] perfectly illustrates the uniqueness of the relationship and dialogue that Chanel maintains with the Seventh Art,” she added.

This year’s event coincides with the weeklong gap between men’s fashion week and couture, which starts on Sunday. The Louvre itself is hosting its first exhibition dedicated entirely to fashion, on view through Aug. 24. That made the inclusion of fashion-minded films a natural choice, Karmitz said.

“With fashion in mind, bringing in Coppola was quite obvious,” he said. In the fashion vein, MK2 also programmed Wong Kar-wai’s “In the Mood for Love,” long considered one of the most stylish films of the 2000s.

The lineup also includes a tribute to David Lynch, whose films were long distributed by MK2.

“It was important to have to us and for the family to pay an homage to David,” Karmitz said.

The festival will close with the public premiere of “The Secret Agent,” the Brazilian feature directed by Kleber Mendonça Filho and starring Wagner Moura. The two took home the best director and the best actor prize at the Cannes Film Festival in May and will be on hand to present the film.

Karmitz emphasizes that this will be a cinema experience, with a full theater-quality movie screen and the quality sound to match. “It’s about honoring cinema with technical excellence, even in an outdoor setting. It’s kind of a French way of doing a big pop-up cinema event,” he said.

He described the project as an effort to elevate film as an art form among fine art, as well as build communal experiences in this divided, algorithmic age.

“The idea is also to express the fact that cinema is bringing people together to share emotions collectively in front of a piece of unique storytelling,” Karmitz said. “That’s the purpose of art. That’s the purpose of the Louvre — to create enlightenment, create education, and to create a community together.”

Karmitz noted that the Louvre’s broader summer programming reflects a shift toward inclusion. “It’s also a way for many Parisians who sometimes won’t enter the Louvre for an exhibition to get in contact with this space and this more classical culture,” he said.

“We consider cinema as a total art,” Karmitz added. “Cinema would be impossible without fine arts, without fashion, without photography, without music.”

Other programming includes concerts and a variety of food trucks for a festival atmosphere ahead of the screenings.Tickets are distributed through an online and social media lottery, while Chanel will host an opening night cocktail.

Legacy aerospace giants scored a win Tuesday when the U.S. Senate passed President Trump’s budget reconciliation bill that earmarks billions more for NASA’s flagship Artemis program.

The $10 billion addition to the Artemis architecture, which includes funding for additional Space Launch System rockets and an orbiting station around the moon called Gateway, is a rebuke to critics who wished to see alternative technologies used instead. Among those critics are SpaceX CEO Elon Musk and billionaire entrepreneur Jared Isaacman, who Musk proposed as the next NASA administrator.

There’s no sign the souring relations between Musk and Trump are recovering. If Trump signs the bill, the fallout, which began after the president’s abrupt revocation of Isaacman’s nomination, will likely continue — if not escalate.

Musk in particular has taken aim at the Space Launch System (SLS) rocket on the grounds that it is fully expendable. Unlike SpaceX’s family of rockets, which are all designed to be reusable, SLS is one-time use only. As Musk put it back in 2020, that means “a billion dollar rocket is blown up” every time it is launched. Even that may have been an understatement; more recent figures from NASA’s watchdog put recurring production costs closer to $2.5 billion each.

A total of around $24 billion has been poured into SLS production to date, funds that have primarily gone to a consortium of aerospace primes, including Boeing, L3Harris’ Aerojet Rocketdyne, and Northrop Grumman, which leads construction of the major rocket components.

During his recent confirmation hearings with the Senate, Isaacman questioned the massive sums. He affirmed using SLS for the next two Artemis missions, but ultimately said he didn’t think the rocket was “the long‑term way to get to and from the moon and to Mars with great frequency.”

Congress — and Trump, if he decides to sign the bill into law — have decided to press ahead. Around $4.1 billion of the $10 billion total added to the document will go toward additional SLS rockets for Artemis missions 4 and 5. Meanwhile, around $2.6 billion will go toward completion of the Gateway station.

Notably, the president’s fiscal year budget request for NASA submitted in May proposed to “phase out the Space Launch System and Orion spacecraft after the Artemis III mission is complete.” This new funding flies in the face of that proposal, which was submitted before Musk and Trump’s public fallout in June.

The new funding includes $700 million for a new Mars Telecommunications Orbiter, $1.25 billion for additional operation of the International Space Station, and $325 million to SpaceX for the development of a spacecraft to de-orbit the ISS at the end of the decade. (The total award for that de-orbit spacecraft is $843 million.)

With a $1.65 billion valuation, Dexterity has secured “unicorn” status

The robots are coming, but their arrival might be welcome if artificial-intelligence unicorn startup Dexterity has its way.

California-based Dexterity programs what it describes as “superhumanoids”: large industrial robots built to do physically demanding and dangerous tasks.

The aim, says founder and chief executive Samir Menon, isn’t to replace humans but to amplify them.

“You can try to do robotics in a way that you’re replacing people or you can try to do it in a way that you’re supercharging people,” the 40-year-old said in a recent interview on the sidelines of the ATxSummit in Singapore.

In the AI gold rush of the past years, the startup founded by Menon in 2017 has raked in millions in investment. At a $1.65 billion valuation, it’s secured “unicorn” status.

Dexterity’s robots, designed to operate at temperatures and altitudes unfriendly to humans, have attracted partnerships with U.S. delivery giant FedEx and Japan’s Sumitomo Corp. 8053 0.24%increase; green up pointing triangle

Dexterity’s robots are manufactured via partnerships with industrial veterans like Japan’s Kawasaki Heavy Industries, which do the manufacturing. Its flagship offering, the Mech, is a roving, two-armed robot that can perform heavy lifting.

“They’re kind of inspired by ‘Transformers’ and ‘Pacific Rim’,” Menon said, in a nod to the Hollywood blockbusters starring giant robots.

Dexterity is currently fundraising and eventually wants to go public in the U.S.

Humanoid companies have been pulling in major investments in recent years. According to Crunchbase, six robotics companies became new unicorns last year. This year, more have joined the ranks, including The Bot Co., a robotics company focused on household chores which Crunchbase said was valued at $2 billion though it still hasn’t released a product.

With profitability for Dexterity still a few years away, Menon says he is prioritizing growth for now. Getting to the IPO stage rests on stable revenue streams and scaling the company, he said.

Menon’s upbeat on that front, seeing a not-too-distant future where industrial robots are commonplace in places like supermarkets and airports.

Market analysts agree. A recent report by Morgan Stanley projects that by 2050, the humanoids market will top $5 trillion. Over 1 billion humanoids could be in use by then, primarily in commercial and industrial settings, it said.

The parcel industry, retail and e-commerce sectors are already on the verge of mass adoption, said Menon, predicting take-up by large enterprises that will be “a great foundational step for physical AI.”

That doesn’t necessarily have to be bad news for the labor market, he said.

If robotics firms want to be non-disruptive, they will focus on making robots that are superhuman in size, strength, and can work in extreme heat and cold, said Menon, who holds a doctorate in computer science from Stanford University.

“You can build [robots] in a way that you’re copying the human shape, in which case it’s designed to replace a human,” he said. “It’s a strategic decision. We took the decision to do robotics in a way that supercharges people.”

Robots can help fill market gaps, the tech CEO argues.

In many developed societies, declining birthrates and longer lifespans mean shrinking workforces need to support growing retiree populations.

Bain & Company estimates that by 2030, the global shortage of manufacturing workers could reach nearly 8 million, boosting the need for robots to sustain economic growth. While humanoids won’t replace swaths of workers overnight, they will take a meaningful share of physical jobs as tech advances and costs fall, the consulting firm said in a report.

For Menon, worker deficits mean there is a way to introduce robots in markets like the U.S., Japan and Europe “in a non-disruptive manner.”

Big improvements in standards of living in certain developed markets help too, he added. “A lot of people don’t really want to do extremely low-paying, very stressful tasks.”

WSJ : Malaysia’s MMC Port Plans to Meet Investors Before Up to $2.0 Billion IPO

The company aims to fix its cornerstone investors by end-August

Malaysian Port operator MMC Port Holdings will start meeting investors from the Middle East, Europe and the U.S. starting early next week, ahead of an initial public offering to raise up to $2.0 billion, people familiar with the process said.

The company aims to fix its cornerstone investors by end-August before launching the IPO to institutional and retail investors, these people said. It plans to list on Malaysia’s stock exchange by late in the third quarter or early in the fourth quarter of this year, they said.

Securing cornerstone investors before an IPO allows companies to market their offerings more effectively to both institutional and retail investors, especially with large deals.

MMC didn’t immediately respond to an email seeking comment.

Earlier in the day, MMC submitted a draft prospectus for an IPO in Malaysia with plans to sell up to 4.27 billion shares.

MMC, incorporated in Malaysia in 2006, operates five major sea ports, a solid-product jetty terminal, and offers offshore ship-to-ship services.

Peter Thiel joins tech billionaires backing new lender Erebor to rival Silicon Valley Bank

Start-up named after the dragon’s mountain in ‘Lord of the Rings’

A group of tech billionaires led by Palmer Luckey, co-founder of military contractor Anduril, is preparing to launch a US bank intended to fill the gap left by Silicon Valley Bank serving start-ups, including cryptocurrency businesses.

To be named Erebor, the bank would be backed by high-profile tech investors including Joe Lonsdale, the founder of venture capital firm 8VC and a co-founder of Peter Thiel’s defence group Palantir, according to people familiar with the matter.

Thiel’s venture capital fund, Founders Fund, would also be among the investors, according to two people close to the matter.

Like Anduril and Palantir, Erebor’s name is a reference to JRR Tolkien’s The Lord of the Rings. Erebor is the “lonely mountain” whose treasures are reclaimed from the dragon Smaug.

Luckey and Lonsdale — who were big donors to Donald Trump in the 2024 US presidential election — want the bank to take over the niche once occupied by SVB as the go-to lender for riskier companies and cryptocurrency players that traditional banks might reject.

Erebor has applied for a national bank charter in the US, a licence that allows a financial institution to operate as a bank.

“The bank will be a national bank . . . providing traditional banking products, as well as virtual currency-related products and services, for businesses and individuals,” according to the application, made public this week.

Its target market would be businesses that were part of the US “innovation economy”, in particular tech companies focused on virtual currencies, artificial intelligence, defence and manufacturing, the filing said. It would also serve individuals who work for or invest in these companies.

It also planned to work with non-US companies “seeking access to the US banking system”.

Erebor’s co-founders first discussed launching a bank after the collapse of SVB in 2023, according to a person close to the matter. SVB had been the main bank for US start-ups and their venture capital backers.

Its assets were sold to First Citizens, which has since relaunched SVB, and a number of its bankers moved to HSBC in the US. But investors and executives complain about a gap in banking services for fledgling tech companies since SVB’s demise — with some start-ups struggling to get the same access to capital.

Erebor said in the filing it would “differentiate itself” by working with customers that “are not well served by traditional or disruptive financial institutions, in particular with respect to insufficient access to credit”.

Cryptocurrencies known as “stablecoins”, which are pegged to real-life assets such as the dollar, are expected to be a significant part of the bank’s operations. The application states Erebor aims to be “the most regulated entity conducting and facilitating stablecoin transactions”.

Luckey and Lonsdale were not expected to be involved in the day-to-day management of the bank, according to people familiar with their plans. It will be run by co-CEOs Jacob Hirshman, who previously worked as an adviser at crypto group Circle, and Owen Rapaport, co-founder and CEO of digital assets software company Aer Compliance. Mike Hagedorn, former senior executive vice-president at New Jersey-based Valley National Bank, will be the bank’s president.

Its head office will be in Columbus, Ohio, with an additional office in New York, but it will offer digital-only customer service, marketing all of its products and services via a smartphone app and website.

Part of the application was submitted confidentially and has not been made public, such as details relating to its shareholders, equity structure and business plan.

Luckey did not respond to a request for comment. Lonsdale confirmed he was a financial backer to the project but declined to comment further. Rapaport and a spokesperson for Thiel declined to comment. Hirshman and Hagedorn did not reply.

US banks announce big shareholder payouts as Fed eases stress tests

Wall Street titans to raise dividends and buy back shares on back of lighter oversight

Investors reaped the rewards of looser bank supervision as Wall Street’s biggest banks announced a flood of shareholder payouts on Tuesday, after passing regulatory stress tests that imposed easier conditions than in years past.

JPMorgan, Goldman Sachs, Bank of America, Morgan Stanley and other banks said they would raise quarterly dividend payments to shareholders. JPMorgan and Morgan Stanley also said they would buy back billions of dollars' worth of their shares.

Goldman said it would raise its dividend 33 per cent. JPMorgan said it would increase its quarterly common stock dividend by 7 per cent in the next quarter.

Bank of America said it would raise its quarterly common stock dividend 8 per cent starting in the same quarter. Citi and BNY also said they would increase their dividends by 7 and 13 per cent, respectively.

JPMorgan said it would authorise the purchase of up to $50bn worth of its own shares while Morgan Stanley announced a buyback programme worth up to $20bn.

The higher payouts reflect what analysts and investors view as a less onerous regulatory environment for banks after more than a decade of tight restrictions in the aftermath of the 2008 financial crisis.

Bank share prices were little changed after the announcements on Tuesday, but have booked gains in recent days as investors absorbed news of the lighter stress test requirements.

The Federal Reserve last week confirmed that 22 banks — ranging from the largest ones such as JPMorgan and Goldman Sachs to smaller players including PNC and BNY — successfully passed annual tests assessing their resilience to potential economic and market crises.

Banks use the results to calculate the minimum level of capital that they need relative to their risk-adjusted assets — which in turn can influence the amount of excess capital they return to shareholders. Capital is used by banks to absorb losses.

This year’s stress tests were the first since the Fed loosened its scenario with a less severe theoretical recession than it used the previous year. While the new test was designed before US President Donald Trump retook office, it is in line with the looser banking regulation that his administration has championed.

Analysts at Morgan Stanley had said the Fed’s results were “even better than expected” as they flagged methodology changes that led to lower hypothetical losses including changes to the way the regulator measures private equity exposure.

“A New Era for Bank Regulation is here,” Morgan Stanley analysts wrote in a note to earlier this week.

The Fed said this year’s tests would push banks’ aggregate tier one capital ratio, their main cushion against losses, down by 1.8 percentage points — well below the 2.8-percentage-point fall in last year’s exercise.

The central bank is expected to provide clarity in coming weeks on whether it will begin to use an average of the past two years’ stress tests results to calculate banks’ capital requirements, a move that vice-chair for supervision Michelle Bowman said would help mitigate volatility in the results.

As part of a broader push to ease banking regulation, the Fed and two other watchdogs last week announced plans to slash the enhanced supplementary leverage ratio, which sets how much capital the biggest institutions need to have against their total assets.