🏦 How Healthy Are US Banks?

Good morning. US stock futures dipped in Thursday morning trading after a slate of mixed quarterly results dampened investor sentiment.

💸 US banks pass latest stress tests

📝 Our report: The Federal Reserve's annual "stress test" showed that the biggest U.S. banks can weather severe economic turmoil, but their riskier portfolios mean steeper hypothetical losses this year. The exercise found 31 big banks would weather a spike in the jobless rate, severe market volatility, and dives in the residential and commercial mortgage markets and still retain enough capital to continue lending.

 🔑 Key points:

• The relatively clean bill of health clears the way for the banks to announce capital plans to shareholders in the coming days, including stock buybacks and dividends.

• The 2024 version of the stress test was broadly similar to last year's, and the Fed said the higher losses were due to how bank portfolios have shifted in the last year

• While banks were expected to perform well under this year's exam as they have in years prior, the annual results are significant for each firm because how well they perform dictates how much capital they must hold against potential losses.

💡 So what: The implications of the largest U.S. banks passing the Federal Reserve's latest stress tests are multifaceted. Firstly, it reassures investors and the public that these banks have sufficient capital buffers to withstand severe economic downturns, which bolsters confidence in the financial system. It also indicates that regulatory measures implemented post-2008 financial crisis are effective in enhancing the resilience of major financial institutions. However, the steeper hypothetical losses due to riskier portfolios highlight potential vulnerabilities and the need for ongoing risk management and oversight. Moreover, passing the stress tests may allow banks to proceed with plans for dividends and stock buybacks, which can have positive implications for shareholders.

Thursday - GDP (revised)

Friday - Richmond Fed President Tom Barkin Speaks in Paris, Consumer Sentiment (final)

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🍔 About those plant-based burgers…

WHAT: A top McDonald’s exec admitted that the US test of plant-based meat flopped, adding that customers don’t visit the Golden Arches for salads. A test of its McPlant burger in San Francisco and Dallas “was not successful in either market,” Joe Erlinger, the chain’s US chief, said at the Wall Street Journal’s Global Food Forum in Chicago.

WHY: Instead of plant-based options, McDonald’s is investing in its chicken offerings as consumers lean toward that protein. The company sells more chicken than beef these days, Erlinger added.

📷 Google tests facial recognition tech for campus security

WHAT: Google is testing facial recognition for office security to keep out unauthorized individuals and ensure campuses stay exclusive, according to reports from CNBC. The initial test is taking place at one of Alphabet’s sites in Kirkland, Washington, a Seattle suburb, the document says. Interior security cameras have been collecting facial data and comparing it to images stored from employee badge images, which includes the extended workforce, to help determine if there are unauthorized people on the premises.

WHY: Security is a costly endeavor for Google not just on campuses but all the way up to the top ranks of the company. In 2023, CEO Sundar Pichai’s personal security cost the company $6.8 million, up from $5.9 million a year earlier, according to regulatory filings.

👖 Amazon plans “discount section” for website

WHAT: Amazon plans to launch a section on its shopping site featuring bargain items shipped straight to overseas buyers from Chinese warehouses, according to slides shown to Chinese sellers, The Information reported. The new marketplace, Amazon's most aggressive response to the growth of bargain sites like Temu and Shein, will offer unbranded fashion, home goods and daily necessities, according to the slides, and will be delivered between 9 to 11 days to customers, the report said.

WHY: The e-commerce giant in a recent closed-door meeting told Chinese sellers it would start signing up merchants this summer and begin accepting inventory in the fall, according to the Information.

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