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>>> Justice Department Sues Visa, Alleges Illegal Monopoly in Debit-Card Payments
The Wall Street Journal
by Dave Michaels, Angel Au-Yeung
9-24-24
https://www.msn.com/en-us/money/companies/justice-department-sues-visa-alleges-illegal-monopoly-in-debit-card-payments/ar-AA1r8huJ?ocid=BingNewsSerp
The Justice Department sued Visa on Tuesday on allegations that it illegally monopolized the market for consumer payments worth trillions of dollars every year, a sweeping antitrust complaint that seeks to open the debit-card market to new competition.
Visa used carrots and sticks to keep potential competitors off its turf and to punish merchants that did business with rivals, the lawsuit said. Fearing that tech companies would deploy cheaper alternatives for sending money from bank accounts, Visa paid companies such as Apple to limit their innovation and sought to undermine startups that tried to compete, the department alleged.
Visa, which operates the largest card network in the U.S., sits at the center of many consumers’ daily payments by providing the infrastructure that debit- and credit-card payments run on. The case underscores the essential nature of Visa’s platform: consumers have moved further away from cash in favor of card payments.
The complaint, filed in Manhattan federal court, alleged that Visa has monopolized the debit-card market since 2012.
To keep its share of transactions high, Visa punished merchants by levying higher fees if they routed some transactions to another card network, the Justice Department said. Consumers are also losers from the arrangement, the government said, because card fees can prompt merchants to recoup the costs by raising prices for goods and services.
“Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said. “Visa’s unlawful conduct affects not just the price of one thing—but the price of nearly everything.”
Visa General Counsel Julie Rottenberg said the lawsuit “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving.”
Rottenberg added: “We are proud of the payments network we have built, the innovation we advance and the economic opportunity we enable. This lawsuit is meritless, and we will defend ourselves vigorously.”
The company’s market share in debit payments is about 60%, and it earns about $7 billion a year in debit-swipe fees, according to the Justice Department. It dwarfs the other players in debit-card services, which include Mastercard, American Express and Discover Financial Services. For nearly two decades, Visa has been at the center of complaints from merchants, lawmakers and regulators over its dominance in the payments industry.
Under the Biden administration, the Justice Department’s antitrust division has been targeting middlemen that enjoy a lucrative cut of transaction fees. It sued Live Nation Entertainment in May, alleging that the owner of Ticketmaster thwarted competition that could have brought down fees levied on ticket prices. The department filed an antitrust lawsuit against Apple in March. Part of that case targeted fees that Apple charges to process credit-card transactions initiated when consumers pay with their iPhones.
Visa and other major networks, including Mastercard, have been concerned about increased competition from newer payment firms in the fintech industry. Visa tried in 2020 to buy Plaid, a financial-software provider, but the Justice Department sued to block that deal, accusing Visa of attempting to take out a nascent competitor.
The government said in its lawsuit over the Visa-Plaid deal that the smaller company was a threat to Visa’s grip in online debit transactions. Plaid planned to compete with Visa to offer online debit services and stood to drive down prices for consumers, the Justice Department alleged at the time.
Visa abandoned the transaction in January 2021, a few months after the Justice Department sued. In 2022, Visa acquired Tink, a Swedish fintech startup that does much of what Plaid offers.
Visa’s share price fell around 5% on Tuesday.
In the new lawsuit, the department alleged that Visa made illegal incentive payments to such technology companies as Apple and Amazon.com to stay out of the market. It threatened the fintech companies PayPal and Square, part of the company now known as Block, with exorbitant fees if they introduced alternatives for sending money using payment networks other than Visa’s, the government said.
Visa’s deal with Apple says the iPhone maker can’t deploy payment technology that would compete with Visa or prod consumers to move away from Visa cards, according to the lawsuit. In return, “Visa shares its monopoly profits with Apple,” the Justice Department said, describing “massive” payments without specifying how much.
A former Visa chief financial officer summed up the strategy in a message cited in lawsuit: “Everybody is a friend and partner. Nobody is a competitor.”
Visa sometimes cooperated with startups such as Square, but threatened to terminate contracts if its partners went too far in competing with the card network.
After signing one such contract with Square in 2014, a Visa executive said, “We’ve got Square on a short leash,” according to the lawsuit.
The lawsuit is asking a court to order that Visa cease several anticompetitive practices, but doesn’t demand that the company be broken up.
The Justice Department said Visa has a practice of offering volume discounts to merchants that is illegal under antitrust laws. The tactic discourages merchants from routing transactions through other card networks that are often less expensive, the department said.
Federal law requires that merchants have the ability to choose from at least two unaffiliated debit-card networks to process transactions. But Visa would penalize merchants who pick another payment network by charging higher fees on all transactions processed on Visa’s payment networks, according to the lawsuit.
The complaint said Visa isn’t restrained by a cap on fees that merchants pay banks to process debit transactions. Those so-called interchange fees are paid by merchants to banks and other financial institutions that issue cards. That law didn’t cap the fees that Visa charges to businesses for its role in processing payments.
The lawsuit could take several years to resolve, meaning it will be inherited by a new administration next year. Though Republicans have taken a more limited approach to antitrust enforcement, a Donald Trump win in November might not necessarily affect the government’s willingness to litigate. The department’s suit to block Visa from buying Plaid came when Trump was president.
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Apollo / Intel - >>> Apollo to Offer Multibillion-Dollar Investment in Intel
Bloomberg
by Liana Baker, Ryan Gould and Ian King
September 22, 2024
https://finance.yahoo.com/news/apollo-offer-multibillion-dollar-investment-205009294.html
(Bloomberg) -- Apollo Global Management Inc. has offered to make a multibillion-dollar investment in Intel Corp., according to people familiar with the matter, in a move that would be a vote of confidence in the chipmaker’s turnaround strategy.
The alternative asset manager has indicated in recent days it would be willing to make an equity-like investment of as much as $5 billion in Intel, said one of the people, who asked not to be identified discussing confidential information. Intel executives have been weighing Apollo’s proposal, the people said.
Nothing has been finalized, the size of the potential investment could change and discussions could fall through, resulting in no deal, the people added.
The development comes as San Diego-based Qualcomm Inc. floats a friendly takeover of Intel, people with knowledge of the matter said on Saturday, raising the prospect of one of the biggest-ever M&A deals.
Representatives for Apollo and Intel declined to comment.
Under Chief Executive Officer Pat Gelsinger, Intel has been working on an expensive plan to remake itself and bring in new products, technology and outside customers. That initiative has led to a series of worsening earnings reports that have undermined confidence in the initiative and knocked tens of billions of dollars off its market value. While Apollo may best be known today for its insurance, buyout and credit strategies, the firm started out in the 1990s as a distressed-investing specialist.
The companies already have a relationship. Santa Clara, California-based Intel agreed in June to sell a stake in a joint venture that controls a plant in Ireland for $11 billion to Apollo, bringing in more external funding for a massive expansion of its factory network.
Apollo also has other experience in the chipmaking space. Last year, the New York-based firm agreed to lead a $900 million investment in Western Digital Corp., buying convertible preferred stock.
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BAC - >>> Warren Buffett Just Sold Another $3.1 Billion Worth of One of Berkshire Hathaway's Largest Holdings. Here's Why.
Decoding Warren Buffett's stake reductions in Apple, BofA
Motley Fool
by Adam Levy
Sep 9, 2024
https://finance.yahoo.com/news/warren-buffett-just-sold-another-220100936.html
Warren Buffett hasn't seen a lot to like in the stock market in quite some time. In each of the last seven quarters, Buffett sold more stock from Berkshire Hathaway's equity portfolio than new purchases. And it looks like he's about to make it a full two years.
Last quarter, Buffett cut his company's massive position in Apple nearly in half. It was, by far, the biggest stock sale in the history of Berkshire Hathaway, amounting to roughly $72.6 billion. This quarter, Buffett has turned his attention to Berkshire's second-largest holding. At least, it used to be.
While we normally have to wait until Berkshire's quarterly filings with the SEC to see what moves the Oracle of Omaha and his team are making in the company's portfolio, there are some special exceptions. When an investor owns more than 10% of a publicly traded company, it must publicly report every stock purchase or sale within three days. That's why we know Buffett's been selling Berkshire's stake in Bank of America.
After selling $3.8 billion worth of the stock between July 17 and Aug. 1, Buffett sold another $3.1 billion in late August and early September. The value of Berkshire's holding has gone from $41.1 billion at the end of the second quarter to about $34 billion today.
Here's why Buffett may be selling Bank of America stock.
Making a bank withdrawal
At last year's Berkshire Hathaway shareholder meeting, Buffett expressed his concerns about the banking industry. This was right after the Silicon Valley Bank collapse, and Buffett expressed the idea that banking has changed substantially over the decades and will continue to change. The Silicon Valley bank run demonstrates that in the digital age, a bank run can happen in a matter of seconds. "If people think that deposits are sticky anymore, they're just living in a different era," he said.
Later, Buffett explained it's impossible to predict how the banking industry will change due to competing incentives from politicians, big bankers, consumers, and practically any other economic actor. But he said he does like one bank — Bank of America. "I like the management," he said.
He added a note about Berkshire's stock holding as well. "I proposed the deal with them, so I stick with it."
It's one thing to stick with a stock because you like the business and the management. It's another to stick with it out of loyalty to a decision made over a decade ago. Perhaps Buffett recognized that fallacy earlier this year as he turned his focus to taking gains on some of his biggest investments
As mentioned, Buffett sold a huge amount of Apple stock earlier this year. His reasoning, as he explained at this year's shareholder meeting, was his expectation that corporate tax rates will increase in the near future. It's better to take the gains now and pay the tax bill.
Of course, that only makes sense if the stock is trading for what Buffett asserts is its intrinsic value (or greater). So, he wouldn't liquidate everything Berkshire holds. He may have sold Bank of America stock this quarter as its valuation has climbed, and he holds a significant gain on the stock. He bought a good portion of Berkshire's Bank of America holdings for just $7.14 per share. The average sales price so far this quarter has been $41.25. On 150 million shares, that's over $5 billion in realized gains.
Should investors sell with Buffett?
Bank of America stock has performed well this year amid expectations that the Federal Reserve will start cutting rates. It looks like those rate cuts are finally coming to fruition, with the Fed expected to announce its first rate cut since 2020 later this month.
The bank suffered amid rising interest rates due to holding bonds on its balance sheet with longer-than-average durations. As such, the value of those bonds declined as the Fed raised rates. Meanwhile, Bank of America was stuck holding low-interest bonds while the market forced it to pay higher short-term interest rates. As a result, net interest income declined considerably.
But management believes it's hit a trough on net interest income, and the metric should start turning around next year. Bank of America should see an outsized benefit from declining interest rates as it still holds many long-duration bonds.
Furthermore, Buffett's concern about how "sticky" deposits are with the bank is less of a factor for Bank of America, considering its one of the biggest banks in the country, making it a Global Systemically Important Bank, G-SIB. That status gives depositors much more confidence in the bank and the systems protecting it.
The stock currently trades around its five-year average price to tangible book value, indicating it's probably fairly valued. Thus, it makes sense for Buffett to take advantage of the currently low tax rate, but investors interested in bank stocks may have a good opportunity to buy a great bank well positioned for declining interest rates.
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>>> State Street, Apollo Propose Private Credit ETF
by DJ Shaw
Sep 11, 2024
https://finance.yahoo.com/news/state-street-apollo-propose-private-181436775.html
State Street Global Advisors and Apollo Global Management are collaborating to introduce a private credit ETF that would offer retail investors access to private credit markets, according to a Tuesday Securities and Exchange Commission filing.
The proposed SPDR SSGA Apollo IG Public & Private Credit ETF would invest in a mix of public and private investment-grade debt securities, marking one of the first attempts to package private credit investments into an ETF wrapper, the filing said.
The proposed ETF comes as major asset managers seek ways to make private market investments more accessible to individual investors. Private credit has seen rapid growth in recent years but has largely been limited to institutional investors.
The State Street-Apollo product fund would invest at least 80% of its assets in investment-grade debt, including both public credit-related and private credit investments sourced by Apollo, according to the prospectus. Up to 20% could be allocated to high-yield bonds, the filing said.
Private Credit Innovation
A key feature of the proposed private credit ETF is Apollo’s promise to provide daily pricing for the private investments it sources, the filing said. This approach aims to make traditionally illiquid private credit more tradable, potentially attracting investors interested in this market.
The fund aims to provide income and maximize returns while managing risk by actively investing in U.S. investment-grade bonds, according to the prospectus. These may include government and corporate bonds, securitized loans, mortgage-backed securities, and other debt instruments.
The filing did not specify a proposed ticker symbol or expense ratio, and the new fund would still require regulatory approval before coming to market.
As of June 30, New York-based Apollo had approximately $696 billion of assets under management, according to company data. State Street is the world’s fourth-largest asset manager with $4.4 trillion in assets. Its ETF business manages 138 funds accounting for $1.3 trillion in assets.
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>>> CBIZ, Inc. (CBZ) provides financial, insurance, and advisory services in the United States and Canada. It operates through Financial Services, Benefits and Insurance Services, and National Practices segments.
The Financial Services segment offers accounting and tax, financial advisory, valuation, risk and advisory, and government healthcare consulting services.
The Benefits and Insurance Services segment provides employee benefits consulting, payroll/human capital management, property and casualty insurance, and retirement and investment services.
The National Practices segment offers information technology managed networking and hardware, and health care consulting services.
The company primarily serves small and medium-sized businesses, as well as individuals, governmental entities, and not-for-profit enterprises. CBIZ, Inc. was incorporated in 1987 and is headquartered in Independence, Ohio.
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https://finance.yahoo.com/quote/CBZ/profile/
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>>> Mastercard (MA) is a payment processing company with a total of around 3.4 billion debit and credit cards issued worldwide. The business is one of two dominant payment companies in the world with the other being Visa, and had a market share of 27.4% in the U.S. back in 2022, up from its five-year average of 22%, according to Nilson Report.
https://finance.yahoo.com/news/3-magnificent-stocks-im-never-091000164.html
Mastercard boasts solid financials with revenue rising from $18.9 billion in 2021 to $25.1 billion in 2023. Net income jumped from $8.7 billion to $11.2 billion over the same period, and the business is also highly free-cash-flow generative with an average of $9.9 billion churned out over the three years. Mastercard also increased its quarterly dividend by 16% year over year to $0.66 at the end of last year, representing more than a decade of consecutive dividend increases.
The strong performance has continued in the first half of 2024. Mastercard saw its revenue rise 10% year over year to $13.3 billion while net income shot up 20.4% year over year to $6.3 billion. The good results were attributed to robust consumer spending and a tourism rebound that saw cross-border transaction volume climb 17% year over year for the second quarter of 2024. Free cash flow came in at $4.1 billion, inching up 2.6% year over year from $4 billion in the previous comparative period.
With Mastercard's solid reputation and track record, I am confident that the business can continue to grow steadily over the years while increasing its dividends along the way.
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>>> StoneX Group Inc (SNEX). operates as a global financial services network that connects companies, organizations, traders, and investors to market ecosystem worldwide. The company operates through Commercial, Institutional, Retail, and Global Payments segments.
The Commercial segment provides risk management and hedging, exchange-traded and OTC products execution and clearing, voice brokerage, market intelligence, physical trading, and commodity financing and logistics services.
The Institutional segment offers equity trading services to institutional clients; clearing and execution services in futures exchanges; brokerage foreign exchange services for the financial institutions and professional traders; and OTC products, as well as originates, structures, and places debt instruments in capital markets. This segment also operates as an institutional dealer in fixed income securities to serve asset managers, commercial bank trust and investment departments, broker-dealers, and insurance companies, as well as engages in asset management business.
The Retail segment provides trading services and solutions in the global financial markets, including spot foreign exchange, precious metals trading, and contracts for differences; and wealth management services, as well as offers physical gold and other precious metals in various forms and denominations through Stonexbullion.com.
The Global Payments segment provides customized payment, technology, and treasury services to banks and commercial businesses, charities, and non-governmental and government organizations; and pricing and payments services.
The company was formerly known as INTL FCStone Inc. and changed its name to StoneX Group Inc. in July 2020. StoneX Group Inc. was founded in 1924 and is headquartered in New York, New York.
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https://finance.yahoo.com/quote/SNEX/profile/
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Visa - >>> Want to Get Rich? Buy the Dip on This Dividend-Growth Stock and Never Sell
Motley Fool
by Brett Schafer
Aug 7, 2024
https://finance.yahoo.com/news/want-rich-buy-dip-dividend-113600317.html
There are two big schools of thought in investing. In one school, investors focus on growth, buying businesses they hope are much larger five, 10, or 20 years in the future. In the other school, investors search for yield, buying dividend-paying stocks to build passive income and a reliable cash-flow stream for their portfolios. Of course, there are more than just these two considerations when buying stocks, but growth and yield are two of the main factors.
Dividend-growth investing combines the best of both worlds. Dividend-growth stocks are ones that not only make regular cash payments to investors but also have a growing business that can fuel dividend growth over the long haul. The perfect dividend-growth stock might be Visa (NYSE: V), the global payments giant.
Today, you can buy shares for a 10% discount from the stock's all-time highs set earlier this year. Here's why now may be the time to buy the dip on Visa stock.
Visa: A take rate on global spending
Visa is a company most of you will know. It is the world's largest credit card, debit card, and payments network, serving 4.5 billion credit/debit cards as of last quarter. That is up from 4.2 billion in the same quarter a year ago. A huge percentage of the world's consumer spending runs on the Visa network, from the United States to Europe to emerging markets in Asia and Africa.
The business model works slightly differently than you might imagine. Even though Visa is the brand on a ton of cards, it's not actually a bank or credit issuer. Banking partners such as Bank of America or JPMorgan Chase are the ones taking credit risk. Visa makes money by taking a cut of every transaction spent on its network, which it then splits up and shares with its banking partners.
Visa's business is effectively a take rate on global economic growth. First, as global consumer spending grows, Visa's payment volume grows. Second, Visa benefits from the global transition of cash payments to cashless digital transactions. These are two simple tailwinds that have been in place for multiple decades and should continue in the coming decades as well.
Steady growth, inflation protection
If you look at Visa's financials over time, revenue keeps moving up and to the right. Excluding the pandemic period, when global spending ground to a halt, Visa's trailing-12-month revenue has grown at a steady clip for the last 10 years. Ten years ago, revenue was a tad over $12 billion. Over the past 12 months, it was $35 billion. I would expect this steady growth to continue over the next 10 years as well.
Operating profit has been even better. Visa has minimal variable costs on its network, meaning it earns high incremental profit margins when revenue grows. This leads to bottom-line profit margin expansion. Operating margin is now 67%, highlighting how amazing Visa's business model is. This margin should expand slightly over the next 10 years with incremental margins well over 90% on new payment-volume flows.
Don't forget inflation protection. Since Visa's revenue comes as a percent of payment volume on its network, it is one of the few businesses that benefits from inflation. Higher prices mean more money coming to Visa as an inherent inflation edge. It really is one of the best business models in the world. This is why payment volume grew from $10.4 trillion in 2021 to $12.3 trillion in 2023.
Why the dividend can keep growing
Okay, that is enough about the business model. What about the recent numbers? Last quarter, Visa's payment volume grew 7% year over year. However, due to faster growth from higher-margin cross-border volume and the growth of its analytics business, Visa's revenue grew 10% in the quarter to $8.9 billion. Net income grew 17% to $4.9 billion.
Over the long haul, I expect Visa's payment volume to grow at 5% to 10% annually from a combination of economic growth, inflation, and the transition to digital payments. Add in margin expansion and new revenue lines, and I think earnings can grow at over 10% per year.
This will mean tons of cash flow accumulating on Visa's balance sheet that it can return to shareholders in the form of dividends. At Tuesday's prices, Visa has a dividend yield of only 0.80%, but don't let that dissuade you. The dividend per share has grown by a whopping 1,800% since being instituted in 2009. At $2.01 over the last 12 months, the dividend per share is well below the $9.30 of free cash flow per share Visa generates.
A huge separation of free cash flow per share and dividend per share means that Visa has room to grow its dividend by 4 times even if its free cash flow per share doesn't grow. I still think it will grow by a large amount due to the revenue and earnings drivers highlighted above. Plus, management is now aggressively repurchasing stock. Shares outstanding have fallen by 11% in the last five years. Fewer shares outstanding mean more room to raise the dividend per share, all else being equal. It helps add some juice to free-cash-flow per-share growth.
Add everything together, and I believe Visa is the ultimate dividend-growth stock. Buy the dip on the dominant payments giant and watch the dividends pile up in your brokerage account over the next few decades.
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>>> Houlihan Lokey to Acquire Waller Helms Advisors
Business Wire
Aug 8, 2024
https://finance.yahoo.com/news/houlihan-lokey-acquire-waller-helms-123000333.html
Acquisition Substantially Enhances Firm’s Coverage Capabilities in Insurance and Wealth Management Sectors, Doubling Size of Financial Services Group
NEW YORK & CHICAGO, August 08, 2024--(BUSINESS WIRE)--Houlihan Lokey, Inc. (NYSE:HLI), the global investment bank, has agreed to acquire Waller Helms Advisors (Waller Helms), an independent advisory firm that provides investment banking services to clients in the insurance and wealth management sectors. The transaction, signed on August 6, 2024, confirms Houlihan Lokey as the premier investment banking advisor in these sectors and underlines the firm’s leadership across the global financial services sector. The deal is expected to be completed before December 31, 2024, following regulatory approvals.
Founded in 2014, Chicago-based Waller Helms provides advisory services in connection with mergers and acquisitions, private capital raising, and valuation services, advising clients primarily in the insurance and wealth management sectors. Since its founding, the firm has advised on more than 230 transactions with over $40 billion of aggregate value. Recent notable transactions include the sale of Century Equity Partners’ portfolio company, DOXA Insurance, to Goldman Sachs Asset Management; The Mather Group’s recapitalization by The Vistria Group; and BenefitMall’s sale to Truist Financial Corporation (NYSE:TFC) on behalf of the Carlyle Group (NASDAQ:CG).
Waller Helms’ nearly 50 financial professionals, including 13 Managing Directors, will join Houlihan Lokey’s Financial Services Group. James Anderson, Chief Executive Officer of Waller Helms, will join as a Managing Director and Global Co-Head of the Financial Services Group alongside Jeffrey Levine, Global Head of Financial Services. In addition, John Waller and David Helms, Co-Founders of Waller Helms, will also join as Managing Directors to further support and enhance the firm’s coverage efforts for its clients across the financial services sector. The acquisition adds financial professionals in Chicago, New York, Miami, and the greater Atlanta area.
"The addition of this talented group of bankers is highly complementary to our Financial Services platform, adding meaningfully to our current coverage capabilities across numerous subsectors within insurance and wealth management. On a combined basis, the Group is now the number one advisor to clients in the insurance and wealth management sectors. We are delighted that the Waller Helms team is joining Houlihan Lokey and I look forward to partnering with James to lead the new team, now comprising nearly one hundred financial professionals," said Mr. Levine.
On a pro forma basis, and according to data from LSEG, the new combined group now ranks as the No. 1 advisor for all global M&A transactions in 2023 in the insurance sector; the asset management sector, including wealth management; and the financial services sector, excluding depositories.
"As we discussed a possible combination, it became clear that Houlihan Lokey shares our dedication to deep sector expertise and more importantly, a fierce dedication to client success," said Mr. Anderson. "It is this cultural compatibility and client-first ethos that makes this combination so compelling, and we’re excited to work with our new colleagues at Houlihan Lokey and continue delivering superior outcomes to clients."
"The addition of the Waller Helms team is exemplary of our desire to provide our clients with the greatest depth of sector expertise in the midcap space, alongside our market-leading private capital expertise, extensive relationships among financial sponsors, and other services," said Larry DeAngelo, Global Co-Head of Corporate Finance.
"Over the past ten years, we have built a talented and passionate team and have had the honor to assist incredible, best-in-class clients on industry-leading transactions. Houlihan Lokey is the ideal home for our team and clients to thrive for years to come," said Mr. Waller.
"The strength of Houlihan Lokey’s global platform and our shared philosophies on collaboration and attracting and developing the best talent in the industry has us truly excited about our collective opportunity," said Mr. Helms.
"We have known the Waller Helms team for many years, and their long track record of success in financial services advisory is truly impressive. We look forward to introducing our new partners to our global client base as we continue to grow and enhance our service offering in Corporate Finance," said Jay Novak, Global Co-Head of Corporate Finance.
About Houlihan Lokey
Houlihan Lokey, Inc. (NYSE:HLI) is a global investment bank with expertise in mergers and acquisitions, capital markets, financial restructuring, and financial and valuation advisory. Houlihan Lokey serves corporations, institutions, and governments worldwide with offices in the Americas, Europe, the Middle East, and the Asia-Pacific region. Independent advice and intellectual rigor are hallmarks of the firm’s commitment to client success across its advisory services. The firm is the No. 1 investment bank for all global M&A transactions, the No. 1 M&A advisor for the past nine consecutive years in the U.S., the No. 1 global restructuring advisor for the past ten consecutive years, and the No. 1 global M&A fairness opinion advisor over the past 25 years, all based on number of transactions and according to data provided by LSEG (formerly Refinitiv).
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Chubb - >>> Berkshire Hathaway Added 26 Million Shares of This Stock in the Past 3 Quarters: Here's Why It's a Smart Buy Today
by Courtney Carlsen
Motley Fool
Aug 3, 2024
https://finance.yahoo.com/news/berkshire-hathaway-added-26-million-222400906.html
Since becoming CEO at Berkshire Hathaway in 1965, Warren Buffett has delivered 19.8% compound annual returns to investors, or enough to turn a $100 investment into $4.4 million today. Buffett's extended track record of success is one reason investors eagerly await the release of Berkshire's quarterly report showing the stocks the conglomerate bought and sold during the quarter.
Over the past three quarters, Berkshire Hathaway has bought shares of Chubb stock hand over fist and kept its buying confidential for two quarters. Berkshire owns 26 million shares of the insurer as of March 31, worth roughly $7.2 billion today. Here's why Chubb is a smart buy for investors today.
Why Buffett is drawn to insurance investments
Buffett loves the insurance industry, going back to his days as a student at Columbia Business School. At the time, Buffett learned under Benjamin Graham, who invested in GEICO in 1948. It was one of the best-performing assets during Graham's career.
When Buffett acquired Berkshire Hathaway in 1965, it was a failing textile company that was barely staying afloat. In 1967, Berkshire acquired the insurer National Indemnity, which Buffett credits as a turning point in Berkshire Hathaway's history.
Insurance companies' cash flows make them appealing investments, which is why Buffett continues to invest heavily in them. A few years ago, Berkshire Hathaway acquired Alleghany for $11.6 billion, adding to its list of insurance companies owned by Berkshire Hathaway, including GEICO, National Indemnity, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group.
Chubb is one of the largest and best at managing risk
Chubb is one of the world's largest property and casualty insurance companies and underwrites various policies, including personal automotive, homeowners, accident and health, agriculture, and reinsurance.
The company has an excellent risk management history, which you can observe by its combined ratio. This essential insurance metric is the sum of claims costs (how much an insurance company pays out on a policy) and expenses (like employee compensation or fixed overhead) divided by the premiums the company collects.
Over the past two decades, Chubb's average combined ratio was 90.8%, well below the industry average of 100%. This matters because it translates into free cash flow, which the company uses to pay dividends, buy back shares, or invest in things like bonds and stocks. Chubb's solid growth is why it has raised its dividend payout for 31 consecutive years.
Another benefit of investing in insurance is the timing of cash flows. Insurers collect premiums upfront and pay out claims down the road. In the time between, the company can invest this money, known as "float," usually in short-term Treasury bills. As policies expire, companies keep their profits and can build an extensive investment portfolio over time.
Chubb has a $113 billion investment portfolio primarily invested in fixed-income securities. Last year, it earned $4.9 billion in investment income, up 32% year over year, and its yield on average invested assets improved from 3.4% to 4.2% as it benefited from rising interest rates. Through the first six months of 2024, Chubb's net investment income has increased another 27% from last year.
Chubb is well positioned
The Federal Reserve is projected to cut interest rates sometime this year and into next, which could negatively impact Chubb's investment portfolio in the short term. However, some longtime market participants think interest rates could stay elevated.
For example, Howard Marks of Oaktree Capital Management has described a "sea change," saying, "For various reasons, the Fed is not going to go back to the ultra-low interest rates over the last 13 years" in a 2023 interview on the Motley Fool Money podcast. If that's the case, insurers like Chubb will benefit by earning more interest income than was possible in the decade and a half prior.
JPMorgan Chase CEO Jamie Dimon also cautioned that "there are still multiple inflationary forces in front of us" due to fiscal deficits, rising interest rates, and stubbornly high inflation. Chubb is already a solid company to own, and if inflationary pressures persist, it has the pricing power to adapt to rising costs, giving it stellar potential for the next decade and beyond.
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>>> Private equity giant Apollo invests $700 million in Sony Music
Reuters
Jul 26, 2024
https://finance.yahoo.com/news/private-equity-giant-apollo-invests-132347037.html
(Reuters) - Private equity behemoth Apollo Global Management has invested $700 million in high-profile record label Sony Music Group, allowing its clients an opportunity to invest in "high grade" alternative assets.
Apollo did not reveal the terms of the deal with Sony, which works with artists such as Lil Nas X and Celine Dion.
Booming demand for alternative investments has boosted the appeal of the music industry as investors look beyond traditional assets such as stocks and bonds, making it a popular asset class for Wall Street firms in recent years.
Heavyweights of the financial world are cashing in on the lucrative streaming rights and cash flows the industry offers.
"This investment allows our clients to invest in high grade securities while helping Sony to execute its business plans," said Jamshid Ehsani, a partner at Apollo said on Friday.
Apollo had also backed media and entertainment-focused investment firm HarbourView Equity Partners in 2021.
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>>> Why regional banks are now willing to take billions in losses
Yahoo Finance
by David Hollerith
Jul 29, 2024
https://finance.yahoo.com/news/why-regional-banks-are-now-willing-to-take-billions-in-losses-123009272.html
More US regional banks are taking a step that was unthinkable more than a year ago in the aftermath of the Silicon Valley Bank failure: selling underwater bonds at a loss.
When Silicon Valley Bank did it, it spurred a panic among investors and depositors.
The difference this time around is that regional banks aren’t selling lower-yielding securities to pay depositors. Instead they are preparing for interest rate cuts from the Federal Reserve.
Some cash from these sales is being used to buy new bonds that lenders hope will perform well as rates come down in the coming months or years. The Fed is expected to start cutting rates as early as September.
“If they’ve got extra cash, bank treasurers who think we’re at the top of the cycle may decide to go ahead and lock in long-duration bonds so that once we’re in a lower-rate environment they still have a decent yield,” Feddie Strickland, an equity research analyst with Hovde Group, said.
Locking in 'the swoosh'
Regional banks that announced bond sales in recent weeks include Pittsburgh-based PNC Financial Services Group and Charlotte-based Truist (TFC), two of the top 10 biggest lenders in the US, along with Regions (RF) and Webster (WBS). More are expected to do the same.
PNC took a half-billion dollars in losses on its bond sales and reinvented the proceeds into securities with yields "approximately 400 basis points higher than the securities sold," according to the bank.
That raised the bank's confidence that it would reap a record amount of net interest income next year. Such income measures the difference between what a bank earns from its assets and pays out on its deposits — a critical source of revenue for any regional bank.
One analyst on PNC’s second quarter earnings conference call said the uptick over the next year looked like Nike’s "swoosh" logo.
"Essentially, what we've done is locked in some of the swoosh," PNC CFO Robert Reilly told analysts.
PNC's decision to realize bond losses didn’t impact earnings, thanks to a one-time stock gain it recorded from its Visa (V) holdings.
Other banks are choosing to take these bond losses even when they aren't able to offset them with one-time quarterly gains.
Truist took a $5.1 billion after-tax loss when it sold bonds that yielded a measly 2.80%.
It used some of the proceeds — $29.3 billion — to buy new bonds yielding 5.27%. The bank now expects its net interest income to be 2% to 3% higher next quarter.
Regions also took a $50 million pre-tax loss to replace approximately $1 billion of bonds.
The CFO of the Birmingham, Ala.-based bank, David Turner, called the "repositioning" move a "good use of capital" and said Regions may look for chances to do more bond sales.
Another bank that sold some underwater bonds was Webster, based in Stamford, Conn. It took a $38.7 million after-tax loss in the quarter from realizing those losses.
Despite replacing more of its bonds with higher-yielding ones, the bank lowered its net interest income expectations for the year by $60 million to $80 million, predicting higher deposit costs and lower yields from its loans.
"We missed the mark on the guidance, obviously, and we're not pleased with it," Webster CFO Glenn MacInnes told analysts Tuesday.
When the rate cycle changes
Not all regional banks are making such moves. And the direction of interest rates remains a thorny challenge for many regional lenders still struggling with high deposit costs, troubled borrowers, and lackluster profits.
A reminder of those challenges came again this week when commercial real estate lender New York Community Bancorp (NYCB) reported a second quarter loss, the sale of a mortgage-serving business, and disclosed that it had added more to its reserves for future loan losses.
Its stock fell Thursday after reporting the loss but recovered on Friday. It remains one of the worst-performing stocks of the year, a sign that investors are still concerned about the exposure of some regional banks to commercial real estate weaknesses.
The hope for many regional banks is that the loans on bank balance sheets will recover their value as rates come back down, and that deposit costs could drop too.
"When the rate cycle changes is going to have a big impact on what the profitability story looks like," said Moody's Ratings analyst Megan Fox.
How those dynamics play out will still vary a lot between banks. Thus buying new bonds now is one of the surest bets lenders can make ahead of the cuts they expect to happen.
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>>> Discount window reform bill introduced as Fed works on its own overhaul
Reuters
by Michael S. Derby
Jul 29, 2024
https://finance.yahoo.com/news/discount-window-reform-bill-introduced-143924570.html
(Reuters) - Federal Reserve efforts to overhaul a key emergency lending facility historically viewed with anxiety by banks are now being joined by potential congressional action.
On Friday, Democratic Senator Mark Warner of Virginia introduced legislation to overhaul the Fed's discount window, a long-running tool that provides fast, collateralized loans to deposit-taking banks.
The Fed is already working to make sure banks are ready and willing to use the discount window, either in times of stress or if they simply face an unexpected liquidity shortfall. Banks have long shunned it, fearing that using it will send a signal of distress to their peers.
That long-standing stigma stood out in March 2023 when several banks ran into trouble and spurred fears about the overall state of the banking system. While discount window usage briefly surged, the Fed was concerned enough to launch a temporary lending facility with very generous terms that proved popular.
Since then Fed officials have been seeking to make sure banks are prepared to use the discount window and have signaled some confidence their efforts are working. Warner's bill could bolster that.
"The failures of Silicon Valley Bank and Signature Bank last year highlighted the urgent need to reform the Federal Reserve's discount window for the 21st century economy, where bank runs can occur over hours, rather than days," Warner said in a statement. He said the bill will help surmount stigma issues and ensure the discount window can "meet the challenges of the digital age."
The bill would mandate all but the smallest banks test their discount window access and would require regulators to reflect banks' ability to use the facility when evaluating their liquidity.
The bill would compel the Fed to report on the stigma issue to Congress, addressing what further steps need to be taken to reduce banks' worries.
The discount window "has deficiencies that have led to severe stigma, increasing the risk of banking panics and deposit runs," former New York Fed President William Dudley said in Warner's statement announcing the bill. "This bill will provide a good basis for regulators to implement operational improvements and reduce frictions that hinder the effectiveness of [the] discount window."
Steven Kelly, associate director of research at the Yale Program on Financial Stability, said the bill "gives the Fed clearer direction from its congressional overseers on how to pursue these liquidity reforms."
"This bill does not read as something designed to pick a fight with the Fed," Kelly said, as "it seems mostly simpatico with what they've already signaled."
A recent New York Fed paper said eliminating stigma may prove impossible and the central bank may have to rely on ad-hoc responses to liquidity problems.
Earlier this month Fed Chair Jerome Powell called discount window reform "a big, big project."
"We know that the infrastructure is a little tired," Powell said, but while work moves forward the Fed has "not made a lot of progress."
Dallas Fed President Lorie Logan was more upbeat. Earlier this month she said more than 5,000 deposit-taking banks had done the paperwork needed to access the discount window, with banks having pledged $3 trillion in collateral for potential loans, up from $1 trillion last year.
Meanwhile, in a May interview, New York Fed President John Williams said the facility does the job when trouble strikes, its long-standing issues notwithstanding. When there's a "general market issue" it's clear banks will use it, and that's a positive for broader market stability, he said.
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Bank of America - >>> Warren Buffett Just Sold $1.5 Billion of Berkshire Hathaway's Second-Largest Holding. Here's Why.
Motley Fool
by Adam Levy
Jul 24, 2024
https://finance.yahoo.com/news/warren-buffett-just-sold-1-081700022.html
Warren Buffett keeps selling stocks. The Oracle of Omaha has been a net seller of equities for his company's portfolio in each of the last six quarters, as reported by Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). The odds are good he'll make it seven in a row when Berkshire reports next month, and now he's going for eight with another major stock sale.
A recent filing with the U.S. Securities and Exchange Commission (SEC) revealed that Buffett sold $1.5 billion of Berkshire Hathaway's second-largest equity holding, Bank of America (NYSE: BAC). The sale represents just a 3.3% reduction in Berkshire's stake in the bank but could be just the start.
There's no doubt Bank of America has been a very successful investment for Buffett and Berkshire Hathaway shareholders. And Buffett is famously quoted as saying his favorite investment holding period is "forever." So why is he selling shares now?
There are a few reasons Buffett might have sold Bank of America stock.
After the stock's strong performance over the last eight months, shares are currently trading at levels unseen since the start of 2022. Despite the strong financial and operational performance underlying that price appreciation, Buffett may believe the shares are now fully valued, so he's taking money off the table as a result.
Another reason may have less to do with the current valuation and more to do with locking in gains at a favorable tax rate. Buffett's cost basis on those Bank of America shares is just over $14, on average. That means over two-thirds of the proceeds from Buffett's sales are taxable gains.
Buffett hasn't been shy about taking gains on some of his favorite stocks lately. He sold billions worth of Apple (NASDAQ: AAPL) shares in the fourth and first quarters.
When asked why he sold Apple shares at the annual shareholder meeting in May, Buffett explained that he was happy to pay taxes at the current favorable tax rate of 21%. He expects the rate will increase in the future. However, he said he expects Apple to remain Berkshire Hathaway's largest equity holding for some time.
The same factors may have led him to take the tax hit on Bank of America shares now. That may suggest Buffett still likes the business and the stock but doesn't see it growing as quickly as it has in the recent past — at least not enough to justify paying higher taxes on the gains later.
Should you buy or sell Bank of America stock?
Bank of America saw its shares fall in price as interest rates climbed. That's because the bank has high exposure to longer-duration bonds, which currently carry low interest rates. As a result, the bank missed out on opportunities to buy securities with higher coupons as interest rates climbed.
Bank of America's decision to invest in longer-duration bonds has an outsized effect on a metric called net interest income (NII). That's the difference between the revenue generated by the bank's interest-bearing assets and the expense it pays on interest-bearing liabilities. Since the bank holds long-term bonds but has to pay market rates, NII declined as interest rates increased.
But management says NII has hit its trough. It's forecasting growth in the third and fourth quarters this year, reaching $14.5 billion in the fourth quarter.
The good news is Bank of America is poised to do well, relative to its peers if the Fed cuts interest rates (as it is expected to later this year). The knife cuts both ways, so to speak.
With a price-to-book value of 1.25, Bank of America's shares look fairly priced. Buffett's sale appears to be more about taxes than anything specific about the company or its stock.
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Private Equity - >>> Wall Street is divided over the rise of private credit
Yahoo Finance
by David Hollerith
Jun 16, 2024
https://finance.yahoo.com/news/wall-street-is-divided-over-the-rise-of-private-credit-140058228.html
The debate on Wall Street about the rise of private credit is getting louder.
On one side is the boss of the largest US bank, Jamie Dimon, who argues that increased lending by private equity firms, money managers, and hedge funds creates more opportunities to let risks outside the regulated banking system go unmonitored.
"I do expect there to be problems," the JPMorgan Chase (JPM) CEO said at a Bernstein industry conference at the end of May, adding that "there could be hell to pay" if retail investors in such funds experience deep losses.
On the other side are top executives from some of the world’s biggest money managers who aren’t hesitating to push back on that argument.
"Every dollar that moves out of the banking industry and into the investment marketplace makes the system safer and more resilient and less leveraged," Marc Rowan, Apollo (APO) CEO, said at the same Bernstein conference attended by Dimon. (Note: Apollo is the parent company of Yahoo Finance.)
Private credit funds, their proponents argue, don’t face deposit runs and they don’t rely on short-term funding — a model that proved troublesome for some regional banks that ran into problems last year and had to be seized by regulators.
Instead, they lend money raised from large institutional investors such as pension funds and insurance companies that know they won’t get their money back for several years.
Another top executive with giant private lender Blackstone (BX) used the same Bernstein conference to cite the asset-liability mismatch that ultimately sank First Republic, the San Francisco regional bank that failed last May and was auctioned to JPMorgan.
"It had 20-year assets and 20-second deposits," Blackstone COO and general partner Jonathan Gray said.
"And if we can place these loans directly on the balance sheets of a life insurance company, that's better matching."
The rise of private credit
There is little doubt that private credit is on the rise as traditional banks pull back on lending during a time of elevated interest rates from the Federal Reserve and worries about a possible economic downturn.
The global private credit market, which accounts for all debt that is not issued or traded publicly, has grown from $41 billion in 2000 to $1.67 trillion through September, according to data provider Preqin. More than $1 trillion of that amount is held in North America.
The sum is still small compared to total loans held by US banks — over $12 billion — but the concern by some in the banking world is that any panic among borrowers could spread if things were to get ugly.
"I'm not sure that a one-and-a-half-trillion-dollar private credit market is particularly systemic, but the point is that these things can have a snowball effect," UBS chairman Colm Kelleher said in a Bloomberg interview earlier this year.
For now, private credit performance is solid despite the concerns.
For five of the past six quarters, private credit has brought higher investor returns than it has on average over the past decade, according to an aggregate private credit index created by Preqin.
It has also outperformed a similar index measuring aggregate returns in private equity for the same period.
"Everybody can look quite good when it's all going up to the right, but it gets tougher when you go through cycles," John Waldron, Goldman Sachs' COO, said at the same Bernstein conference.
'Dancing in the streets'
Private credit assets are varied. They can range from corporate loans to consumer car loans and some commercial mortgages. The loans are especially useful to midsize or below investment-grade borrowers in special situations like distress.
The terms are usually more flexible than what banks require, with adjustable interest rates, a potential advantage or dilemma for borrowers expecting interest rates to eventually drop.
Some bankers argue that money managers have an unfair advantage because they don’t have to operate under the same capital requirements as banks do. And bank regulators are preparing new rules that could make those capital requirements even stricter.
When those heightened standards were first proposed last year, Dimon quipped that private equity lenders were surely "dancing in the streets."
But there are some signs that Washington could be preparing to intensify its scrutiny of these funds. The Financial Stability Oversight Council has voted to approve a new framework for labeling firms as "systemically important," a tag that triggers new oversight from the Fed.
The new framework creates an opening for firms other than banks to get that label. Funds argue they don’t present the same systematic risks as banks, and therefore the label is not appropriate for them.
The relationship between traditional banks and private asset lenders is complicated. They compete with each other, but many banks also lend money to those same asset managers.
Dimon acknowledged that, saying there are many "brilliant" private lenders. "I mean, I know them all. We bank a lot of them. They're clients of ours."
"We're just uniquely positioned to be in the middle of all of it and I think it's going to continue to grow," Troy Rohrbaugh, co-CEO of JPM's commercial and investment bank, said this past Wednesday at another conference.
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>>> The Progressive Corporation (NYSE:PGR) -- Number of Hedge Fund Holders: 85
https://www.insidermonkey.com/blog/10-best-financial-stocks-to-buy-according-to-hedge-funds-1317041/5/
The Progressive Corporation (NYSE:PGR), a leading insurance provider, reported its financial results for May 2024, showing consistent growth in premiums and policies in force, along with a slight increase in its combined ratio compared to the previous year. For the month ending May 31, 2024, The Progressive Corporation (NYSE:PGR) reported net premiums written of $5.975 billion and net premiums earned of $5.857 billion. The company’s net income was $235.7 million, or $0.40 per share available to common shareholders. Additionally, The Progressive Corporation (NYSE:PGR) recorded a total pretax net realized gain on securities of $117.6 million. The insurer’s combined ratio, a crucial performance metric in the insurance industry, was 100.4 for the current year, slightly up from 99.0 in the same month last year. BMO Capital Markets reiterated its “Outperform” rating for The Progressive Corporation (NYSE:PGR), maintaining a $235.00 price target. The firm highlighted an unexpected acceleration in Progressive’s Personal Auto organic policy count growth in May, which typically slows down as summer approaches.
In the first quarter of 2024, the number of hedge funds with stakes in The Progressive Corporation (NYSE:PGR) increased to 85 from 79 in the previous quarter, according to Insider Monkey’s database of 920 hedge funds. The combined value of these stakes is approximately $4.99 billion. Andreas Halvorsen’s Viking Global emerged as the largest stakeholder among these hedge funds during this period.
Artisan Select Equity Fund stated the following regarding The Progressive Corporation (NYSE:PGR) in its first quarter 2024 investor letter:
“The Progressive Corporation (NYSE:PGR) shares rose 30% during the quarter. After a difficult start to 2023, the company quickly adapted and finished the year with impressive growth in premiums and underwriting profits. In Q4 2023, it managed to grow its customer base even as it raised rates and improved its underwriting ratios—a trifecta that isn’t often seen in the insurance industry. This performance has continued, which should set the stage for another year of good results in 2024. Perhaps most importantly, it has been able to navigate the environment far better than its peers, many of whom are still reporting sub-par underwriting performance. Progressive has consistently gained market share in the personal auto market over our ownership period and now commands close to 15% of the total market. Its shares are no longer a bargain, but we continue to hold them due to the high quality of this business and the advantaged nature of its low-cost insurance franchise.”
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>>> Apollo Global Management, Inc. (NYSE:APO) -- Number of Hedge Fund Holders: 81
https://www.insidermonkey.com/blog/10-best-financial-stocks-to-buy-according-to-hedge-funds-1317041/3/
In recent developments, Apollo Global Management, Inc. (NYSE:APO) announced the results of its 2024 Annual Meeting of Stockholders, confirming the re-election of all sixteen director nominees for a one-year term expiring in 2025. Re-elected board members include Marc Beilinson, James Belardi, Jessica Bibliowicz, Walter Clayton, Michael Ducey, Kerry Murphy Healey, Mitra Hormozi, Pamela Joyner, Scott Kleinman, A.B. Krongard, Pauline Richards, Marc Rowan, David Simon, Lynn Swann, Patrick Toomey, and James Zelter. Additionally, stockholders ratified Deloitte & Touche LLP as the independent public accounting firm for 2024. Apollo Global Management, Inc. (NYSE:APO) is negotiating with Sony Pictures Entertainment to acquire Paramount Global for $26 billion and is also considering a joint acquisition of DXC Technology with Kyndryl Holdings.
In the first quarter of 2024, the number of hedge funds with stakes in Apollo Global Management, Inc. (NYSE:APO) increased to 81 from 77 in the previous quarter, according to Insider Monkey’s database. The combined value of these stakes is approximately $5.21 billion. Chase Coleman And Feroz Dewan’s Tiger Global Management LLC emerged as the largest stakeholder among these hedge funds during this period.
Baron FinTech Fund stated the following regarding Apollo Global Management, Inc. (NYSE:APO) in its first quarter 2024 investor letter:
“Shares of alternative asset manager Apollo Global Management, Inc. (NYSE:APO) outperformed after the company reported strong financial results and gave a positive outlook on growth over the next several years. In the most recent quarter, assets under management increased 19% and earnings per share increased 27%. Despite a more dovish interest rate outlook, management maintained 2024 financial guidance, which calls for 15% to 20% growth in fee-related earnings and double-digit growth in spread-related earnings. Fundraising remains strong, which supports management’s goal of more than doubling the pace of capital deployment over the next five years. Management remains bullish on private credit due to growth opportunities across fixed income replacement, retirement accounts, and high-net-worth investors.”
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>>> S&P Global Inc. (NYSE:SPGI) ranks second on our list of 10 Best Financial Stocks To Buy According to Hedge Funds. During Q1, 2024 the count of hedge funds holding positions in S&P Global Inc. (NYSE:SPGI) rose to 97 from 82 in the prior quarter, as reported by Insider Monkey’s database encompassing 920 hedge funds. These holdings collectively amount to around $9.57 billion. Chris Hohn's TCI Fund Management emerged as the leading shareholder among these hedge funds during this timeframe. On April 18, Stifel analyst Shlomo Rosenbaum reiterated a "Buy" rating for S&P Global Inc. (NYSE:SPGI) but lowered the price target from $460 to $442.
https://finance.yahoo.com/news/why-street-analysts-bullish-p-233834793.html
The London Stock Exchange Group and S&P Global Inc. (NYSE:SPGI) are reportedly among the contenders interested in acquiring data provider Preqin, reported Reuters. The owners of Preqin, which specializes in private equity industry data, are exploring options that include a potential full sale of the business. Goldman Sachs is advising on the sale process, which is currently in its second round. Analysts involved estimate that the sale could fetch over $2 billion, although specifics remain confidential.
Baron Durable Advantage Fund stated the following regarding S&P Global Inc. (NYSE:SPGI) in its first quarter 2024 investor letter:
“Shares of rating agency and data provider S&P Global Inc. (NYSE:SPGI) declined 3.1% during the quarter after the company provided financial guidance that missed Street expectations. While S&P guided to solid organic revenue growth of 7% to 9% and EPS growth of 9% to 11%, projected margin expansion fell short of investor estimates, which underestimated the correlation between improving top-line trends and variable employee comp (which is rising as a result). We are not concerned with this short-term dynamic that is the outcome of improving business fundamentals. S&P reported solid results for the most recent quarter, with 11% organic revenue growth, 23% EPS growth, and broad-based strength across the company’s business segments. Ratings growth was especially robust as debt issuance rebounded amid improving market conditions. Positive momentum has continued into 2024, with 66% issuance growth in January and February. We continue to own the stock due to the company’s durable growth characteristics and significant competitive advantages.”
Overall SPGI ranks 2nd on our list of the best financial stocks to buy. You can visit 10 Best Financial Stocks To Buy According to Hedge Funds to see the other financial stocks that are on hedge funds’ radar. While we acknowledge the potential of SPGI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Arthur J Gallagher - >>> The U.S. is about to get slammed by a ‘very active’ hurricane season—but the carnage could be good news for these five insurance stocks, analyst says
Fortune
by Will Daniel
Jun 26, 2024
https://finance.yahoo.com/news/u-slammed-very-active-hurricane-180403861.html
Forecasters are expecting another devastating hurricane season this year. Colorado State University’s Department of Atmospheric Science warns a “very active” season could bring 11 total hurricanes, including five “major” hurricanes (category 3 to 5), and 23 named storms, compared with an average of 14.4 between 1990 and 2020. Meanwhile, the University of Pennsylvania’s Department of Earth and Environmental Science is forecasting an even more dire 33 named storms this year, citing high ocean surface temperatures in the Gulf of Mexico.
For most insurance companies, it’s a nightmare outlook that will lead to soaring costs as catastrophe claims spike—but for some, the carnage may perversely provide opportunity.
“If this grim forecast comes to fruition, it will likely buoy pricing for many lines of property-casualty insurance and reinsurance, providing certain underwriters’ shares with a catalyst,” CFRA Research analyst Catherine Seifert argued in a recent note.
Seifert described how some insurance providers and brokers that aren’t heavily exposed to hurricane-related catastrophe claims are benefiting from the strong pricing environment in the industry. Many insurers have been raising premiums by 10% to 25% (“or more”) each year as a result of rising catastrophe losses.
There has been increased damage to property from hurricanes, wildfires, floods, and difficult-to-forecast non-hurricane “supercell” storms in recent years, Seifert explained. “Once considered a ‘Florida problem,’ hurricane and coastal flood risk has broadened considerably,” she added, noting that nearly 7.6 million homes are now vulnerable to storm surges from a category 4 hurricane.
To her point, Pew Research found the frequency and cost of hurricanes has soared over the past two decades. Between 1983 and 2002, there were 96 major hurricanes that caused $546.3 billion in damage, but between 2003 and 2022, 244 similar disasters caused more than $1.95 trillion in damage.
Despite this rise in catastrophic property damage and a grim outlook for the trend to continue, property and casualty insurance companies have done quite well this year. The S&P 500 Property-Casualty Sub-Industry Index is up more than 17% year to date, outperforming the broader blue-chip index, which is up roughly 15% over the same period. And Seifert expects more good times ahead for some of these insurance providers.
The analyst highlighted five insurance companies that are “well positioned to benefit from the likely ongoing industrywide pricing power, or from other company-specific catalysts, while having a manageable level of exposure to catastrophes.” But she reminded investors to be cautious when selecting insurance stocks, as the hurricane season could be “disruptive and volatile” for some home and commercial-property insurers.
American International Group (AIG)
The insurance giant AIG is best known for its struggles during the Global Financial Crisis, but the company has transformed itself over the past 15 years. The new AIG is a much “more focused” property-casualty insurer, having separated from its life insurance and retirement business, Seifert noted.
The analyst went on to argue that AIG will benefit from rising insurance premiums and investment income, particularly after reengineering its property-casualty book to have a “lower risk profile and reduced exposure to catastrophes.”
CFRA has a “buy” rating and a $90 12-month price target for shares of AIG, representing a 20% potential return for investors.
Arch Capital Group
Arch Capital Group provides insurance and reinsurance (think: insurance for insurance companies) and was formed in the wake of the Sept. 11 terrorist attacks, when insurance coverage was difficult to obtain. Today, the company has a wide variety of offerings, from property-casualty insurance to professional-liability insurance, and is known for its nimble business model that allows it to shift to the most profitable insurance segments.
“We expect Arch to leverage favorable market and pricing conditions and produce operating revenue growth of more than 20% in 2024 and about 15% to 20% in 2025, about double the rate of the broader insurance and reinsurance industry,” Seifert wrote.
CFRA has a “buy” rating and a $107 12-month price target for shares of Arch Capital Group, representing a 7% potential return for investors.
Arthur J. Gallagher & Co.
Arthur J. Gallagher (AJG) is a leading commercial-insurance broker and risk-management firm that has been growing rapidly through acquisitions for decades. The company makes 87% of its revenues through its wholesale- and retail-insurance brokerage business, which is benefiting from rising insurance premiums and brokerage commissions.
CFRA expects 7% to 10% organic revenue growth in 2024 and 2025 from AJG, and noted that the company acquired 50 firms in 2023, contributing $826 million in revenue. “Revenue growth in 2024 and 2025 could likely top our forecast if pricing trends remain intact and AJG’s acquisition strategy remains on course,” Seifert wrote.
CFRA has a “buy” rating and a $272 12-month price target for shares of Arthur J. Gallagher & Co., representing a 7% potential return for investors.
Berkshire Hathaway
Warren Buffett’s mega-conglomerate Berkshire Hathaway may also benefit from rising insurance premiums. Berkshire owns the leading auto insurer, Geico, and offers reinsurance through its subsidiaries, General Re Corp. and National Indemnity Co. Buffett’s company also expanded its presence in the insurance space with its $11.5 billion acquisition of Alleghany Corp. in October 2022.
“Thanks mainly to the acceleration in reinsurance top-line growth, we expect all of Berkshire Hathaway to post operating revenue growth of between 10% and 15% in 2024 and between 12% and 15% in 2025,” Seifert wrote, noting that “these growth forecasts exclude the impact of any acquisitions, which we believe remain central to Berkshire’s overall strategy.”
CFRA has a “buy” rating and a $472 12-month price target for shares of Berkshire Hathaway, representing a 15% potential return for investors.
The Progressive Corp.
The Progressive Corp. is one of the largest insurers globally, with $62 billion in written premiums. The company focuses on auto insurance, and Seifert argued that rising premiums coupled with falling claims as the post-pandemic driving surge slows should boost its profitability.
Seifert also highlighted Progressive’s usage-based insurance product called Snapshot, labeling it an “industry-leading product” that widened the company’s competitive advantage over its peers.
“We forecast operating revenue growth of 15% to 20% in 2024, reflecting our view that net earned premiums will rise by between 15% and 20%, net investment income will rise by at least 10%, and fee income will rise by 15% to 18%,” she added, noting that “these rates of growth are nearly double those of the industry average.”
CFRA has a “buy” rating and a $235 12-month price target for shares of Progressive, representing a 14% potential return for investors.
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>>> Moody’s Corporation (MCO) - The final dividend growth stock on this month’s list that merits your attention is Moody’s Corporation (NYSE:MCO). The risk assessment and analytics company has raised its dividend for 15 consecutive years and features a 10-year CAGR of 13.1%, aligning with my selection criteria. This stock is also a Warren Buffett favorite, as Berkshire Hathaway has a 13.3% stake in the company, a position that goes all the way back to 2001.
https://finance.yahoo.com/news/3-best-dividend-growth-stocks-164731137.html
Moody’s has consistently delivered robust financial results powered by its strong brand reputation and innovative analytics solutions. The company has also shown disciplined capital allocation, nicely balancing investments in technology with shareholder returns, thus preserving its competitive advantage while delivering significant capital to investors. Interestingly, Moody’s has reduced its share count by 45% since 1999, which is clear evidence of its longstanding commitment to share repurchases alongside dividends.
What differentiates Moody’s from my previous two picks is that the stock appears quite expensive. Currently trading at about 39 times this year’s expected EPS, there is no doubt that MCO stock is the most expensive it has been in years. That said, due to a high chance of EPS growing in the mid-teens for years to come, powered by an ever-growing demand for analytics, further aided by ongoing repurchases, MCO stock could still be presenting a compelling opportunity ahead.
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>>> Russia’s Richest Woman Gets Putin’s Nod to Build Payments System
Bloomberg News
Jun 21, 2024
https://finance.yahoo.com/news/russia-richest-woman-gets-putin-101057770.html
(Bloomberg) -- Tatyana Bakalchuk made billions selling everything from brooms to bridal gowns on her online marketplace. Now Russia’s richest woman is making a surprise pivot: to helping insulate the economy from sanctions by building an alternative to the global payment system major Russian banks were excluded from.
Bakalchuk’s Wildberries — Russia’s answer to Amazon — is starting a venture with Russ Group, the nation’s biggest outdoor advertiser, to build a digital market to help small and medium-sized businesses promote and export their products, the company said this week. They also plan to create a payments platform that may offer a substitute for the dominant cross-border network, known as Swift, according to two people close to the Kremlin who declined to be identified.
The effort has been personally approved by President Vladimir Putin, who chose Maxim Oreshkin, deputy head of the Kremlin’s administration, to supervise it, the people said, asking not to be identified. There are no guarantees that the payment system will be successful, one of them said. Putin spokesman Dmitry Peskov said by text message that the president has ordered officials to consider Wildberries’ and Russ’s digital platform project, but that there aren’t any details yet.
Swift is the main messaging network through which international payments are initiated. Created in the 1970s, it links some 11,000 institutions across more than 200 countries and territories. The US and European Union sanctioned Russia’s key lenders after the Ukraine invasion, cutting them off from Swift and forcing Russia to use other payment options for imports and exports.
Wildberries declined to comment on its plan for a payments system.
Bakalchuk — who isn’t viewed as close to the Russian president — spoke at his flagship economic forum in St. Petersburg earlier this month and said she believed that private business in Russia has a future and is developing, although state support is required.
“Bakalchuk understands very well that the crisis is the time of opportunities,” said Alexandra Prokopenko, a fellow at Carnegie Russia Eurasia Center. “She’s seeking to expand the business to protect it, to become too big to fail and more visible to the Kremlin.”
Her own wealth has grown in the wake of the Ukraine invasion, swelling by around 40% to $8.1 billion, according to the Bloomberg Billionaires Index, as fiscal stimulus boosted consumer spending.
The value of products sold on Wildberries rose 50% to 2.5 trillion rubles ($28 billion) last year, with a growing ratio of domestic goods. In emailed comments, Wildberries’ press office credited the popularity of online shopping as well as the development of its platform, including its expanding infrastructure and discounting.
Western Exodus
The exodus of western retailers like Ikea, H&M and Levi’s also helped. While Russian producers stepped in, Wildberries and its rival Ozon also helped shoppers access US and European brands that had officially left. Moscow introduced legislation permitting products to be imported into Russia without the trademark holder’s agreement, enabling Wildberries and Ozon to sell nearly everything they could before the war.
“I often have no idea if a brand has left Russia or not,” said Elena, 35, an interior designer based in the Moscow region who asked that her last name not be used to protect her identity. “If I need something, I simply search for it on Wildberries and buy it.”
She can still find Ikea items on Wildberries, even though the company abandoned the market and its plants in 2022. Even her 79-year-old grandmother uses the service, she said.
The war has helped bolster consumer spending, as well. The Russian government’s annual budget outlays, including military and social, rose by a third last year compared with 2021, while mobilization, the flight of many Russians abroad and a drop in foreign workers have created a massive labor shortage.
That has spurred growth in wages at a pace last seen before the 2008 financial crisis, and increased consumers’ capacity to shop, said Sofya Donets, an economist at T-Investments. “This brought entire groups of people into a higher category of wealth and consumption.”
Online shopping has extended its Covid-era expansion, growing 45% last year to 8.3 trillion rubles, according to INFOLine research. Controlling more than half of the market, Wildberries and Ozon have been the winners.
“Wildberries was one of the pioneers of the Russian e-commerce market,” said Marat Ibragimov, an analyst at Gazprombank, adding that its strength was in offering good terms for suppliers and a wide range of products at low prices for customers.
Bakalchuk started the company in 2004 as a place for people on a limited budget with little time for shopping. She ordered clothes in bulk from a German mail-order catalog, scanned the pictures, and posted them on her website. She delivered products herself rather than using the postal service, which was unreliable.
Sanctioned by Ukraine
Unlike billionaires who made their fortunes in the chaotic privatizations of the nineties or flourished in the early 2000s under Putin, Bakalchuk has never had a one-on-one meeting with the Russian president, and hasn’t been sanctioned by Washington or Brussels.
She was sanctioned by Ukraine, however, before the Kremlin’s 2022 invasion, because Wildberries sold an array of Russian nationalist-themed products, such as military uniforms and t-shirts praising Putin. That forced her to wind down the Ukrainian business.
Bakalchuk’s project with Russ Group aims to widen her outreach to Russia-friendly neighbors and countries of the so-called Global South, including China and India, according to the statement from Wildberries. It may help boost Russian GDP by 1.5% a year, RBC media reported, citing unidentified people familiar with the plan.
Still, creating a payments system may increase Bakalchuk’s risk of coming under US or European sanctions as Ukraine’s western allies have targeted other Russian financial services, including the Mir payment system and the central bank’s Swift-equivalent, called SPFS.
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Rickards - >>> Banking Crisis, Stage Two
BY JAMES RICKARDS
JUNE 5, 2024
https://dailyreckoning.com/banking-crisis-stage-two/
Banking Crisis, Stage Two
I’m sure you recall the banking crisis of March to May 2023.
It began with the collapse of the little-known Silvergate Bank on March 8. This was followed the next day by the collapse of the much larger Silicon Valley Bank (SVB) on March 9. SVB had over $120 billion in uninsured deposits.
Bank deposits over $250,000 each are not covered by FDIC insurance. Those depositors stood to lose all their money over the insured amount. This would have led to the collapse of hundreds of startup tech businesses in Silicon Valley that had placed their working capital on deposit at SVB.
There were also much larger businesses such as Cisco and at least one large cryptocurrency exchange that had billions of dollars on deposit there. Those businesses would have taken huge write-downs based on the size of their uninsured deposits.
On March 9, the FDIC said that indeed the excess deposits were uninsured, and depositors would get “receivership certificates” of uncertain value and zero liquidity instead.
By March 11, the FDIC reversed course and said all deposits would be insured. The Federal Reserve intervened and said they would take any U.S. Treasury securities from member banks in exchange for par value in cash even if the bonds were only worth 80% of par (which most were).
The Mother of All Bailouts
That Sunday night they also closed Signature Bank, a New York-based bank with crypto links. The damage wasn’t done. On March 19, the Swiss National Bank forced a merge of UBS and Credit Suisse, one of the largest banks in the world. Credit Suisse was on the edge of insolvency.
Finally, on May 1, First Republic Bank, with over $225 billion in assets, was ordered closed by the government and sold to JPMorgan.
It was the mother of all bailouts and seemed to leave stock market investors unfazed. The issue was, and is: Once you’ve guaranteed every deposit and agreed to finance every bond at par value, what’s left in your bag of tricks? What can you do in the next crisis that you haven’t already done — except nationalize the banks?
After five bank failures in two months and a trillion-dollar bailout by the government, the crisis seemed over. But that was false comfort. I wrote at the time that the crisis wasn’t over, that it was just halftime.
Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage.
When Slow-Motion Crisis Turns Real-Time
This happened in 1994 when the spring bond market massacre seemed contained in the summer only to explode into the Mexican Tequila Crisis in December.
It happened in 1997–98 when the Asian financial crisis calmed down in the winter of 1998 only to explode into the Russia-LTCM crisis the following August and September.
It happened during the Global Financial Crisis when the original distress in August 2007 that seemed contained was followed by the failures of Bear Stearns, Fannie Mae, Freddie Mac and Lehman Bros. from March to September 2008.
The average duration of these financial crises is about 20 months. This new crisis began 15 months ago. It could have five more months to run, if not longer.
On the other hand, this crisis could reach the acute stage faster. That’s because of technology that makes a bank run move at the speed of light. With an iPhone you can initiate a $1 billion wire transfer from a failing bank while you’re waiting in line at McDonald’s. No need to line up around the block in the rain waiting your turn.
In other words, the second stage of the crisis could erupt in even more dramatic fashion sooner than later. This slow-motion crisis can become a real-time crisis very quickly.
The Dollar Itself Is at Stake
In addition, the regulatory response is faster because they’ve seen this movie before. That begs the question of whether regulators are out of bullets because they’ve already guaranteed almost everything so they don’t have more rabbits to pull out of the hat.
This could be the crisis where the panic moves from the banks to the dollar itself. If savers lose confidence in the Fed (we’re almost there) not only will the banks collapse, but the dollar will collapse also. At that point, the only solution is gold bullion.
It’s also important to distinguish between individual bank failures and a systemic banking crisis. When individual banks fail, the depositors and creditors are usually protected but stockholders can get wiped out.
In a systemic banking crisis, the contagion goes from bank to bank quickly, and the entire system has to be rescued with some combination of blanket deposit guarantees and unlimited QE.
In the worst case, you either have to shut the banks (which FDR did in 1933) or nationalize them which some countries have done from time to time.
Is Stage II Here?
Either a single bank failure or a systemic crisis could happen at any moment. The actual trigger is a bit mysterious and mostly psychological because the fundamental problems have been there all along.
Well, it seems that the quiet period is over and we are entering Stage II of the banking meltdown.
According to the latest data from the FDIC, many banks could be at risk of failure as unrealized losses reached $517 billion in the first quarter of 2024, up from $478 billion in the last quarter of 2023. 40 banks with over $1 billion in assets have already reported unrealized losses higher than 50% of their equity capital. Over 200 smaller banks with lesser assets have issued the same reports.
The bottom line is Stage II of the crisis is here, and the effects will be devastating to financial institutions and the stock market as a whole.
We may not be able to prevent the crisis, but we can see it coming and prepare accordingly to preserve our wealth. Step one is to get gold. That will see you through the storm.
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Buffett's 'mystery stock' is Chubb -
>>> Buffett’s Berkshire Reveals $6.7 Billion Stake in Insurer Chubb
Bloomberg
by Annie Massa
May 15, 2024
https://finance.yahoo.com/news/buffett-berkshire-reveals-6-7-203349962.html
(Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. unveiled a $6.7 billion stake in insurer Chubb Ltd., ending months of suspense over its mystery position in a financial firm, previously kept concealed in regulatory filings.
Berkshire disclosed the holding in a filing on Wednesday, reflecting its positions at the end of the first quarter.
The conglomerate has been building the stake since 2023 but it hadn’t previously been reported because the Securities and Exchange Commission allowed Berkshire to keep it confidential. Still, separate quarterly filings reflected that Berkshire’s equity stakes in banks, insurance and finance companies were growing, while the firm was pulling back in other industries including consumer products.
“Millions of people follow what Buffett does,” said David Kass, a finance professor at the University of Maryland‘s Robert H. Smith School of Business, explaining why Berkshire wants confidentiality while it amasses big positions. “Warren Buffett would be more sensitive to the issue than others.”
Chubb stock jumped in after-hours trading, adding as much as 9.9%.
Buffett’s Berkshire is deeply familiar with the insurance industry, owning a range of companies including Geico and National Indemnity. The billionaire investor has called Berkshire’s property-casualty insurance operation the “core” of the conglomerate, helping generate “float” that can then be reinvested.
The conglomerate has also invested in other businesses in the insurance industry. Berkshire owns a stake in Aon Plc, a major broker, and has previously bet on rivals including Marsh & McLennan Cos.
Cash Pile
Chubb is one of the biggest property-casualty insurers in the US and operates in 54 countries globally. Its chief executive officer, Evan Greenberg, is the son of Maurice “Hank” Greenberg, who led American International Group Inc. for many years. Evan Greenberg built Chubb through the 2016 merger of Ace Ltd. and Chubb Corp., which created a massive insurer that covers a range of risks including cyber attacks and marine shipping.
Chubb insured Baltimore’s Francis Scott Key Bridge, which collapsed when a cargo ship slammed into it in late March. It’s reportedly set to pay out $350 million to the state of Maryland.
Buffett already revealed a few recent changes to his company’s holdings at Berkshire’s annual meeting in Omaha earlier this month. It trimmed a stake in Apple Inc. to $135.4 billion at the end of the first quarter, as the iPhone maker faces a range of struggles including an antitrust fine, sliding sales in China and a failed car project.
The billionaire investor heaped praise on the tech giant at the meeting — which Apple CEO Tim Cook attended — and said it will remain Berkshire’s largest investment barring any dramatic changes.
The cash pile at Berkshire reached a record $189 billion at the end of March. Buffett said at the annual meeting that it was “a fair assumption” that it will hit $200 billion by the end of this quarter.
Funds with more than $100 million must file disclosures about their holdings within 45 days of the end of each quarter, providing a glimpse into the holdings of secretive money managers including hedge funds and large family offices.
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>>> The FDIC change that leaves wealthy bank depositors with less protection
Yahoo Finance
by Janna Herron
May 5, 2024
https://finance.yahoo.com/news/the-fdic-change-that-leaves-wealthy-bank-depositors-with-less-protection-160017344.html
Affluent Americans may want to double-check how much of their bank deposits are protected by government-backed insurance.
New rules implemented last month capped what the Federal Deposit Insurance Corporation (FDIC) will insure in a trust account at $1.25 million.
Before, there was no limit on trust accounts, which are legal arrangements that ensure an individual's assets are distributed to specific beneficiaries.
The FDIC said the new rule will make it easier for consumers and bankers to understand deposit insurance rules. It is also designed to help FDIC agents more quickly determine which accounts are insured after a bank fails.
For tens of thousands of bank customers, the change could lower how much in those accounts are insured if their financial institution fails. Those affected may need to restructure their deposits or open new accounts at another bank to ensure their funds are protected.
"It's somewhat of an obscure change … and the loss of some insured deposits is something I'm not sure the FDIC has highlighted enough," said Ken Tumin, founder of DepositAccounts.com, which is owned by LendingTree.
"There may very well be a lot of depositors out there that might not have the insured deposits they had assumed when they originally opened the account."
What isn't changing is that the FDIC still insures up to $250,000 per depositor and per account category at each bank.
Here's how that works: Say you have $250,000 in an individual savings account and $50,000 in an individual checking account at Bank A. That means you, the depositor, have $300,000 total in one type of ownership category (single accounts) at the same bank, so only $250,000 is insured.
If you moved that $50,000 to another bank, it would be fully insured. Similarly, if you put that $50,000 in a joint account — which is a different ownership category — the amount would be fully insured even if it stayed at the same bank.
Trust accounts provided a loophole to insure more than $250,000. Under the old FDIC rules, each beneficiary of the trust would get $250,000 in insurance protection. So, for example, if the trust named 10 beneficiaries, then that account would be insured for $2.5 million.
"Before this change, many people weren't aware that you could theoretically insure almost an infinite amount at one bank through the FDIC rules through a trust account," Tumin said.
That's no longer the case. The new rule limits the number of trust beneficiaries that receive the $250,000 insurance amount to five, totaling at most $1.25 million.
Additionally, irrevocable trusts and revocable trusts are now lumped together into one ownership category — trust accounts — under the new rules. That new category also includes any deposit account that has named beneficiaries upon the owner’s death, such as a certificate of deposit, or CD.
So, the trust that previously was insured for $2.5 million for its 10 beneficiaries is now insured only for $1.25 million.
"As of April, you lose half of that [insurance]," Tumin said.
When the FDIC proposed these rules in 2022 — a year before talk about lifting the $250,000 insurance cap bubbled up during a run of bank failures — it estimated that almost 27,000 trust account depositors and just over 36,000 trust accounts "could be directly affected by this aspect of the final rule."
Additionally, merging revocable trusts and irrevocable trusts into one ownership category could decrease coverage "in limited instances."
Still, a small number of irrevocable trusts could see an increase in insurance coverage under the new rules, the FDIC said, while overall most depositors should not see a change in their coverage.
To find out if you're affected, use the FDIC's tool — Electronic Deposit Insurance Estimator — to figure out on a per-bank basis how much of your money, if any, exceeds the new coverage limits.
If you find that some of your money is now uninsured, talk to your bank. Financial institutions typically work with customers affected by regulatory changes to ensure their large deposits are protected. You may end up needing to open a different type of account or put the uninsured sum in an account at another bank.
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>>> Regulators close Philadelphia-based Republic First Bank, first US bank failure this year
Associated Press
4-26-24
https://www.msn.com/en-us/money/companies/regulators-close-philadelphia-based-republic-first-bank-first-us-bank-failure-this-year/ar-AA1nK8gv?cvid=8494263e32044cc8dd2049b02657979f&ei=23
WASHINGTON (AP) — Regulators have closed Republic First Bank, a regional lender operating in Pennsylvania, New Jersey and New York.
The Federal Deposit Insurance Corp. said Friday it had seized the Philadelphia-based bank, which did business as Republic Bank and had roughly $6 billion in assets and $4 billion in deposits as of Jan. 31.
Fulton Bank, which is based in Lancaster, Pennsylvania, agreed to assume substantially all of the failed bank's deposits and buy essentially all of its assets, the agency said.
Republic Bank’s 32 branches will reopen as branches of Fulton Bank as early as Saturday. Republic First Bank depositors can access their funds via checks or ATMs as early as Friday night, the FDIC said.
The bank's failure is expected to cost the deposit insurance fund $667 million.
The lender is the first FDIC-insured institution to fail in the U.S. this year. The last bank failure — Citizens Bank, based in Sac City, Iowa — was in November.
In a strong economy an average of only four or five banks close each year.
Rising interest rates and falling commercial real estate values, especially for office buildings grappling with surging vacancy rates following the pandemic, have heightened the financial risks for many regional and community banks. Outstanding loans backed by properties that have lost value make them a challenge to refinance.
Last month, an investor group including Steven Mnuchin, who served as U.S. Treasury secretary during the Trump administration, agreed to pump more than $1 billion to rescue New York Community Bancorp, which has been hammered by weakness in commercial real estate and growing pains resulting from its buyout of a distressed bank.
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>>> Globe Life profit surges on strong underwriting, investment returns
Reuters
Apr 22, 2024
https://finance.yahoo.com/news/globe-life-profit-surges-strong-210636532.html
April 22 (Reuters) - Globe Life posted a rise in first-quarter profit on Monday as the insurer benefited from strong investment returns and underwriting activities.
The insurance industry, known for its resilience to economic downturns, sustains a stable demand for policies, with both corporate and government spending on insurance remaining steady.
Total premiums at Globe Life rose to $1.15 billion in the first quarter from $1.10 billion a year ago.
The surge in the broader equity capital markets on the other hand has enhanced investment income for insurers, who diversify a portion of their cash across various asset classes.
Globe Life's net investment income for the quarter increased about 10% to $282.6 million.
The company's net operating income for the three months ended March 31 came in at $2.78 per share, compared with $2.53 per share in the prior-year quarter.
Globe Life expects its operating income for the year to be between $11.50 to $12.00 per share. The insurer further expects to resume share buybacks once the blackout period related to a potential acquisition ends for the first quarter.
Earlier this month, Fuzzy Panda Research disclosed a short position in the company, citing numerous cases of insurance fraud, leading Globe Life's shares to drop to their lowest in over a decade.
Globe Life denied the allegations, saying "the short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false."
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>>> Jay Powell just made 2024 more of a puzzle for regional banks
Yahoo Finance
by David Hollerith
Apr 21, 2024
https://finance.yahoo.com/news/jay-powell-just-made-2024-more-of-a-puzzle-for-regional-banks-130039910.html
Federal Reserve Chair Jay Powell is making the rest of 2024 more complicated for regional banks.
This past week 12 of the nation's best-known midsize lenders reported sizable drops in first quarter profits thanks largely to the effect elevated interest rates are having on their operations.
Many of these banks are paying higher costs for deposits as customers continue to seek out higher yields, and those costs are eating into a key revenue source known as net interest income.
That pressure is not likely to abate anytime soon as the Fed dials back its expectations for rate cuts in 2024, a move that was cemented by Powell this past Tuesday just as many regional banks prepared to release their first quarter results.
The Fed was a popular topic for regional bank executives as they explained their results to Wall Street and described their outlook for the rest of the year.
Most reaffirmed that they expect the money they make from lending to drop as rates remain elevated.
Some, however, predicted that if rates stay high, their banks will eventually be able to make more from lending or the repricing of their securities, perhaps during the second half of this year.
Take US Bancorp (USB) and PNC Financial Services Group (PNC), the two biggest regional lenders in the US.
Minneapolis-based US Bancorp now expects to make between $200 million and $500 million less in net interest income than it forecast in January, driven by lower loan growth and more expense pressure from deposit costs.
"The outlook for potential rate cuts in 2024 has meaningfully changed," Andy Cecere, US Bancorp CEO, told analysts Wednesday. "We now expect our net interest income for the full year to be lower than anticipated."
As for next year, "we're not going to give a 2025 guide right now because it's so volatile in terms of what rates could be."
Pittsburgh-based PNC, however, said it expects improvement in the last two quarters of the year thanks to the repricing of its under-earning securities portfolio. That will help even out any rise in deposit costs, the bank’s CEO said.
"It would be a bit of a heroic assumption for anybody to say that deposit costs won't continue to creep up in the face of a steady Fed," PNC CEO Bill Demchak told analysts Tuesday.
First Horizon (FHN) CFO Hope Dmuchowski told analysts Wednesday that forecasting how much the bank can make from its net interest income “in this environment is very, very hard, even within a 3% range, with as many moving parts as we have.”
The Memphis-based lender kept its previous guidance for net interest income to grow between 1% and 4%, assuming three rate cuts. It also bucked an industry-wide trend in the quarter, with costs for interest-bearing deposits declining from the previous quarter while overall levels were stable.
At Buffalo, N.Y.-based M&T Bank (MTB), executives bumped the bank's net interest income guidance up to $6.8 billion, the top of its previous range. But that is an estimate based on two rate cuts.
Part of that estimate also leans on the repricing of M&T's securities portfolio as a margin boost.
“Obviously, we could outperform, but I'd much rather under promise and over deliver right now,” M&T CFO Daryl Bible told analysts Monday.
These regional banks could surely use more loan growth, but that may have to wait until the Fed lowers rates. And that largely depends on the path of inflation.
So far this year, readings from the Consumer Price Index (CPI) have been hotter than expected. Fed officials have cited those readings as a reason why rates will likely remain elevated for longer than expected.
"When you read those [CPI] reports, it's a little bit like you’re looking into Snow White’s magic mirror; you kind of see what you want to see," Fifth Third Bancorp (FITB) CEO Timothy Spence said in an interview Friday.
CPI rose 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain in prices and more than economists expected.
"You can conclude by looking at it that inflation is stuck at 3%, that it’s grinding down slowly to 2%, you could conclude that it’s reigniting towards 4%," Spence added.
As long as rates remain where they are, Spence said, the key for banks is "the race between your ability to reprice fixed-rate assets and your ability to manage deposit costs."
Fifth Third's interest-bearing deposit costs rose by 0.01% in the first quarter compared with the previous quarter, a much lower rise than some rivals.
"For all banks in an environment like this one, your ability to continue to control interest expense is going to be a big driver of your ability to hit your outlook," Spence said.
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>>> Move Aside, Big Banks: Giant Funds Now Rule Wall Street
The Wall Street Journal
by Matt Wirz
4-22-24
https://www.msn.com/en-us/money/news/move-aside-big-banks-giant-funds-now-rule-wall-street/ar-AA1npR11?cvid=9604790d90024acef4ec5a709c7bd156&ei=35
Giant investment companies are taking over the financial system.
Top firms now control sums rivaling the economies of many large countries. They are pushing into new business areas, blurring the lines that define who does what on Wall Street and nudging once-dominant banks toward the sidelines.
Today, traditional and alternative asset managers control twice as many assets as U.S. banks, giving them increasing control over the purse strings of the U.S. economy.
The firms—such as Blackstone, Franklin Templeton, BlackRock and KKR—are becoming more complex and more similar to one another all at once. Investors say this creates risks that markets have never encountered before.
Fund-manager executives insist the expansion, as striking as it is, remains in its early innings. Good news for them because fast growth is bringing them vast wealth, especially in private, or “alternative,” investing. Private equity has minted more billionaires than any other industry in recent years, according to data from Forbes.
Here’s a look at how the field is shifting:
Trillion-dollar titans
Huge fund-management companies are bulking up by offering new types of products to capture market share. The biggest are evolving into financial supermarkets, mostly for institutions and the wealthy, but increasingly for middle-class investors as well. Banks consolidated similarly in the decade leading up to the financial crisis.
Private-equity and private-debt funds, such as Apollo Global Management and Blackstone, mostly manage money for institutions, but are increasingly selling products to individual investors. Mutual-fund behemoths, including BlackRock, are growing bigger still by building or buying private-fund operations.
Asset managers are also supplanting banks as lenders to U.S. companies and consumers and intertwining with the insurance industry.
Top private-fund executives say they require long-term client commitments, making them more stable than deposit-dependent banks such as Silicon Valley Bank.
“We’re moving into a gray area as asset-management businesses move into different silos of financial services,” said Tyler Cloherty, a managing director at consulting firm Deloitte who advises fund managers. “The big question I’m getting is ‘What do we do around getting alternatives to retail clients?’ There’s a lot of complexity there.”
The growth spurt came out of the 2008 financial crisis, when new regulation curtailed investing and lending by banks, making room for fund managers to expand. Central banks kept interest rates low for most of the following decade, driving investors out of savings accounts and Treasury bonds and into managed funds.
Blurring the lines
In 2008, U.S. banks and fund managers were roughly neck and neck at about $12 billion of assets. Today, traditional asset managers, private-fund managers and hedge funds control about $43.5 trillion, nearly twice the banks’ $23 trillion, according to a Wall Street Journal analysis of data from the Federal Reserve, HFR, ICI and Preqin.
Large banks have responded by becoming more like fund managers, beefing up investment teams. Goldman Sachs reported this month revenue of about $4 billion from asset and wealth management in the first quarter, twice the earnings from its storied investment-banking division.
Public-fund managers, meanwhile, became huge, mostly by offering low-fee mutual and exchange-traded funds that track indexes. Four of the biggest—BlackRock, Fidelity, State Street and Vanguard—control about $26 trillion, equivalent to the entire annual U.S. economic output.
But over the past four years, private equity and debt fund assets doubled to almost $6 trillion, far outpacing the 31% growth rate for public funds. The firms began selling private-credit funds to their core clients—pension funds and endowments that had maxed out on private equity. The fund managers also made inroads with new investors, such as insurance companies and individuals.
As the funds grow bigger, their founders make more money. Private-equity fund managers took 41 spots on Forbes magazine’s list of U.S. billionaires published this month, more than any other profession. The investors make up 5.5% of all the country’s billionaires, almost twice the 3% they comprised just 10 years ago.
The surge could continue. KKR Co-CEO Scott Nuttall—a 2022 addition to the Forbes billionaires list—told shareholders at a meeting this month that KKR will double the money it controls to $1 trillion by 2029. Only 2% of wealthy individuals currently invest in alternative funds and that will jump to 6% by 2027, he said.
Rival Marc Rowan, CEO of Apollo Global Management, says his firm will increase its roughly $650 billion under management to $1 trillion by 2026. Blackstone, which crossed the $1 trillion threshold in July, launched this year its first private-equity fund targeted at individual investors. The fund has raised about $3 billion so far, the fastest start ever for a retail fund by the firm, a person familiar with the matter said. Blackstone has raised more than $100 billion through private debt and real-estate funds aimed at individuals.
Public-fund managers are much bigger than their private counterparts, but also less profitable after years of lowering fees to gain market share. A growing number, including Franklin Templeton and T. Rowe Price, are buying alternative managers to boost profits.
The trend hit a fever pitch in January, when BlackRock struck a deal to buy Global Infrastructure Partners for $12.5 billion, the highest price ever for an alternative-asset manager, according to Dealogic. If the acquisition goes through as expected, it will mint another six billionaires for the Forbes list from among Global Infrastructure’s founding partners.
Other traditional fund managers have taken a slower—and less expensive—approach, building their own private-fund businesses.
Regulating private equity for the masses
Neuberger Berman, a traditional fund manager born out of Lehman Brothers’ collapse, has about one-third of its $463 billion in investments in alternatives, up from about 10% a decade ago. The employee-owned firm raised the bulk of the assets from institutional investors.
“Much of the future growth will be driven by individuals who don’t have either the experience or professional staff to help them,” said Neuberger Chief Executive George Walker. The onus is on fund managers to educate the new buyers and provide them with well-diversified products to reduce risk, he said.
Neuberger launched in 2021 a product it calls Access that pools dozens of private funds and their investments to give clients with low buy-ins a diversified portfolio. The fund doubled in size over the past year to about $1 billion.
Bond-fund powerhouse Pacific Investment Management Co., which manages about $2 trillion, has increased alternative investments to $165 billion from $10.7 billion in 2010, a company spokeswoman said. TCW, another bond-fund manager, doubled alternative investments over the past four years to $20 billion, about 10% of total assets, a person familiar with the matter said. Both firms hired portfolio managers away from private-equity and hedge-fund firms to help staff the efforts.
Regulators are tackling titanic fund managers from several angles. The Securities and Exchange Commission approved in August new rules for private funds requiring more investor disclosures and proscribing side deals with institutional clients.
Rising sales of private funds to individuals come as leveraged buyouts by private equity returned 8% last year, the lowest level since 2011, according to Preqin. Higher interest rates have made it harder for the funds to sell companies they own and more expensive to buy new ones.
Traditional fund managers are being scrutinized over their outsize influence in shareholder votes. In November, an interagency regulator passed a rule allowing large fund managers to potentially be regulated as systemically important institutions, as large banks are. Still, the decision only reinstates an Obama-era measure overturned by the Trump administration.
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>>> Why big Medicare Advantage insurers may root for Biden to lose in 2024
The Biden administration has delivered consecutive blows to the industry that offers private-sector Medicare alternatives
Yahoo Finance
by Janna Herron
Apr 11, 2024
https://finance.yahoo.com/news/why-big-medicare-advantage-insurers-may-root-for-biden-to-lose-in-2024-080028510.html
Insurance giants have a bigger stake in this year’s presidential election after recent moves by the Biden administration cut into the profitability of Medicare Advantage plans.
In the last week, the Centers for Medicare and Medicaid Services (CMS) delivered consecutive blows to the industry that offers these private-sector Medicare alternatives, denting insurance stocks and pulling down estimates of future earnings.
Insurers will get paid less than expected next year for providing these plans, while, at the same time, they must abide by new, and probably costlier, regulations. Other key changes rolling out over the next three years could also nick their bottom lines.
The industry expects a second term for President Joe Biden would bring more of the same at a time when the youngest baby boomers become Medicare-eligible and more of the older ones seek healthcare services.
"Do I want to say it's a historic level of regulations? If it's not, it's got to be close to it," Whit Mayo, an analyst with Leerink Partners, told Yahoo Finance. "Biden is no friend to the industry right now."
'A major change'
The new regulations have come hard and fast recently.
Last week, the government said it would increase its payments to Medicare Advantage (MA) insurers by 3.7% in 2025. That’s "marginally worse" than the earlier proposed rate, Mayo said, and “inconsistent with almost any historic precedent.”
It also caught the industry by surprise because many expected CMS to incorporate the uptick in healthcare service volumes in the fourth quarter.
A few days later, CMS finalized other rules around health equity, behavioral healthcare services, and supplemental benefits that would require more action from insurers.
The agency also established new rules on how much insurers can compensate a broker selling Medicare Advantage plans to ensure seniors are steered into plans that best meet their needs — not into ones that are most profitable.
“CMS does not want an agent to have preference over any plan based on commissions…so this is a major change,” Mayo said.
These efforts are weighing down insurer stocks.
Year to date, shares of Humana (HUM) — which has the largest exposure with MA accounts making up 77% of its total revenue — are down 30%.
The stock of UnitedHealthcare (UNH) has declined nearly 13% since the beginning of the year. MA accounts make up 31% of UnitedHealthcare's total revenue, according to Ann Hynes, managing director at Mizuho Americas.
In a note last week to investors, Hynes estimated the 3.7% increase in the MA payment rate could be a 2% and 4% "headwind" for UnitedHealthcare’s 2025 earnings, a 2% to 6% drag on both CVS Healthcare Corp.’s (CVS) and Centene Corp.’s (CNC) profits, and an 8% anchor on Humana’s bottom line.
One of the three "key upcoming catalysts" for Humana’s stock, Hynes wrote, is “the 2024 Presidential election.”
On the horizon
More change is on its way under the Biden administration’s CMS that could also upend insurance profits.
The agency recently put out a new patient risk coding model. Each patient receives a risk score based on the number and severity of their health conditions. The unhealthier the patient, the higher the risk score and the more money CMS pays to insurers.
Under the new model, risk scores will overall likely decline, meaning fewer dollars will flow to insurers. How much exactly? The model, which will be fully phased in 2025, is expected to save Medicare $11 billion this year, per CMS estimates. Next year, it will likely be more.
How Medicare Advantage plans are rated by CMS is also changing.
CMS ranks each plan annually using a one-to-five-star scale, with five being the best, based on a variety of metrics. The idea is to reward plans that provide quality care with reimbursement and bonuses while cracking down on mediocre plans by reducing CMS payments and restricting their marketing.
Over the next three years, CMS plans to increase or decrease the weighting of some measures, eliminate others, and add a health equity index to the ranking. Insurers work hard to maintain at least a four-star rating on their plans to get a 5% quality bonus, which, by law, must be invested into plan benefits.
"That's what gives you a competitive advantage in the market," Mayo said.
Insurers also remain under pressure from increasingly vocal healthcare providers, which are dropping some Medicare Advantage plans due to too many denials, delays, and refusals to pay for care that Original Medicare would usually cover.
October surprise, anyone?
Under Donald Trump, those changes may not be carried out.
"I think the perception among the investment community is that, under a Trump administration, the environment would be more favorable,” Mayo said. “Just not as much regulation, maybe even roll back."
It may be seniors — historically one of the most reliable voting blocs — who may get the last word.
Mayo expects insurers will readjust some of the MA benefits so they can grow — or at least hold — their margins in light of the recent changes, a reversal of the years-long cycle of "massive" investment in these perks.
Extras like a supplemental grocery benefit could be eliminated for next year, while the share that patients pay out of pocket for services such as dental or vision care could increase.
Seniors will see those reductions in benefits or increases in co-insurance during Medicare’s annual open enrollment period, when they choose their health insurance for next year. Open enrollment kicks off Oct. 15, less than a month before the presidential election on Nov. 5.
That means the 33 million Americans now enrolled in Medicare Advantage plans, making up over half of Medicare-eligible adults, may get mad after their plan drops benefits that enticed them to sign up in the first place.
They may carry that anger into the voting booth. That may be what insurers are hoping for.
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Global Life - >>> Billionaire Warren Buffett Recently Cut This Stock From Berkshire Hathaway's Portfolio. It Just Dropped 53% In 1 Day. Here's What Investors Need to Know.
by Courtney Carlsen
Motley Fool
Apr 17, 2024
https://finance.yahoo.com/news/billionaire-warren-buffett-recently-cut-101500983.html
Globe Life (NYSE: GL) stock plummeted by more than 53% in a single day last week after short-seller Fuzzy Panda Research accused the life insurance company of fraud. The claims piled onto the already struggling stock, which had previously been a longtime holding of Warren Buffett's conglomerate, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B).
If you're thinking about buying the dip in the stock, there are some things you'll want to know.
Globe Life's troubles began last year
Globe Life was one of Berkshire Hathaway's longest-held investments, having been part of the conglomerate's portfolio for more than two decades. Berkshire held Globe Life through several difficult economic periods, including the COVID-19 pandemic, which put tremendous pressure on life insurers by elevating claims costs.
Buffett examines a management team's character and trustworthiness when investing. Buffett and his team have an excellent track record of evaluating management, which is a big reason for the conglomerate's long-term success. When Globe Life became the subject of several lawsuits accusing it of misconduct, Berkshire pulled the plug on its investment.
Last year, two Globe Life subsidiaries, American Income Life Insurance Co. and Arias Agencies, faced a lawsuit accusing them of inappropriate workplace conduct; this included rampant drug use, sexual abuse, and degradation of agents who didn't hit sales targets.
Globe Life's struggles continued when a former executive claimed he was fired for blowing the whistle on "potentially illegal" sales practices at the subsidiary. It appears that the accusations were why Berkshire sold its stake in the insurer last year.
Here's what short seller Fuzzy Panda had to say about the insurer
Fast-forward to this year, and Globe Life's troubles have gone from bad to worse. On March 6, the U.S. Department of Justice issued subpoenas to Globe Life and American Income Life. The subpoena is part of an investigation into allegations of fraud and misconduct at the (renamed) Arias Organization, now one of American Income Life's agencies.
Last week, the dam broke after short-seller Fuzzy Panda Research accused Globe Life of "extensive" insurance fraud that was ignored by management. According to Breakout Point and reported by Bloomberg, Fuzzy Panda Research was the best-performing active short-seller in 2023. Although short-sellers -- investors who try to profit from falling share prices -- suffered deep losses during the long bull market of the 2010s, they can help expose harmful or downright fraudulent business practices.
Fuzzy Panda reviewed hundreds of court documents and interviewed former executives and agents "who showed us where the fraud was hidden." According to the short-seller, the fraud was ignored by management despite being "obvious and reported hundreds of times." After the short report was released, Globe Life's stock plummeted 53% in a single day.
Following the serious accusations from Fuzzy Panda, Globe Life responded by saying:
We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements ... The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false, misleading and defamatory.
Buy the dip?
According to The Fly, analysts believe the stock sell-off is overdone, but big question marks remain. Investment bank and investment firm Piper Sandler said that Globe Life's response "serves to assuage concerns but does not completely remove the vacuum that remains absent a broader communication about this matter with the investment community."
Another investment firm, Evercore, meanwhile, sees limited downside from here but says there is still "significant uncertainty for the shares."
Globe Life faces serious allegations, and the stock price reflects this. After its significant sell-off, aggressive investors may find the stock ripe for the picking. If you're willing to tolerate this risk, though, don't bet more than you're willing to lose.
However, given the uncertainty around the situation and the Department of Justice's investigation, most investors are better off waiting to see how things shake out; they should avoid the stock for now.
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>>> Globe Life Inc. Issues Statement Refuting Short Seller Allegations
PRNewswire
April 11, 2024
https://finance.yahoo.com/news/globe-life-inc-issues-statement-210200680.html
MCKINNEY, Texas, April 11, 2024 /PRNewswire/ -- Globe Life Inc. (NYSE: GL) today issued the following statement refuting the allegations raised in a report issued today by Fuzzy Panda Research:
For over 70 years, our business model has stood the test of the time and we continue to generate sustainable earnings growth that provides long-term value for our shareholders. With over 17 million policies in force, our millions of customers value the protection of the Company's products, and we strive to be there when our customers need us most.
We are disappointed today to see self-motivated short sellers push inflammatory allegations in order to drive down Globe Life's stock price. We reviewed the report and found it to be wildly misleading, mixing anonymous allegations with recycled points pushed by plaintiff law firms to coerce Globe Life into settlements. The motivations behind this short seller's report are driven solely by short-term profit earned on the backs of the thousands of shareholders, hardworking employees, independent contractor sales agents and customers who know and trust our brand and strong track record. We have successfully defended ourselves against these types of claims. The short seller analysis by Fuzzy Panda Research mischaracterizes facts and uses unsubstantiated claims and conjecture to present an overall picture of Globe Life that is deliberately false, misleading and defamatory. Globe Life intends to explore all means of legal recourse against the parties responsible.
Globe Life strives to act in accordance with the highest level of ethics and integrity at all levels of the organization and to comply with all government regulations. American Income Life (AIL) has processes in place to review, investigate and address all allegations brought to the Company's attention concerning unethical business practices, sexual harassment and inappropriate conduct and we do not tolerate such behavior.
We intend to more fully rebut these allegations in the near future. Rest assured we are steadfast in our commitment to delivering sustainable earnings growth that provides substantial value for our shareholders. Our dedication to providing the highest quality to our customers remains unwavering.
Globe Life Inc. is a holding company specializing in life and supplemental health insurance for the middle-income market distributed through multiple channels, including direct to consumer and exclusive and independent agencies.
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>>> Blackstone to take Apartment Income REIT private in $10 billion deal
Reuters
Apr 8, 2024
https://finance.yahoo.com/news/blackstone-apartment-income-reit-private-122428050.html
(Reuters) -Asset manager Blackstone said on Monday it would take private rental housing firm Apartment Income REIT, known as AIR Communities, for $10 billion in cash, including debt, in what analysts see as a bet on easing pressure within the commercial real estate market.
Under the deal, Blackstone will pay $39.12 for each share of the real estate investment trust, representing a premium of about 25% to its closing price on Friday. Shares of the REIT jumped about 23%.
Elevated interest rates have put pressure on landlords with loans on rental housing and other commercial real estate properties. Monday's deal was seen by some analysts as a vote of confidence that this pressure has begun easing.
"With this transaction, we believe Blackstone is messaging they view interest rates as stabilizing and access to capital as improved, acting as a positive read-through for the sub-sector," Jefferies analysts wrote.
A top real estate investor, Blackstone has been sharpening its focus on rental housing, betting on its revival as the supply of apartments in the U.S. is expected to decline due to a slowdown in construction.
This was likely to lift rental growth, which has over the past few months remained flat or declined modestly due to fresh supply in many U.S. markets.
AIR Communities, which has a relatively diversified portfolio with apartments in both Eastern and Western coastal markets, has been largely insulated from such pressures.
"(It) represents the highest quality, large scale apartment portfolio we have ever acquired, and is located in markets where multifamily fundamentals are strong," said Nadeem Meghji, global co-head of Blackstone Real Estate.
The rental housing provider reported a 6.2% rise in same-store rental revenue in the fourth quarter, higher than the 2%-4% growth by other publicly listed REITs such as Mid-America Apartments and Equity Residential.
Blackstone plans to invest another $400 million to improve the firm's 76 rental housing communities. Its flagship Blackstone Real Estate Income Trust, which stabilized after some turbulence in late 2022, has outperformed non-listed peers by 600 basis points in 2023.
The company, whose real estate portfolio is valued at $586 billion, had in January agreed to take private Canadian single-family rental housing firm Tricon Residential.
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>>> UnitedHealth unit will start processing $14 billion medical claims backlog after hack
Reuters
by Leroy Leo
https://www.msn.com/en-us/money/companies/unitedhealth-unit-will-start-processing-14-billion-medical-claims-backlog-after-hack/ar-BB1kntGE?OCID=ansmsnnews11
(Reuters) - UnitedHealth Group said on Friday its Change Healthcare unit will start to process the medical claims backlog of more than $14 billion as it resumes some software services disrupted by a cyberattack last month.
The company has been scrambling to resume services at the technology unit that was hit by a cyberattack on Feb. 21, disrupting payments to U.S. doctors and healthcare facilities and forcing the U.S. government to launch a probe.
Community health centers that serve more than 30 million poor and uninsured patients have been especially hit.
The company has advanced payments of more than $2.5 billion so far to provide assistance to healthcare providers financially affected by the disruption, an increase from the over $2 billion it had disclosed on Monday. UnitedHealth also extended the repayment period for providers, who will now have 45 business days to return the relief funds.
Change Healthcare is a key player in the U.S. healthcare system that depends heavily on insurance, processing about 50% of medical claims for around 900,000 physicians, 33,000 pharmacies, 5,500 hospitals and 600 laboratories.
The unit was breached by a hacking group called ALPHV, also known as "BlackCat", creating a knock-on effect that the largest U.S. health insurer is expected to take several months from which to fully recover.
The health insurer said its software for preparing medical claims Assurance went online on Monday, while its largest clearinghouse Relay Exchange will resume on the weekend of March 23.
A clearinghouse acts as a middleman between a healthcare provider and a health plan that checks claims to ensure they do not contain errors before forwarding them for payment.
The insurer said it will work with payers to ensure there are a maximum number of available locations for claims and is actively coordinating with other clearinghouses to make sure there are no capacity issues.
UnitedHealth had suspended paperwork required to get approval for insurance coverage for most outpatient services, as well as review of inpatient admissions for government-backed Medicare Advantage plans to help those impacted.
UnitedHealth also expects to engage all those who submitted claims during the week of March 25.
The company's other products that handle eligibility of claims such as Clearance and Coverage Insight as well as pharmacy claims submission software MedRx and Reimbursement Manager are expected to go online next week.
Several more products are likely to go online over the weeks of April 1 and April 8, the company said.
Some products, however, were not listed in Friday's update as it does not yet have clarity of when they will be restored, the company said, adding it will provide updated information as those timelines become clear.
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ADP, PAYX, BR - >>> 3 Stocks to Watch From a Growing Outsourcing Industry
Zacks
by Soumyadeep Bose
February 19, 2024
https://finance.yahoo.com/news/3-stocks-watch-growing-outsourcing-153300569.html
The Zacks Outsourcing industry has experienced significant growth, driven by various economic, technological and business factors. Key drivers include the pursuit of cost savings, access to a pool of skilled talent and the opportunity to focus on core competencies. According to a report by ReportLinker, the outsourcing sector is projected to see substantial expansion, with an estimated growth of $75.89 trillion between 2023 and 2027. This growth is expected to maintain a steady compound annual growth rate (CAGR) of 6.5%, reflecting the industry's resilience and attractiveness to businesses seeking efficient solutions.
Automatic Data Processing, Inc. ADP, Paychex, Inc. PAYX and Broadridge Financial Solutions, Inc. BR can be considered by investors from the in-focus Outsourcing market.
About the Industry
Outsourcing involves delegating a company's internal operations to external resources or third-party contractors to enhance operational efficiency. Within the Zacks Outsourcing sector, you'll find companies that provide human capital, business management and IT solutions, primarily catering to small- and medium-sized enterprises. These services encompass a broad spectrum, including HR support, payroll management, benefits administration, retirement planning and insurance services. Certain firms excel in delivering business process services, with a strong focus on transaction processing, analytics and global automation solutions. This outsourcing approach empowers businesses to concentrate on their core competencies while external experts manage these critical functions.
5 Trends Shaping the Future of Outsourcing Industry
Rising Demand Environment: The industry has gained traction over the past year, thanks to the recent advancements in the field of technology and the onset of remote work. Revenues, income and cash flows have been growing in the past year, aiding many industry players to pay out stable dividends.
Continued Growth of Business Process Outsourcing (BPO): Most outsourcing activities occur at lower levels within the organizational hierarchy. Per Grand View Research, the global market for BPO reached a valuation of $261.9 billion in 2022 and is expected to witness a compound annual growth rate (CAGR) of 9.4% from 2023 to 2030. The demand for these services remains high due to their advantages, including greater flexibility, cost reduction and improved service quality.
Relevance of IT Outsourcing: The IT Outsourcing market is projected to generate revenues of approximately $460.10 billion in 2023, with an anticipated CAGR of 11.07% from 2023 to 2028. The upside is expected to lead to a market size of about $777.70 billion by 2028. In the future, outsourced IT services will cover a wide range of functions, including programming and technical support. Organizations can outsource entire IT departments to cut costs and focus on core tasks. A significant driver of outsourcing trends will be the shortage of in-house engineering talent.
Rising Importance of Cybersecurity: Heightened public awareness and evolving cyber threats, like ransomware and national-level cyberattacks, have led to a growing demand for robust data encryption and cybersecurity measures. Companies prioritize employee security awareness training and breach detection systems to prevent cybersecurity incidents. To address these challenges, businesses increasingly turn to outsourced cybersecurity services to mitigate risks, maintain compliance and support scalability in their operations.
Emerging Technology Trends: Trends like the Internet of Things (IoT), cloud computing, Artificial Intelligence (AI) and Machine Learning (ML) are on the verge of reshaping the outsourcing sector. These innovations propel efficiency, foster innovation and bolster competitiveness, altering the delivery of outsourcing services and opening novel avenues for businesses to enhance their operational efficiency. For instance, IoT data can be collected, processed and analyzed in the cloud, enabling real-time decision-making and predictive maintenance for clients. By integrating AI and ML into customer support outsourcing, companies can provide faster, more efficient and consistent customer support while optimizing operational costs.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Outsourcing industry, which is housed within the broader Zacks Business Services sector, currently carries a Zacks Industry Rank #93. This rank places it in the top 37% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 1.9%.
Before we discuss several stocks that investors may consider holding due to their growth potential, let's first examine the recent performance of the industry in the stock market and its current valuation.
Industry's Price Performance
The Zacks Outsourcing industry has lagged the broader Zacks Business Services sector and the Zacks S&P 500 composite over the past year.
The industry has gained 13.5% over this period compared with 22.4% gain of the broader sector and a 23% increase of the Zacks S&P 500 composite.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing outsourcing stocks, the industry is currently trading at 20.41X compared with the S&P 500’s 20.72X and the sector’s 26.21X.
In the past five years, the industry has traded as high as 30.82X, as low as 18.23X and at the median of 24.4X, as the charts below show.
3 Outsourcing Stocks to Consider
Here are three stocks from the outsourcing space with bright near-term prospects. Paychex currently has a Zacks Rank #2 (Buy), while BR and ADP have a Zacks Rank #3 (Hold) each.
Paychex is a prominent provider of integrated HCM solutions, offering payroll, human resource, retirement and insurance services tailored to the needs of small- to medium-sized businesses. Paychex exhibits strength, driven by robust revenue growth and its commanding position in the outsourcing market. The company is actively pursuing opportunities in the professional employer organization industry. At the same time, its steadfast commitment to consistent dividend payouts and share buybacks enhances investor confidence and contributes to earnings per share.
Paychex provided its fiscal 2024 outlook wherein adjusted earnings per share are expected to register 10-11% growth, up from 9-11% expected previously. PAYX reaffirmed its expectation of total revenues to register 6-7% growth.
Management Solutions’ revenues are expected to grow around 5-6%. PEO and Insurance Solutions revenues are expected to grow 7-9%, up from the previously guided 6-9%. Interest on funds held for clients is anticipated to be in the range of $140-$150 million. The company expects operating margin in the range of 41-42%.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, indicating a 6.5% increase from the year-ago reported figure. The consensus mark for earnings is pegged at $4.72, indicating growth of 10.5% from the year-ago reported figure. The estimate has been slightly revised northward in the past 60 days.
Broadridge Financial is a global fintech firm known for providing tech-driven solutions and investor communication services to banks, broker-dealers, asset managers and issuers, with a reputation for producing and distributing critical financial documents. Its robust business model, driven by growing recurring fee revenues and strategic acquisitions, positions it well for revenue growth, supported by a diverse product portfolio. Broadridge excels in implementing its growth strategy in governance, capital markets and wealth management, seizing opportunities in the tech solutions space, including digital, AI, cloud and blockchain, through acquisitions.
For fiscal 2024, Broadridge expects recurring revenue growth in the range of 6-9%. Adjusted earnings per share growth is expected to be in the 8-12% range. Adjusted operating income margin is estimated to be around 20%. Closed sales are anticipated between $280 million and $320 million.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $6.54 billion, suggesting an increase of 7.9% from the year-ago reported figure. The consensus mark for earnings is pegged at $7.72, indicating growth of 10.1% from the year-ago figure. The estimate has remained unchanged in the past 60 days.
Automatic Data Processing is a top-tier provider of cloud-based Human Capital Management (HCM) technology solutions, offering global employers comprehensive services such as payroll, talent management, HR, benefits administration, and time and attendance management. By strategically acquiring firms like Celergo, WorkMarket, Global Cash Card and The Marcus Buckingham Company, the company sustains its dominant position in the HCM market, underpinned by a robust business model, significant recurring revenues, attractive profit margins, outstanding client retention and minimal capital outlays.
For fiscal 2024, ADP still expects revenues to register 6-7% growth. Adjusted EPS is expected to register 10-12% growth. The adjusted effective tax rate is estimated to be approximately 23%. Adjusted EBIT margin is expected to grow 60-70 bps, down from the previously guided 60-80 bps.
Automatic Data Processing expects Employer Services revenues to grow at a rate of about 7-8%, while PEO Services revenues are expected to grow 3-4%.
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $19.15 billion, calling for a 6.3% rise from the year-ago reported figure. The consensus mark for earnings per share is pegged at $9.14, indicating growth of 11.1% from the year-ago reported figure. The estimate has remained unchanged in the past 60 days.
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>>> S&P Global to buy Visible Alpha in latest push for data dominance
Reuters
2-20-24
https://www.msn.com/en-us/money/companies/s-p-global-to-buy-visible-alpha-in-latest-push-for-data-dominance/ar-BB1iA9t6?OCID=ansmsnnews11
(Reuters) -S&P Global said on Tuesday it had agreed to buy consensus provider Visible Alpha for an undisclosed sum, the business intelligence company's latest deal to expand into a data powerhouse.
New York-based S&P Global declined to comment on the deal value. The Financial Times was the first to report that the firms were nearing a deal for more than $500 million on Monday.
The company also said it was exploring options for its digital solutions unit Fincentric, formerly known as Markit Digital, in line with its attempts to streamline focus to its core businesses.
S&P Global has struck a slew of deals over the last few years to attract big clients at a time when rivals are competing to create one-stop shops and invest in artificial intelligence and machine learning.
In 2021, it won antitrust approval to buy market intelligence provider IHS Markit in a $44 billion deal after both firms offloaded several units to satisfy regulatory requirements.
It acquired environmental, social, and governance (ESG) data provider Climate Service in 2022, while its commodity insights unit bought UK-based technology firm Tradenet and its live vessel-tracking platform Market Intelligence Network (MINT) in 2023.
Founded in 2015, Visible Alpha operates a platform that collates investment research and financial models from brokerages. It provides consensus estimates and analytics, and competes with Bloomberg and LSEG.
It is backed by 12 global investment banks, including Citigroup, Bank of America and Goldman Sachs.
S&P Global is prominently known for its credit ratings business and equity indices.
The deal for Visible Alpha, expected to close this year, and the consideration of options for Fincentric are part of measures to accelerate focus in key areas of strategic growth, S&P said.
It sold its engineering solutions business to KKR in 2023 for $975 million to focus on its growth-driving businesses.
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Progressive (PGR) - >>> Berkshire Hathaway's Mystery Stock: Have Buffett and Munger Finally Bought the Stock They Can't Stop Praising?
Motley Fool
By Courtney Carlsen
Nov 24, 2023
https://www.fool.com/investing/2023/11/24/berkshire-hathaways-mystery-stock-have-buffett-and/
KEY POINTS
Berkshire Hathaway requested confidentiality on some third-quarter stock purchases of $1.7 billion. It frequently uses such measures when accumulating large positions, to avoid being front-run by market participants.
The purchase is likely a stock in the banking, insurance, or financial sector, based on its quarterly earnings report.
The conglomerate is quietly accumulating over $1 billion in stock in a mystery company. Could it be this longtime competitor?
Berkshire Hathaway's (BRK.A 0.51%) (BRK.B 0.63%) legendary performance is undeniable. Since CEO Warren Buffett took over the failing textile business in 1965, the stock has returned investors 20% compounded annually -- doubling the S&P 500's average annual return in the same period.
This track record of success is why investors eagerly await Berkshire Hathaway's quarterly form 13-F, a required filing by the Securities and Exchange Commission (SEC) that discloses institutional investors' investing activity during the period. In the third quarter, Berkshire Hathaway purchased $1.7 billion in stock. However, a sizeable chunk of that amount is in a mystery stock on which Berkshire has requested confidential treatment.
Buffett and his team at Berkshire occasionally request confidentiality when they accumulate a stock position and don't want to tip off the markets until they finish buying. The company last requested confidentiality when building stakes in Chevron and Verizon Communications in 2020.
The move has investors speculating over what could be the next big position for Berkshire Hathaway. One company that could be on the short list has previously earned high praise from Buffett and Berkshire Hathaway Vice Chairman Charlie Munger. Here's what that stock is and why it could be the next stock in Berkshire's $354 billion portfolio.
Is this the mystery stock that Berkshire Hathaway bought in the third quarter?
In the third quarter, Berkshire Hathaway sold off part of its holdings in Globe Life, Markel, and Aon, all insurance companies within the financial sector. However, in its third-quarter earnings report, the conglomerate reported that its cost basis for investments in banks, insurance, and finance stocks increased by about $1.2 billion.
There are numerous potential investments that Buffett and his team could've bought. One intriguing stock that the conglomerate could have added during the period is Progressive (PGR). Progressive is the second-largest auto insurance company in the U.S., trailing only State Farm. The third-largest auto insurance company is Berkshire Hathaway's own GEICO, which it acquired in 1996.
When it comes to future leaders in the industry, Buffett sees it as a two-horse race between Progressive and GEICO. During Berkshire’s 2019 annual shareholder meeting, Buffett said
I have always thought for a very long time [that] Progressive has been very well run. They have an appetite for growth. Sometimes they copy us. Sometimes we copy them. And I think that will be true five years from now, ten years from now.
Even Munger sang Progressive's praises, saying, "In the nature of things, every once in a while, somebody is a little better at something than we are."
Progressive's underwriting discipline makes it a top dog in a highly competitive industry
To understand Progressive's stellar performance, you have to go back to 1965, when Peter B. Lewis, son of one of the co-founders, Joseph Lewis, took over the company. At the time, insurers commonly accepted that they would break even on their policies, and the actual returns would come from their investment portfolios. Lewis rejected this notion and instead set a goal that Progressive would earn an underwriting profit on its policies, even if it meant forgoing drivers who wanted lower-cost policies.
When it went public in 1971, the company prioritized achieving a combined ratio of 96, meaning it would earn $0.04 of profit for every dollar of premium earned. This philosophy has been core to Progressive's disciplined underwriting and is a big reason for the insurer's massive success.
You can analyze Progressive's disciplined underwriting by looking at its loss ratio. This ratio is one component of the combined ratio (the expense ratio being the other) and calculates the percentage of losses to premiums earned. Good companies can control losses and keep loss ratios in check, which Progressive has done exceptionally well. Over the last eight years, Progressive's loss ratio has averaged 72%, an excellent number in the highly competitive auto insurance industry. GEICO, also a solid underwriter, averaged 83% over that period.
Berkshire Hathaway's head of insurance had this to say about Progressive's outperformance
Ajit Jain is Berkshire Hathaway's Vice Chair of Insurance Operations and is also on the board of directors. Jain has worked for Berkshire since 1986 and has extensive knowledge about its insurance operations. Buffett has showered Jain with praise, mentioning in his 2012 annual letter to shareholders: "Ajit insures risks that no one else has the desire or the capital to take on. His operation combines capacity, speed, decisiveness and, most important, brains in a manner unique in the business."
Jain appreciates Progressive's underwriting performance and has credited its outperformance to several factors, including its use of telematics. Telematics uses driver data like mileage driven, speed, and braking time and personalizes rates for drivers based on this information.
When it comes to pricing models, more data helps Progressive make more informed decisions, manage its risk well, and keep loss ratios low. In 2019, Jain said that GEICO is working on its telematics program and hoped to catch up to Progressive over time. However, as you can see above, Progressive continues to outperform on the important loss ratio metric.
A stellar stock to own, regardless of whether Berkshire is buying it
It's possible that Berkshire Hathaway sees Progressive's ongoing outperformance and decided to add shares to its $354 billion portfolio. Progressive's long history of collecting driver data is one part of its stellar underwriting performance, and maybe Buffett and his team caved and wanted a piece of the action.
However, investors can't know for sure if Berkshire is buying Progressive until the company posts its fourth-quarter filing (assuming the purchase is not still marked as confidential), which won't come out until mid-February. Regardless, Progressive has been an excellent long-term performer for investors, and even if Berkshire isn't buying it, it can make an excellent addition to your portfolio today.
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>>> Commercial real estate a 'manageable' problem but some banks will close: Powell
Yahoo Finance
by David Hollerith
Feb 5, 2024
https://finance.yahoo.com/news/commercial-real-estate-a-manageable-problem-but-some-banks-will-close-powell-161201936.html
Federal Reserve Chair Jerome Powell is predicting that more small banks will likely close or merge due to commercial real estate weaknesses, but that the problem is ultimately "manageable."
The central bank official made this point during a "60 Minutes" interview that aired Sunday night. It was Powell’s first comments about the industry following a new bout of turmoil cascading through the stocks of many regional banks.
"I don't think there's much risk of a repeat of 2008," Powell said, referring to a financial crisis 16 years ago that took down some of the biggest institutions on Wall Street as well as hundreds of banks across the US.
"I do think it’s a manageable problem," he added.
The new concerns about regional banks were triggered by $116 billion commercial real estate lender New York Community Bancorp (NYCB), which shocked Wall Street last Wednesday when it slashed its dividend, reported a surprise quarterly loss, and stockpiled millions for future loan losses related to commercial real estate holdings.
The stock of the Hicksville, N.Y.-based lender fell 38% on Wednesday and another 11% on Thursday, dragging the rest of the sector down with it. The stocks recovered Friday but dropped once again on Monday as New York Community Bancorp fell more than 10%.
Powell acknowledged in his "60 Minutes" interview that some smaller banks will "have to be closed" or merged "out of existence" due to losses tied to the falling values of properties across the US that are suddenly worth much less due to the Fed’s elevated interest rates and the effect of a pandemic that emptied out many city-center buildings.
But "we looked at the larger banks' balance sheets, and it appears to be a manageable problem," Powell said.
"There's some smaller and regional banks that have concentrated exposures in these areas that are challenged. And, you know, we're working with them. This is something we've been aware of for, you know, a long time, and we're working with them to make sure that they have the resources and a plan to work their way through the expected losses."
Regional banks are particularly vulnerable because they hold a lot more exposure to these properties than larger rivals. For banks with more than $100 billion in assets, commercial real estate loans only account for 13% of total credit. For smaller banks, they account for 44% of total bank credit.
Loans tied to offices and certain multifamily housing properties are showing the most weakness. Not all segments of commercial real estate are expected to face the same problems.
Demand for commercial real estate loans from US banks, meanwhile, weakened in the fourth quarter of 2023 as bank officers tightened their standards, according to a new Fed report released Monday. These officers expect standards to stay tight in 2024 on all loan categories except for residential real estate.
David Chiaverini, a regional and midsized bank analyst for Wedbush Securities, told Yahoo Finance that commercial real estate "will be managed better at some of the other banks" than at New York Community Bancorp, which also has a high level of exposure to rent-controlled apartment complexes in New York City. Those buildings account for 22% of its loans.
Chiaverini said the bank should have set aside more in reserves last year while booking a gain from its purchase of assets from the failed Signature Bank.
"The severity of the issue is, I would say, mostly idiosyncratic to New York Community Bank because they were so under-reserved relative to the risk in their portfolio," he added.
The "perfect storm" that could create problems for the rest of the industry, according to Chiaverini, is if inflation goes back up, forcing the Fed to keep rates higher for longer, and the US economy enters a recession. Borrowers would then have problems keeping up with their loans.
If those things don’t happen, the commercial real estate pain should be "manageable" for the banks, he added.
The Fed chair repeated that same word three times in his "60 Minutes" interview.
"It should be manageable," Powell said.
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Upstart - >>> 3 Artificial Intelligence (AI) Stocks That Could Help Make You a Millionaire
by Will Healy
Motley Fool
Feb 7, 2024
https://finance.yahoo.com/news/3-artificial-intelligence-ai-stocks-114500306.html
Much like the technology trends of the past, artificial intelligence (AI) could potentially help turn investors into millionaires. The performance of stocks like Nvidia and the recoveries of numerous other stocks from their 2022 bear market lows reflects the tremendous growth that these new technologies are driving for the companies involved, and the willingness of investors to pay for it.
Recently, investors have begun to gravitate toward smaller companies with the potential for massive growth. As AI makes more headway among investors, businesses, and consumers, these AI stocks could deliver outsized gains to investors.
Palantir
Investors should not ignore the AI-driven opportunity in Palantir (NYSE: PLTR). The company has long used machine learning and other AI tools to deliver analytical insights to clients in the national defense and commercial realms. The success of its platforms has helped it grow its revenue and profits.
However, the Palantir Artificial Intelligence Platform (AIP) may take its AI prowess to a much higher level. AIP employs generative AI technology, and the company has heavily promoted the product recently through what it calls "boot camps," where it helps prospective customers find real-world ways to use the technology to their benefit. Clients that attend these boot camps have reported eye-popping productivity gains from them, such as producing outputs 10 times faster with one-third of the resources.
Admittedly, the impacts of AIP have not yet shown up in the company's headline numbers. In the first three quarters of 2023, its revenue rose 16% to $1.6 billion. Also, Palantir limited operating expense growth, resulting in a net income of $120 million during that timeframe. Due to investors' optimism about the company's future, its stock has risen by about 110% over the last year.
With that gain behind it, the stock now trades at a price-to-sales ratio of 17, a valuation that may give some investors pause. Still, when factoring in the growth potential, others might see it as a relative bargain based on its forward P/E ratio of 55. If AIP's successes start translating into revenue gains, a surge in the stock could bring investors closer to millionaire status.
Supermicro
Super Micro Computer (NASDAQ: SMCI) -- better known simply as Supermicro -- has existed for over 30 years, but it may finally be getting its moment in the sunshine amid the AI revolution. It describes itself as a "rack-scale total IT solutions provider," building servers for big data, cloud computing, enterprise, 5G, and other applications.
However, it has drawn particular attention with its servers for data centers powered by Nvidia's AI chips. With more than 6 million square feet of manufacturing space and operations in over 100 countries, it has positioned itself to take this technology wherever customers demand it.
Indeed, interest in its products has begun to skyrocket. In the first six months of its fiscal 2024 (a period that ended Dec. 31), its revenue rose 58% year over year to $5.8 billion. But because operating expenses also rose rapidly, its net income increased by just 25% to $453 million.
Since those higher operating expenses appear to have been primarily related to improvements, investors seem to be less concerned about them, and more focused on the company's burgeoning AI opportunity. The stock has risen by an eye-popping 695% over the past year, and doubled since the beginning of 2024.
Despite that gain, its price-to-earnings ratio is around 43, a relatively moderate level considering its revenue growth. Considering that the stock trades at just 26 times forward earnings, it is probably not too late for investors to see further substantial gains in Supermicro.
Upstart
Upstart Holdings (NASDAQ: UPST) seeks to upend the loan evaluation business using AI. According to internal studies, it has found loan opportunities overlooked by Fair Isaac's FICO scoring tool, allowing Upstart's lending clients to approve more loans without increasing their risks.
The FICO score is particularly vulnerable to disruption since its processes have changed little since Fair Isaac launched the scoring tool in 1989. Also, because Upstart seeks to earn revenue on evaluations only, it should carry little credit risk, in theory.
Unfortunately for the company, its period of fast growth and profitability ended abruptly as interest rates rose. Its fairly small client base and high dependence on two large clients have also hampered Upstart, as did its decision to widen its business model and become the lender on some of the loans its platform approved.
Consequently, its revenue in the first nine months of 2023 fell 46% year over year to $408 million. Nonetheless, in Q3, its revenue rose 3% from the previous quarter to $147 million, suggesting that the worst may be over. Also, the stock's price-to-sales ratio stands at just 5, a small fraction of where it stood in the previous bull market.
Upstart carries significant risk, but its platform's ability to approve more loans without increasing lenders' credit risk could offer tremendous value, especially if more banks use it to replace the FICO score model. If more banks adopt its tool and interest rates head lower, Upstart could deliver massive shareholder returns.
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>>> Insurers Rake In Profits as Customers Pay Soaring Premiums
The Wall Street Journal
by Jean Eaglesham
January 25, 2024
https://finance.yahoo.com/m/422624f8-879a-33ab-ae1a-6c8e2cc0d00d/insurers-rake-in-profits-as.html
The pain for home- and auto-insurance customers is quickly becoming investors’ gain. Insurance giants’ shares and profits are hitting records, thanks in part to steep rate hikes. The jump came after the company reported a record profit for its fourth quarter, boosted by double-digit rate increases in its business and personal insurance units...
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>>> The ghosts of last year's regional bank collapse still haunt the banking sector
Yahoo Finance
by David Hollerith
February 2, 2024
https://finance.yahoo.com/news/the-ghosts-of-last-years-regional-bank-collapse-still-haunt-the-banking-sector-090028587.html
Federal Reserve officials on Wednesday removed language from a key policy statement qualifying the US banking system as "sound and resilient," a phrase it had used since March 2023 to reassure the public that regional lending problems were contained.
That same day, fresh turmoil at a New York regional bank offered a reminder that those problems are far from over.
New York Community Bancorp (NYCB) shocked Wall Street when it slashed its dividend, reported a surprise quarterly loss, and stockpiled millions for future loan losses. The stock of the Hicksville, N.Y.-based lender fell 37% on Wednesday and another 11% on Thursday, dragging the rest of the sector down with it.
Stocks of many other mid-sized lenders, such as Valley National Bancorp (VLY), BankUnited (BKU), and Western Alliance (WAL), also took big hits Wednesday and Thursday as investors punished many of the sector's names. An index that tracks mid-sized banks also plummeted by 9% in two days.
"It's definitely sell now, ask questions later," Alexander Yokum, a regional bank analyst with CFRA, told Yahoo Finance.
Some experts urged caution, noting that the challenges at New York Community Bancorp do not apply to the entire sector. And many regional bank stocks recovered some losses during Friday's trading as New York Community Bancorp rose 5%.
"We see the issues impacting NYCB as being specific to the company with little read-through to the broader regional banks," Steven Alexopoulos, a JPMorgan Chase (JPM) regional bank analyst, said in a Thursday note.
The chaos on Wednesday and Thursday offered a mini-flashback to 11 months ago, when fears about the safety regional banks spread across the country. Eventually, those fears brought down three sizable institutions — Silicon Valley Bank, Signature Bank, and First Republic — that were seized by regulators.
There are a number of factors that help explain the market's new worries, from concerns about commercial real estate weaknesses to stricter regulatory rules placed on regional lenders of a certain size.
But the core questions about this section of the banking industry are the same as they were last March: How weak are the balance sheets at regional lenders? Can they withstand the pain of the Fed's aggressive interest rate hikes?
And can they ultimately be profitable and survive in the pocket that exists between a coast-to-coast colossus like JPMorgan and thousands of tiny community banks in small towns across America?
A crisis that created another crisis
The irony of New York Community Bancorp’s current predicament is that it can be partly traced back to the company's attempts to play the role of rescuer during the 2023 crisis when it stepped in to purchase assets of the fallen Signature Bank from regulators just months after acquiring another rival.
The rapid consolidation doubled the size of the institution and pushed the bank above an important asset threshold of $100 billion that brought stricter regulatory requirements applied to lenders of that size.
Those requirements, the company said, help explain why it had to bolster its balance sheet by cutting its dividend and boosting the money it set aside for future loan losses.
"They picked up the Signature assets at a discount, which seemed quite good, but my concern now is that it’s just been too much to handle, unfortunately," Yokum said. "If you're larger and more diversified, you're less likely to have one of these shocks hit you directly."
This new challenge for one of the country's top 30 banks may help stoke a larger debate in the regional banking world about whether it's better to pursue consolidation and get bigger, or get smaller as a way of avoiding new regulatory demands that could crimp profits.
PNC Financial Services Group CEO Bill Demchak took the former view last month when he told analysts that corporate customers will eventually migrate to national giants with implied government backing.
So it's "critical," he said, that his Pittsburgh-based bank "move into that next level" and be known "coast to coast as a ubiquitous standard brand."
"Scale matters," he added. "We’re going to have to play that game."
But getting bigger, as New York Community Bancorp found out, also brings new hurdles that can quickly turn into profitability problems. Regulators are also currently considering new rules that would make capital demands on regional banks even stricter.
Some regional banks, as a result, are trying to get smaller by shedding loans, investments, and business lines.
When regional lender US Bancorp (USB) announced last October that it had agreed to a cap on its assets and a shrinking of its balance sheet as a way of avoiding tougher regulations from the Fed, its stock moved higher by 7% in one day.
"You need to shrink if you’re not healthy," Yokum said.
Commercial real estate worries
The new turmoil for New York Community Bancorp is raising another specific concern for the sector: commercial real estate.
NYCB is largely a commercial real estate lender, and there have been concerns about the pain for such banks as office and multifamily apartment properties fall in value due to elevated interest rates and the effect of a pandemic that emptied out many city-center buildings.
Regional banks are particularly vulnerable because they hold a lot more exposure to those properties than larger rivals. Trillions of these loans are expected to come due in the next several years.
The issue is under scrutiny by regulators. "All of the bank regulators are working with banks that have, you know, concentrations of troubled real estate to work it out," Federal Reserve Chairman Jerome Powell said late last year at the New York Economics Club.
In the case of New York Community Bancorp, it was largely one office loan and one co-op loan that were responsible for a steep rise in net charge-offs to $185 million from $1 million in the year-earlier period.
It also set aside $552 million for future loan losses, a sign it expects credit to deteriorate further.
"They have to build reserves," said Christopher Marinac, an analyst with Janney Montgomery Scott, who has covered banks for more than three decades. "They're catching up. And I don't think the company truly has losses that they're going to incur, but they have to build their protection around the unknowns of credit risk."
There were other reminders Thursday outside the US of the potential for more problems to come. Germany's Deutsche Bank and Japan's Aozora Bank disclosed new commercial real estate weaknesses Thursday that stoked investor concerns.
But the boss of another US regional lender, Citizens (CFG), downplayed larger worries about the industry in an interview with Bloomberg TV.
"For the most part, everything’s in the rear-view mirror now," CEO Bruce Van Saun said during a day when his bank's stock fell by more than 4%.
Most regional banks, he said, have been able to manage their interest rate risk while the deposit pressures of 2023 have eased.
"So things are starting to feel a lot more normal," he said. The NYCB announcement "was a bit of a surprise. I think that’s an outlier."
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>>> Tap Into the Insurance Industry's Momentum With These ETFs
Zacks
by Yashwardhan Jain
January 23, 2024
https://finance.yahoo.com/news/tap-insurance-industrys-momentum-etfs-212500904.html
The rising frequency and seriousness of potential global challenges, ranging from climate change to cybercrime, secures the insurance industry’s ability to act as a financial cushion. According to Deloitte, insurers realizing the need to proactively prevent losses from occurring in the initial stages is driving the industry’s growth.
After experiencing a positive shift in its trend in the second half of last year, the U.S. property and casualty industry has continued with its robust momentum entering 2024. Significant premium increases, a slowdown in the growth of claims costs and improved investment returns have all had a beneficial effect on the sector, giving a boost to profitability.
The S&P Insurance Select Industry Index has gained 8.54% over the past year, as of 17 Jan 2024, compared to the broader S&P 500 Financials Index, which added about 3.82% over the past year.
Growth in Digits
According to Swiss Re, the industry ROE is estimated to surge to 9.5% in 2024 and reach 10% in 2025, hinting at a substantial increase from the 5% recorded in 2023, backed by robust premium growth and reduced inflationary pressures. Estimates for ROE are supported by solid premium growth expectations of 7% and 4.5% for 2024 and 2025, respectively.
Combined ratio, a comprehensive measure of an insurance company’s profitability, used to evaluate how well the company is operating on a daily basis, is anticipated to improve significantly. The ratio is projected to be 98.5% for both 2024 and 2025, implying a notable improvement from the estimated 103% for 2023. A ratio below 100% signifies that the company is realizing an underwriting profit.
Direct premium written (DPW), which represents the growth of a company’s insurance business during a particular period, is forecast to grow at 7% in 2024, indicating an upward revision from 5.5% in 2023.
Industry’s Anticipated Earnings Success
According to Factset, the insurance industry is expected to be the primary driver of positive year-over-year earnings growth for the financial sector, growing by a staggering 26%. Year-on-year earnings growth at the sub-industry level is led by the property & casualty insurance, growing at 48%, followed by reinsurance (30%) and multi-line insurance (17%).
Seventeen out of the top 20 insurers trading on major U.S. exchanges experienced an uptick in market capitalization during the fourth quarter of 2023, per S&P Global Market Intelligence, with most insurers exhibiting increases of 6% or more.
According to Zacks Earnings Trend, Insurance - Multi Line and Insurance - Property And Casualty have a growth rate of 8.04% and 8.02%, respectively.
ETFs in Focus
Below, we highlight a few insurance ETFs for investors to capitalize on the industry’s continuing momentum.
SPDR S&P Insurance ETF (KIE)
SPDR S&P Insurance ETF seeks to track the performance of the S&P Insurance Select Industry Index with a basket of 48 securities. The fund has amassed an asset base of $738.17 million and charges an annual fee of 0.35%.
SPDR S&P Insurance ETF has a major exposure of 50.43% in property and casualty insurance, followed by life and health insurance, with a share of 24.84% of its assets. The fund has gained 6.78% over the past three months and 12.12% over the past year.
iShares U.S. Insurance ETF (IAK)
iShares U.S. Insurance ETF seeks to track the performance of the Dow Jones U.S. Select Insurance Index, with a basket of 55 securities. The fund has gathered an asset base of $476.5 million and charges an annual fee of 0.40%.
iShares U.S. Insurance ETF has major exposure of 67.88% in property and casualty insurance, followed by life and health insurance, with a share of 24.13% of its assets. The fund has gained 9.67% over the past three months and 11.22% over the past year.
Invesco KBW Property & Casualty Insurance ETF (KBWP)
Invesco KBW Property & Casualty Insurance ETF seeks to track the KBW Nasdaq Property & Casualty Index, with a basket of 26 securities. The fund has amassed an asset base of $200.9 million and charges an annual fee of 0.35%.
Invesco KBW Property & Casualty Insurance ETF has an exposure of 60.09% in large-cap securities. The fund has gained 8.01% over the past three months and 7.06% over the past year.
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>>> Why one giant regional bank no longer wants to be a regional bank
The boss of PNC is making it clear that his Pittsburgh bank needs to get bigger in the wake of a 2023 industry crisis
Yahoo Finance
by David Hollerith
January 25, 2024
https://finance.yahoo.com/news/why-one-giant-regional-bank-no-longer-wants-to-be-a-regional-bank-090015924.html
The boss of the sixth-largest lender in the US is making it clear that he no longer wants it to be viewed as a regional bank.
On a conference call with analysts last week, PNC Financial Services Group (PNC) CEO Bill Demchak made a case for why it’s "critical" that his company gets bigger in the wake of a crisis last spring that roiled regional banks across the country.
Corporate depositors, he said, no longer trust US regulators can keep all banks safe, and these customers will likely migrate to national giants with implied government backing. So Demchak wants his Pittsburgh-based bank to "move into that next level" and be known "coast to coast as a ubiquitous standard brand."
"Scale matters," he added. "We’re going to have to play that game."
Demchak’s comments are stoking a new debate about the path forward for the nation’s biggest regional banks following the turmoil of 2023. Can they still thrive in that pocket between a colossus like JPMorgan Chase (JPM) and thousands of tiny community banks, or do they need to consolidate and get much bigger to ensure their long-term survival?
Many of these banks are generally on more stable ground than they were during the first half of last year when the failures of Silicon Valley Bank, Signature Bank, and First Republic triggered panic about the strength of many other mid-sized financial institutions across the US.
Their stocks even surged late in 2023 as investors became more convinced the Federal Reserve was ready to start cutting sky-high interest rates as early as March. Such a move would help mid-sized banks that watched their profits plunge as deposits became more expensive.
But it is not yet clear when or if those cuts will happen, and bank stocks have fallen back at the start of 2024 as policymakers push back on market expectations for a loosening in the first quarter.
This uncertainty means regional banks will continue to struggle with a key profitability measure known as net interest income — which measures the difference between what banks earn on their loans and pay out on their deposits.
Income fell at many regional banks during the fourth quarter, and some said they expect it to fall during 2024 as well. That includes PNC, which said it expects net interest income to drop 5% this year.
'Wow'
But Demchak’s bigger concern is existential: He said last week that his bank needs to get bigger so it can exist in a category that would give PNC the "quasi support that the giant banks have" during times of crisis.
This was not the first time Demchak has made this point. He also did so in December while speaking at the Goldman Sachs Financial Services Conference in New York. When asked then if he would consider acquiring another bank, he said, "Scale matters today more than it ever has."
Wells Fargo banking analyst Mike Mayo decided to ask Demchak about this topic again last week during PNC’s fourth quarter earnings conference call, and Mayo summed up his reaction to the CEO’s survival-of-the-fittest guidance with one word: "Wow."
Demchak’s comments served as "a very clear advertisement" that PNC is looking to buy other banks over time, Mayo told Yahoo Finance.
"I see this advertisement to buy targets as more of an announcement for the next three years, not the next three quarters," he added.
Not all of Demchak’s regional rivals agree with his view. "I do not think scale is the answer for a bank like Key," KeyCorp (KEY) CEO Chris Gorman told analysts last week. Key is a regional bank based in Cleveland.
"It's not something you have to have," added M&T Bank (MTB) CFO Daryl Bible. M&T is a Buffalo, N.Y.-based regional lender.
PNC has in the past used acquisitions to get bigger during times of industry-wide stress. During the 2008 financial crisis, it was encouraged by the US government to buy Cleveland rival National City for $5.2 billion, which basically doubled its size.
Demchak has since used more acquisitions over the last decade to establish a foothold in nearly every top metro area in the country. His last was a $11.6 billion deal for the US operations of Spanish banking giant BBVA that closed in 2021. PNC now has roughly $561 billion in assets.
The CEO tried last year to get even bigger. PNC was asked by the FDIC to submit a bid to acquire the operations of San Francisco lender First Republic, which would have given it a much larger foothold on the West Coast.
But it lost that auction in the early hours of May 1 to JPMorgan, the nation’s biggest and most profitable lender.
From Wall Street to Main Street
Demchak, 61 years old, was a late arrival to the world of regional banking. He got his start on Wall Street, working for JPMorgan in the 1990s. While there, he became head of structured finance and was well known for helping develop credit default swaps and selling them to investors.
Demchak arrived at PNC, a bank based in the area where he grew up, when he was 40. He served as CFO and head of corporate and institutional banking before becoming CEO in 2013.
He has periodically been mentioned or considered as a potential candidate to run much bigger banks before Bank of America (BAC) chose Brian Moynihan as its CEO and Wells Fargo (WFC) appointed its current boss Charlie Scharf. But he has chosen to stay in Pittsburgh.
Not all industry observers agree with Demchak’s latest argument that regional banks will drag unless they merge.
"It's a great soundbite," said Gerard Cassidy, bank analyst for RBC, but "that's not reality. The reality is that banks have relationships."
Market share — or "density" in specific businesses — trumps national scale, Bank of America analyst Ebrahim Poonawala told Yahoo Finance.
Scott Siefers, an analyst with Piper Sandler, agreed that "the whole game seemed to change in 2023," and that "what most people have concluded is that banks are just simply going to have to get bigger to compete."
But there are a lot of hurdles to that consolidation, he said, from high interest rates to the Biden administration’s skeptical view of big mergers.
"Longer term, I don’t think there’s much dispute that PNC will be active in the consolidation of the industry," he added. "In the immediate term, however, I think a lot of investors have time to figure that out."
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>>> Humana’s dire forecast shows private Medicare boom is ending
Bloomberg
by John Tozzi
January 26, 2024
https://finance.yahoo.com/news/humana-plunges-2024-forecast-misses-120703264.html
(Bloomberg) — Private Medicare plans that drove years of growth for US health insurers are getting less profitable and may cost seniors more money, Humana Inc.’s results showed, sending shares down across the sector.
The second-largest Medicare Advantage company, Humana struck a dire tone as it pulled its earnings guidance for 2025 and forecast 2024 profits short of analysts’ most pessimistic outlooks. The shares fell as much as 15% in New York, the most intraday since June.
As medical costs rise, Humana will have to raise prices and pull back on benefits to shore up profit margins, executives said Thursday on a conference call, and they expect competitors to do the same. If that happens, it may be the end of health insurers’ Medicare Advantage boom.
“The whole industry will possibly reprice” plans for next year, outgoing Chief Executive Officer Bruce Broussard said on a conference call. “I don’t know how the industry will take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026.”
Humana now sees adjusted earnings of approximately $16 a share in 2024, according to a statement Thursday. That would set its per-share profit back to a level not seen since 2018, shocking some analysts.
“We did not think $16 was possible,” Jefferies analyst David Windley wrote in a research note. From that level, Humana plans for growth of $6 to $10 a share in 2025.
Rivals have given different explanations for the jump in medical costs, adding uncertainty to the buffeted sector. UnitedHealth Group Inc., the largest seller of Medicare Advantage plans, told investors Jan. 12 that higher costs seen late last year were seasonal and wouldn’t persist through 2024. Elevance Health Inc., a smaller player in Medicare, indicated this week it had priced to cover rising costs.
Still, Humana’s forecast dragged on the sector. UnitedHealth fell as much as 6.6%, Cigna Group as much as 4.3%, CVS Health Corp. as much as 5.4% and Centene Corp. as much as 4.9%.
Worse than feared
More than half of US seniors on Medicare now get their benefits through private plans. Humana is more exposed to changes in the Medicare Advantage market than major competitors. Last week, a preview of fourth-quarter results showed accelerating medical expenses.
The US last year proposed new rates and other changes to restrict how insurers get paid. The government also finalized plans to claw back past overpayments, a policy Humana is challenging in court. Those changes are colliding with an uptick in costs as some patients resume seeking care they had deferred during the pandemic.
The changes to government billing are being phased in over three years starting in 2024, which means more pressure on the business is coming. The US is expected to announce its initial 2025 rate update for Medicare Advantage plans in the coming weeks.
Humana’s 2024 outlook assumes the higher medical costs that materialized in the fourth quarter will persist for the year. It’s a “wholesale rebasing of expectations” for the Medicare Advantage segment, RBC Capital Markets analyst Ben Hendrix wrote in a research note.
Humana executives said Thursday that they expect to remain focused on Medicare. The company was reported to be in talks with Cigna late last year to assemble a bigger, more diversified business, but discussions quickly fell apart.
“We do believe today being a specialty player in the fastest-growing part of the industry is the best value for the shareholders,” Broussard said.
Long-term questions
As recently as Nov. 1, Humana affirmed its 2025 profit target of $37 a share. Yet those expectations unraveled swiftly, even as risks to Medicare Advantage became clearer through 2023.
Rising cost trends took hold as insurers set prices for 2024 plans, and Humana told investors it considered their “initial emergence” in its pricing. Medical expenses jumped beyond what the company prepared for in late 2023, as Humana cited higher inpatient stays, doctor visits and outpatient surgeries.
The company is looking at years of adjustments to get back to the earnings trajectory investors were betting on. Humana executives including Chief Operating Officer Jim Rechtin, who is set to take the CEO seat later this year, projected optimism about the company’s long-term prospects.
JPMorgan Securities analyst Lisa Gill wrote that it’s difficult to see Humana returning to its long-term multiple, the level the stock trades relative to earnings. By the time Humana overcomes the rough spot ahead “we think investors could be focusing more on slowing demographic trends, as growth in the 65+ market is expected to moderate” in the second-half of the 2020s, she wrote.
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>>> Aon Agrees to Buy NFP for About $13.4 Billion in Cash, Stock
Bloomberg
by Josyana Joshua and Allison Nicole Smith
December 20, 2023
https://finance.yahoo.com/news/aon-agrees-buy-nfp-13-213641576.html
(Bloomberg) -- Aon Plc agreed to buy NFP Corp. for about $13.4 billion in cash and stock as part of a push into the middle-market segment of the insurance brokerage and wealth-management business.
Funds affiliated with Madison Dearborn Partners and HPS Investment Partners are the sellers, the companies said in a statement Wednesday. The transaction will be funded by $7 billion of cash and $6.4 billion of Aon’s stock.
Aon expects to fund the cash portion with around $7 billion of new debt, according to a filing. It plans for $5 billion of it to be raised in 2024 and $2 billion raised when it completes the transaction. The new debt will span a range of maturities, subject to market conditions. NFP Chief Executive Officer Doug Hammond will continue to lead the business as an independent, connected platform within Aon, reporting to Aon President Eric Andersen.
Aon said it expects about $400 million in one-time transaction and integration costs. The combination is expected to dilute adjusted earnings per share in 2025, and break even in 2026. It will add to earnings starting in 2027, according to the statement. The deal is expected to be completed in the middle of next year.
The sale is welcome news for holders of the NFP’s high-yield debt. The company’s 6.875% bond due 2028 rose more than 8 cents on the dollar, making it Wednesday’s biggest gainer, according to Trace data.
“Every now and then Santa Claus visits the high yield market in the form of investment grade M&A,” David Knutson, senior investment director at Schroder Investment Management, said in an interview. “Not something you plan for, but it is a nice surprise.”
From Aon’s perspective, “investment-grade spreads are very compelling right now for issuers,” said Bloomberg Intelligence’s Noel Hebert, “so the funding market is as compelling as it’s been in a while.”
Similarly, the high-yield bonds of United States Steel Corp. rallied after Nippon Steel Corp., an investment-grade company, agreed Tuesday to buy the Pittsburgh-based firm for $14.1 billion.
However, the sudden wave of investment-grade M&A won’t necessarily last, said Knutson.
“The market has embraced the ‘soft landing’ narrative. This has fueled an ‘everything rally,’” said Knutson. “If future data doesn’t support this narrative, the market and buyers will lose their appetite for risk.”
UBS Group AG served as financial adviser to Aon, and Cravath, Swaine & Moore and McDermott Will & Emery were external legal counsel. Evercore Inc. acted as lead financial adviser to NFP, while Skadden, Arps, Slate, Meagher & Flom and Ropes & Gray were external legal counsel.
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>>> American Express Company (AXP)
https://www.insidermonkey.com/blog/5-best-mario-gabelli-stocks-other-billionaires-are-also-piling-into-1235826/3/
Number of Billionaire Investors In Q3 2023: 15
American Express Company (NYSE:AXP) is an iconic American travel services and financial products provider. Amidst speculation in the market that it might be Apple’s next company of choice for the Apple Card, the firm’s CEO wasn’t too excited about the prospect at a financial conference in December 2023.
As 2023’s third quarter ended, out of the 910 hedge funds part of Insider Monkey’s database, 74 were American Express Company (NYSE:AXP) investors. Warren Buffett’s Berkshire Hathaway was the largest shareholder due to its $22.6 billion investment.
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Re-post -- Ally Financial - >>> Buffett's Berkshire Hathaway sees opportunity in Ally Financial amid rate hikes
By: Investing | November 22, 2023
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=173277367
Warren Buffett's investment conglomerate, Berkshire Hathaway (NYSE:BRKa), maintains a significant stake in Ally Financial (NYSE: NYSE:ALLY), valued at approximately $798 million. Despite the auto financing sector being hit by rising interest rates, which has led to a decline in Ally's stock value, Berkshire Hathaway owns nearly 10% of the company. This move signals Buffett's recognition of an undervalued opportunity in the market.
Ally Financial operates a branchless digital banking model, which has been instrumental in offering competitive interest rates to customers while keeping operational costs low. This strategy has contributed to the company amassing over $161 billion in assets and achieving an impressive customer retention rate of 96%. The bank's innovative approach was rewarded with a top industry accolade this year.
Buffett is drawn to Ally due to its valuation at just 86% of tangible book value, along with its strong dividend history. Since mid-2016, Ally has increased its dividend payouts by 275%, showcasing robust financial health even as challenges persist. These challenges include tighter net interest margins and a rise in loan delinquencies, which are indicative of broader economic strain.
Nonetheless, analysts remain optimistic about Ally's future profitability, projecting an increase in earnings per share (EPS) from $3.16 in 2023 to $3.83 in 2024. The bank has also set aside $508 million for credit losses, reflecting prudent financial management during uncertain times.
Berkshire Hathaway itself boasts an impressive annual yield of around 20%, translating to cumulative returns of 3,787,464%. The firm's substantial investment in Ally Financial comes amid a period where the company's value has been slashed by half due to the impact of high-interest rates on the auto loan industry. Despite these headwinds, the consensus among Wall Street analysts supports a positive outlook for Ally Financial's path to profitability recovery.
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Rickards - >>> Another Bank Bites the Dust!
BY JAMES RICKARDS
NOVEMBER 6, 2023
Another Bank Bites the Dust!
Citizens Bank was a small bank in Iowa with about $66 million in assets. Its loan portfolio consisted largely of commercial and industrial loans.
Well, this past Friday the Federal Deposit Insurance Corporation (FDIC) announced that Citizens Bank had failed due to significant hidden loan losses totaling about $15 million.
Because Citizens Bank was not a member of FDIC, the bank’s losses will be the responsibility of the state of Iowa.
This is the sixth notable bank failure this year. As you might recall, the first five were Silicon Valley Bank (back in March), Silvergate Bank (a bridge from the crypto world), Signature Bank (another crypto conduit to the regular banking world), First Republic Bank and the giant Credit Suisse.
I warned in March that the failure of Silicon Valley Bank would be just the start. Now we’ve had five additional bank failures.
And this latest failure won’t be the last.
Veterans of such crises (and I include myself in that category) know that once the dominoes start falling, they keep falling until some government intervention of a particularly draconian kind is imposed.
We’ve seen some significant regulatory actions from the Federal Reserve, the FDIC, the U.S. Treasury and the Swiss National Bank, but the fixes have been temporary and followed quickly by new failures.
The FDIC abandoned its $250,000 deposit insurance limit and effectively guaranteed all the depositors in Silicon Valley Bank and Signature Bank, a guarantee of over $200 billion in deposits. This has impacted the FDIC insurance fund and required higher insurance premiums from solvent banks, the cost of which is ultimately borne by consumers (you).
The Federal Reserve went further and offered to lend money at par for any government securities tendered as collateral by member banks even if the collateral was worth only 80% or 90% of par. These collateralized loans are financed with newly printed money, which might exceed $1 trillion.
These actions have thrown the U.S. banking system and bank depositors into utter confusion. Are all bank deposits now insured or just the ones Janet Yellen decides are “systemically important”? What’s the basis for that decision? What about the fact that unrealized losses on U.S. bank portfolios of government securities now exceed $700 billion?
If those losses are realized to provide cash to fleeing depositors, it could wipe out much of the capital of the banking system.
Unrealized losses on securities held by FDIC-insured banks exceed $620 billion. That’s the amount of bank capital that would be wiped out if the banks were forced to sell those securities to meet demands from depositors who wanted their money back.
That would cause additional bank failures and continue the panic that began in March indefinitely.
We’re not out of the woods, and the confusion will continue.
What’s important to bear in mind is that crises of this type are not over in days or weeks.
A slow-motion rolling panic that takes a year or longer is more typical.
The 1998 crisis reached the acute stage on Sept. 28, 1998, just before the rescue of LTCM. We were hours away from the sequential shutdown of every stock and bond exchange in the world.
But that crisis began in June 1997 with the devaluation of the Thai baht and massive capital flight from Asia and then Russia. It took 15 months to go from a serious crisis to an existential threat.
Likewise, the 2008 crisis reached the acute stage on Sept. 15, 2008, with the bankruptcy filing of Lehman Bros. But that crisis began in the spring of 2007 when HSBC surprised markets with an announcement that mortgage losses had exceeded expectations.
It then continued through the summer of 2007 with the failures of two Bear Steans high-yield mortgage funds, and the closure of a Société Générale money market fund. The panic then caused the failures of Bear Stearns (March 2008), Fannie Mae and Freddie Mac (June 2008) and other institutions before reaching Lehman Bros.
For that matter, the panic continued after Lehman to include AIG, General Electric, the commercial paper market and General Motors before finally subsiding on March 9, 2009. Starting with the HSBC announcement, the subprime mortgage panic and domino effects lasted 24 months from March 2007 to March 2009.
Averaging our two examples (1998, 2008) the average duration of these financial crises is about 20 months. Since this crisis began in March (eight months ago), it could have a long way to run.
In other words, crises can unfold for a long time before they’re finally squashed by massive regulatory intervention.
Get ready for more bank failures.
I’ve written a lot about what I call Biden Bucks. That’s my term for the central bank digital currency (CBDC) the government is currently preparing.
What does the ongoing banking crisis have to do with Biden Bucks? Well, plenty, as it turns out.
Read on to see why…
Bank Runs, Biden Bucks and Money Jail
By Jim Rickards
Whether an account is in CBDC or a regular checking account doesn’t make that much difference. Bank runs today are no different than in the 1930s from a behavioral perspective.
It’s all about lost confidence, fear, not wanting to be the last person out of a burning building, rumors, word of mouth and a host of psychological factors that are part of human nature.
That part hasn’t changed since at least the 14th century with the failure of the Bardi and Peruzzi banks around 1345. What has changed is technology. Marshall McLuhan said in the 1960s that in the global village, everyone knows everything at the same time. He was right. That means when a bank run begins, there’s an immediate reaction.
The difference with the 1930s is that you don’t line up around the corner and wait for the chance to demand cash from the teller. You take out your iPhone, make a few taps and, whether it’s Venmo or a wire transfer, the money is on its way out the door.
Whether you’re a retail depositor with $1,000 or a maven with $8 billion, everyone was online moving money all at once. In that sense, CBDCs don’t matter much. Whether it’s CBDC, Venmo, wire transfer or cash from an ATM, everyone is cashing out at the same time via digital channels. But there is one huge impact of CBDCs that is entirely new and sets them apart from what’s described above…
CBDCs are programmable and controlled by the government.
This means when a run develops, the government can stop the run just by freezing CBDC account transfers. They can even claw back earlier transfers. Since the government controls the CBDC ledger, they can see where the early withdrawals went and simply reinstate them on the account of the failing bank and debit them from the accounts of the transferees. The government can do this with a few keystrokes because they see everything.
This means that once Biden Bucks is implemented, you’re locked into a system controlled by the government. You’re in a money jail.
There’s no point even starting a bank run because the government can track your movements and put the money back where it started. It’s one of many ways that Biden Bucks gives the government total control of your money and can monitor your thoughts and movements.
Cash is likely to be eliminated sooner rather than later in order to pave the way for the dominance of central bank digital currencies. A U.S. dollar CBDC is coming soon. Cash will have to be eliminated to force individuals into the CBDC world. For better or worse, the only way citizens will be able to avoid the mandatory use of CBDCs will be to use gold, silver or cryptocurrencies.
I put comparisons of gold (and silver) and Bitcoin in the same category as comparing fish and bicycles. You can do it, but what’s the point? Gold is money and Bitcoin is a hallucinogen;(or more precisely an acoustic hypnotic spell).
The idea that the U.S. Treasury, Fed and other mainstream monetary institutions are hostile to crypto is absolutely correct. For 10 years they have taken the view that they don’t like it but don’t know what to do about it. Now they know.
The solution is to kill it.
Of course, Bitcoin and other cryptos have their own ecosystem of exchanges, derivatives, custodians, payment channels, tickers, etc., etc. But so what? Cryptos are like chips in a casino.
You can make money or lose money gambling with the chips. But if you walk outside with chips in your pocket, they’re worthless.
You can change tables at the casino but you can’t leave the casino. Chips only have value inside. If you want to spend money outside, you have to visit the cashier first to cash in your chips. The cashier is the portal from the crypto world to the real world of money.
That’s why the FDIC took over Signature Bank on Sunday, March 12, when they shut down Silicon Valley Bank. Signature Bank was no worse off than a lot of other banks. If it had survived until Monday, March 13, it would have been rescued by the Federal Reserve’s Bank Term Funding Program (BTFP) along with the entire U.S. banking system. Why did Signature Bank get whacked under those circumstances?
Signature Bank got whacked because it was offering a portal to the crypto world called Signet. Once the FDIC announced a blanket deposit guarantee and the Fed offered an unlimited ability to swap bonds for cash at par, Signature would have been fine like any other bank.
Yellen used a panicked weekend to wipe out the Signet portal. As Rahm Emanuel said, never let a crisis go to waste. This is one example of how crypto is getting strangled globally. CBDCs are being set up to replace cryptos as a digital currency.
As for gold, you can manipulate the price for short periods of time by dumping gold, painting the tape, acting in concert, etc. But those techniques are not sustainable (unless you want to sell all your gold, in which case you end up with no gold and the market still goes its way).
The London Gold Pool price rigging agreement collapsed in 1968. British Chancellor of the Exchequer Gordon Brown sold almost half of the U.K.’s gold in 1999 at a near 50-year low, a notorious effort at price manipulation known as Brown’s Bottom.
Both are good examples of how manipulation always fails in the end. The government could try a replay of FDR’s gold confiscation from 1933, but it won’t work this time because there’s no trust in the government’s promises.
There are many reasons for this. No one trusts the government today, whereas in 1933 there was a belief that FDR knew what he was doing and was trying to end the Great Depression. COVID is a good example of how people were lied to about vaccines, masks, etc.
The rule today is “Don’t get fooled again.’ No one will surrender their gold except perhaps the people still wearing masks. But they probably don’t have any gold to begin with.
The other reason gold confiscation won’t work is that gold is not fixed in price as it was in 1933. Very few saw the dollar devaluation from $20/oz to $35/oz of gold coming that FDR orchestrated in 1933.
That gold price increase (really a dollar devaluation) wasn’t announced until months after the confiscation. It was the ultimate in insider trading organized by FDR. Informed citizens won’t fall for that a second time.
In a non-pegged market as we have today, the crisis will come first and gold will go to $5,000 or $10,000 per ounce or higher before the government gets around to an attempted confiscation. By that point the damage is done and gold owners have their winnings.
How should everyday Americans evaluate the crisis choice between gold and cryptos as alternatives to the dollar? Ask the following questions:
Can crypto get whacked by governments? Yes. Can gold be manipulated in the long-run? No.
Those questions and answers really answer the bigger question of how to survive the collapse of the dollar.
Gold works. Crypto doesn’t. ‘Nuff said.
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CME Group - >>> 2 Top Financial Services Stocks to Buy in October
Motley Fool
By Courtney Carlsen
Oct 7, 2023
https://www.fool.com/investing/2023/10/07/2-top-financial-services-stocks-to-buy-in-october/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
Financial markets rely on a multitude of companies to grow and evolve.
CME Group is the top derivatives exchange operator and benefits from volatile markets.
FactSet Research's trove of data helps investment professionals and provides recurring subscription revenue.
These finance companies have strong moats and are cash-generating machines.
Financial services companies form the backbone of markets, offering solutions from exchanges where market participants can buy or sell assets to data providers who help investment professionals make sense of troves of data. Companies that provide these crucial services can make solid investments because of their steady cash flows and ability to profit in different market conditions.
CME Group (CME 0.15%) and FactSet Research Systems (FDS 0.43%) are two stocks with excellent businesses. These companies have strong competitive advantages and favorable trends that benefit their business.
Here's why investors should consider buying these two stocks today.
CME Group dominates derivatives and has seen robust demand
CME Group operates a financial exchange that allows investors to buy and sell derivatives, which are financial instruments that get their value from some underlying asset, like stocks or bonds. Derivative contracts include futures, forwards, and options traded on CME Group-owned exchanges, including the Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile Exchange.
CME Group is the world's largest operator of derivatives exchanges and has a strong moat, or competitive advantage, due to its dominant position. The company acts as a clearinghouse for all trades on its exchanges and earns clearing fees in return for guaranteeing these contracts will be honored.
Last year was solid for the exchange operator. Volatility was ever-present in financial markets, driving robust demand for derivative products. In 2022, CME Group's average daily volume was $23 million, boosting clearing and transaction fees, which increased 10%.
Moving forward, CME Group should continue benefiting from volatile bond and stock markets. Interest rates have been especially volatile, with the 10-year Treasury bond reaching its highest yield since 2007. This year, CME Group's revenue has grown 8%. Robust trading activity continued in the third quarter, and its average daily volume of 22.3 million contracts was its second-highest third-quarter volume ever.
CME Group has a strong moat and dominates the global derivatives market. Its earnings can fluctuate based on volume. However, as the top derivatives exchange operator, its business has steady demand. As volatile market conditions persist, participants will continue to look to derivatives to protect themselves from stock and bond volatility, making CME Group a solid buy this October.
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FactSet Research - >>> 2 Top Financial Services Stocks to Buy in October
Motley Fool
By Courtney Carlsen
Oct 7, 2023
https://www.fool.com/investing/2023/10/07/2-top-financial-services-stocks-to-buy-in-october/?source=eptyholnk0000202&utm_source=yahoo-host&utm_medium=feed&utm_campaign=article
KEY POINTS
Financial markets rely on a multitude of companies to grow and evolve.
CME Group is the top derivatives exchange operator and benefits from volatile markets.
FactSet Research's trove of data helps investment professionals and provides recurring subscription revenue.
These finance companies have strong moats and are cash-generating machines.
Financial services companies form the backbone of markets, offering solutions from exchanges where market participants can buy or sell assets to data providers who help investment professionals make sense of troves of data. Companies that provide these crucial services can make solid investments because of their steady cash flows and ability to profit in different market conditions.
CME Group (CME 0.15%) and FactSet Research Systems (FDS 0.43%) are two stocks with excellent businesses. These companies have strong competitive advantages and favorable trends that benefit their business.
Here's why investors should consider buying these two stocks today.
FactSet Research Systems' data advantage has it positioned for long-term growth
FactSet Research Systems provides data and analytics to investors, including banks, hedge funds, asset managers, and individuals, to name a few. Its slew of economic and investment data is in high demand, giving it a robust economic moat. The company charges subscription fees for access to its data and software, which are a steady stream of recurring revenue.
Demand for FactSet's data is undeniable. Over the last decade, the company's annual revenue has gone from $870 million to $2.08 billion. Its free cash flow, or the cash flow left over after paying operating expenses and maintaining capital assets, has grown over the past 10 years from $250 million to $585 million.
There have been concerns that customers could cut costs, including data subscriptions. Thus far, that hasn't been the case. Through the first nine months of FactSet's fiscal year (ended May 31), FactSet's revenue of $1.5 billion and net income of $403 million are up 15% and 38%, respectively.
FactSet's data and software are in strong demand and should continue to experience growth in the years ahead. According to a report by Fortune Business Insights, the global financial analytics market is expected to grow by 11% annually through 2030. This should provide a long-term tailwind to FactSet's expansive data business, making this financial services stock another solid addition to your portfolio this October.
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>>> RLI sees up to $75 mln in catastrophe losses from Hawaiian wildfires in Q3
Reuters
August 23, 2023
https://finance.yahoo.com/news/1-rli-sees-75-mln-204740196.html
Aug 23 (Reuters) - Property and casualty insurer RLI Corp said on Wednesday it expects to record pretax net catastrophe losses of between $65 million and $75 million from Hawaiian wildfires in the third quarter of 2023.
Wildfires earlier this month on Hawaii's Maui, killed hundreds of people, forced tens of thousands of residents and tourists to evacuate the island and devastated the historic resort city of Lahaina.
The fires became the deadliest natural disaster in the state's history, surpassing that of a tsunami that killed 61 people on the Big Island of Hawaii in 1960, a year after Hawaii joined the United States.
The catastrophe risk modeling business of Moody's on Tuesday said that it estimates the economic loss from the Hawaiian wildfires to be in the range of $4 billion to $6 billion.
The range, which is net of reinsurance recoverables and includes reinstatement premiums, is based on the impact to about 200 structures where RLI provided primarily homeowners insurance, the company said in a statement.
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