Nov 27, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

Good morning and happy almost Thanksgiving. We're off until Monday, when Dion Rabouin will return to greet you.

Situational awareness:

  • Chinese equities now make up more than the combined weight of the bottom 21 country components in MSCI’s Emerging Markets Index. (Reuters)
  • U.S. private equity firm Silver Lake is buying a stake in City Football Group at a $4.8 billion valuation — a deal that “breaks a record in sports valuations.” (FT)

Today's newsletter is 1,138 words, or a quick 4-minute read...

1 big thing: Rural America's banking problem

Illustration: AïdaAmer/Axios

Add one more thing to the list of rural America's ails: diminished access to banks.

Driving the news: The shuttering of branches across the U.S. had a disproportionate negative effect in certain areas, according to new research from the Federal Reserve.

  • Underbanked rural communities were left with even fewer banks in the span of five years.
  • Urban communities didn't see the same substantial declines.

Why it matters: Lack of banking services could help propel the issues plaguing rural America — including population declines (as more people move to urban areas) and economic malaise — and exacerbate the rural-urban divide.

  • Access to banking services is crucial to "build a cushion of wealth that can provide stability and support economic opportunity and mobility over the long term," per the Fed.

The latest: The Fed identified 44 counties that had 10 or fewer branches in 2012 and then lost at least half of those banks by 2017. 89% of those counties are rural, including places like Cochran County in Texas and Missaukee County in Michigan.

  • Rural counties hit the hardest by branch closures had older, poorer and less educated populations than other rural counties, Fed researchers note — groups that tend to rely on nearby banking services the most.

Of note: While in-person banking has become less relevant with the rise of online and mobile banking, that's not the case for everyone.

What they're saying: Community members told the Fed in a series of "listening sessions" that digital banking wasn't as accessible for older bank customers, the report notes.

  • Others said internet and cell service are "not sufficient, reliable, or affordable enough in their communities to allow for a substitution to online banking."
  • Some participants told the Fed that the expertise of local bankers who, for example, "understand homeownership in rural communities" is irreplaceable.
  • Lacking adequate substitutes, residents turn to non-bank alternatives — payday lenders, private ATMs (that can have high fees) or prepaid cards — and drive long distances to access certain financial services, or go without them altogether.

Between the lines: The challenges for bank business in rural communities are precisely ones that banks can help solve.

  • In a survey of community banks by the Conference of State Bank Supervisors, some bankers "described being trapped in shrinking rural markets that are saturated and economically stagnant," which they cite as a risk to attracting and retaining core deposits.

The bottom line: "The loss of banks creates direct costs in terms of residents’ access to financial services, but there are also large indirect costs,” Richmond Fed president Thomas Barkin tells Axios in a statement.

  • “They invest in their communities, educate others about finances, create incentives for other businesses and signal a community’s vibrancy,” Barkin says.
  • The Richmond Fed, which counts Maryland through South Carolina plus most of West Virginia as part of its district, hosted its first event focused on rural America earlier this year.
Bonus: The decline of farm banks
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Data: American Bankers Association, Axios Research; Chart: Axios Visuals

The number of farm banks — commercial banks whose loans to farms make up a bigger chunk of its overall lending portfolio, a mainstay for rural America's farmers — has steadily fallen in recent years.

  • Between the lines: Rather than outright closures, the decline may be somewhat attributed to banks lending more to non-farmers, challenging their "farm bank" status.
2. The 2020 corporate hit list
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Data: High Lantern Group; Chart: Andrew Witherspoon/Axios

Presidential candidates have called out more than 80 companies across 30 industries on Twitter over the past six months — mostly in a negative context — according to data compiled by High Lantern Group and provided exclusively to Axios, Alexi McCammond and I write.

Why it matters: From Amazon to Lyft, many of these companies are facing populist attacks from candidates including Sens. Bernie Sanders and Elizabeth Warren on the left — but also from the right by President Trump, who's lashing out over his own issues.

The big picture: Candidates have criticized corporations before, but those facing attacks today differ from those targeted in 2016, when Wall Street was the No. 1 target.

  • No banks crack the Top 10 of companies facing criticism on Twitter from the 2020 field of presidential hopefuls.
  • Amazon, Facebook, McDonald's and Walmart have been called out the most.

What they're saying: Unlike many other companies, Amazon has hit back at candidates who've called them out and threatened to break up Big Tech if they become president.

  • Walmart urges candidates to engage with the company to learn more about its practices and initiatives before "recycling critiques that haven’t been relevant for years," according to a statement made to Axios.
  • "From our investments in wages and training to our work on environmental sustainability, some candidates have a lot to learn about who we are today,” Walmart adds.

Keep reading

3. The consumer confidence gap
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Data: The Conference Board; Chart: Axios Visuals

The gap between consumers' confidence in the current state of the economy and their outlook for future economic conditions shrunk slightly in November, according to closely watched data released by The Conference Board on Tuesday.

Why it matters: "For some time, consumers have been more positive on current conditions, but have had a more wary eye on the future. That appears to be changing, at least at the margins," Jim Baird, Plante Moran Financial Advisors' chief investment officer, wrote in a note to clients.

4. By the numbers: Dollar Tree tallies up the trade war

A Dollar Tree store in California. Photo: Frederic J. Brown/AFP via Getty Images

Dollar Tree said acceleration of the trade war with China would up its costs by $19 million in Q4.

Why it matters: Even as the Trump administration says it’s close to a "phase one" trade deal with China, corporations are bearing down and preparing Wall Street for the worst-case scenario.

  • The administration has been mum on whether or not new tariffs on about $300 billion worth of Chinese imports will take effect on Dec. 15.

What they’re saying: “Obviously, the biggest unknown as we sit here today for us and many other retailers is tariffs and where [that lands] at the end of the day,” Dollar Tree CEO Gary Philbin told analysts after the company, which also owns Family Dollar, reported earnings on Tuesday.

  • Shares dropped by as much as 15% after the company reported earnings that fell short of estimates and it pared back Wall Street’s profit expectations for the following quarter.
  • The company blamed “continued uncertainty regarding trade and the related tariffs,” per a release.
  • The company’s cost of goods sold jumped 4.5% year-over-year.

The bottom line: Dollar Tree, which makes its name on inexpensive products, is taking action to hold the line on prices.

  • “We are moving some product out of China, we’re sourcing to elsewhere, we are redesigning product,” Philbin told CNBC.
5. 1 bitter thing: Papa John's founder speaks out
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John Schnatter announced he'll step down as CEO on Dec. 21, 2017, and as chairman of the board on July 11, 2018. Data: FactSet; Chart: Axios Visuals

Papa John's Pizza founder John Schnatter told WDRB News Tuesday that the new leaders of the pizza chain have "destroyed the company."

Of note: If share price is any indicator, the stock is trading at just about the same level as when Schnatter resigned.

Dion Rabouin

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