Jun 26, 2020

Axios Markets

By Dion Rabouin
Dion Rabouin

Happy Friday! Courtenay here, filling in while Dion enjoys a day off.

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  • 🗣️ "You shouldn’t let failure define you, but instead you should let failure refine you." - See who said it and why it matters at the bottom.
1 big thing: Companies are pulled into the reparations debate

Photo illustration: Aïda Amer/Axios. Photos: MPI/Getty Images, Bettmann/Contributor, GraphicaArtis/Getty Images, Corbis via Getty Images

The debate over reparations for slavery has moved from the political realm to the corporate one.

Why it matters: We usually hear about reparations as a political issue — a "societal obligation" of the federal government, as the New York Times' Nikole Hannah-Jones wrote this week. But corporations, too, are being called out for how their involvement in slavery — and their modern-day policies and practices — perpetuate racism.

Driving the news: Protests over systemic racism have pushed more of the world’s oldest institutions to reckon with how they profited from slavery. At least two big British companies promised to make certain amends for their role in slavery.

  • Lloyd's of London: The world's largest insurance marketplace apologized for insuring slaving ships in a release earlier this month. For the first time in its 334-year history, it listed out remedies, including reviewing its policies to "ensure they are explicitly non-racist” and providing "financial support" to charities that support Black and minority ethnic groups (no word on which or how much).
  • Greene King: The biggest pub and brewery company in the U.K., whose founder owned slaves and argued against abolition, plans to make a "substantial investment" to support the Black community, its CEO said last week. (Greene King offered no other details.)

What they're saying: Activists want them and other companies to do more.

  • "I don't want corporations or anyone to get the idea that, 'Okay I donated some money, I did it, I made up for slavery.' That's not how that works," says Karran Royal, who was part of a group of descendants of slaves sold by leaders of Georgetown University that helped pressure the school to make amends for its historic ties to slavery.
  • "Economic justice goes at the very top, as far as I'm concerned with companies as they are looking at how to repair the damage," Royal says.

Flashback: As the BBC and others have reported, predecessor banks to Citigroup, Wells Fargo and JPMorgan Chase had ties to slavery.

  • In 2005, JPMorgan acknowledged its predecessor banks allowed slaves to be used as collateral for loans. When those loans went bad, the bank ended up owning over 1,000 enslaved people in Louisiana. The bank set up a $5 million scholarship fund for Black undergraduates to attend college in the state.

Where it stands: Protesters are now calling on specific corporations to take concrete steps to atone for their pasts — steps that go beyond mere feel-good public relations efforts.

  • A Florida-based activist group is asking Bank of America and other companies to pay monetary reparations, as the Tampa Bay Times reported this month.
  • "We're not just talking about enslavement. We're talking about all of the post-emancipation racially exclusionary policies that occurred right up to the present," Ron Daniels, the founder of the National African American Reparations Commission, tells Axios.

Go deeper.

2. Catch up quick

BlackRock slashed fees for its biggest ETF that tracks the S&P 500. Its fee is now inline with a similar ETF offered by rival Vanguard. (WSJ)

Supermarket operator Albertsons will reportedly sell 50 million shares at $16 each when its stock is listed today — scaled back from the 65.8 million shares it initially planned to sell for $18-$20 each. (Financial Times)

Verizon is the latest company to pull ads from Facebook, joining a growing boycott of the social network over its content moderation policies. (Axios)

3. The stress test of a lifetime

The Fed says several banks (we don’t know which ones) may not fare well if there's a U- or W-shaped economic recovery. That's why it says it’s cracking down on bank dividends and share buybacks — in a way never before seen since annual stress tests were implemented after the 2008 financial crisis.

The backstory: The Fed tested banks' balance sheets in new scenarios that might mirror what's ahead for the pandemic-hit economy. All 33 of the biggest banks passed the Fed's traditional test — but since the coronavirus crisis, the economic reality became worse than the hypothetical slump thought up by the Fed earlier this year.

Dividends: For the third quarter, the Fed said banks can't pay more dividends than it did in Q2. And the payout can't exceed what the bank has profited quarterly on average over the past four quarters.

  • The announcement to cap dividends was a surprise (unless you were closely watching the options market), but analysts estimate the new formula won’t force a dividend cut from any of the big six banks except for one: Wells Fargo.
  • Fed governor Lael Brainard said in a statement the Fed should have gone even further by temporarily barring dividends payouts altogether in Q3.

Stock buybacks: Banks can’t buy back shares next quarter. The industry's trade group already said in March banks would halt buybacks until Q2.

  • The banks were like other companies across industries in this regard as the pandemic began to roil the economy: quick to suspend stock repurchases, though they held onto dividend payouts.

Between the lines: In the worst-case scenario, the Fed says the banks in aggregate could see $700 billion in loan losses. Some would see capital drop to the minimum level that banks are required to hold.

The bottom line: "The banks, while proving themselves remarkably resilient because of their capital reserves, are still under enormous stress. Fundamentally banks are the fulcrum on which the macroeconomy functions," Karen Petrou, co-founder of Federal Financial Analytics, an advisory company, tells Axios.

  • What to watch: Banks begin to announce dividend plans for Q3 on Monday.
4. The rise of retail trading
Data: TD Ameritrade; Chart: Danielle Alberti/Axios

Axios' Felix Salmon writes: $0 stock-trading commissions didn't seem to particularly excite the millions of customers of TD Ameritrade when they were introduced in October 2019. That month saw 897 million stock trades on the company's platform, slightly lower than the number two months previously.

By the numbers: The high-volatility months of March, April and May saw about 3 million trades per day on TD Ameritrade alone. That's more than three times the October level.

  • Interestingly, however, the rise in trading predated the coronavirus volatility. November, December, January and February each saw new record highs in retail trading volume.

The bottom line: The increased influence of retail investors in the stock market might not end when the crisis does.

5. 1 plastic thing: The barrier boom
Data: FactSet; Chart: Axios Visuals

Here's more proof that plexiglass is one of the hottest commodities of the coronavirus pandemic: the word that was almost never mentioned is popping up in corporate earnings calls and company press releases.

  • Take Dollar Tree, for instance — which late last month told analysts it installed more than 16,000 plexiglass shields at store checkouts.

What's going on: Plexiglass is the must-have partition for places around the world doing business in the COVID-19 era — restaurants, grocery stores handing out free samples, casinos, even possibly schools (once students return).

  • And ... Google searches for "plexiglass" peaked in mid-May, as businesses across the country readied to reopen.
  • The brand name, Plexiglas, didn't get nearly the same attention.
Dion Rabouin

Have a safe, socially distanced weekend. Dion will be back in your inbox on Monday.

Quote: "You shouldn’t let failure define you, but instead you should let failure refine you."

Why it matters: Bernard Harris — who said the above quote during a speech at Worcester Polytechnic Institute's commencement ceremony in 2015 — was the first Black astronaut to complete a spacewalk.

  • Harris has logged more than 438 hours and traveled over 7.2 million miles in space. He turns 64 today.