Nov 21, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

Hello! Courtenay, Axios' markets reporter, here. Just a reminder I'll be in your inbox for the next few days while Dion enjoys some time off in Lisbon.

Situational awareness:

  • Charles Schwab in talks to buy TD Ameritrade for $26 billion, the latest disruption in the brokerage industry that’s seen all major players cut trading fees to $0. (CNBC, Fox Business)
  • The OECD downgraded its forecast for 2019 & 2020 global economic growth to a decade-low of 2.9% from 3%. (Reuters)
  • LVMH upped its bid to buy Tiffany & Co., in what could be the biggest acquisition ever in the luxury-goods industry. (Bloomberg)

Today's Smart Brevity count: 1,177 words, or a less than a 4.5-minute read.

1 big thing: Minority-owned banks are disappearing

Illustration: Eniola Odetunde/Axios

Bank failures, mergers, and closures have fueled a drop-off in the number of minority-owned banks.

Why it matters: The institutions seek to provide financial services to communities left behind and underserved by the mainstream banking sector.

  • "The perspectives and values of bank owners ... influence how institutions make decisions about bank leadership, strategy, new products, and target markets," Beverly Cole, a member of the executive staff at the Office of the Comptroller of the Currency, which regulates some of these banks, told Congress on Wednesday.
  • Driving the news: Cole spoke at a hearing that, among other things, weighed legislation that would up federal government deposits and try to incentivize investment in minority banks, as American Banker reports.

The big picture: The entire banking industry has undergone a transformation since the financial crisis. Banks closed branches at the fastest clip in decades last year, per the WSJ.

  • "You're finding that larger institutions have ... moved out of some of the areas" served by minority-backed banks, Kenneth Kelly, CEO of Detroit-based First Independence Bank, which is minority-owned, tells Axios.

That, along with the shuttering of minority-backed banks, leaves fewer options for "financial services to low-to-moderate income and minority communities in urban, rural and suburban areas that are often economically distressed," says Rhonda Thomas-Whitley, vice president and regulatory counsel for ICBA, the industry's trade group.

By the numbers: The number of black-owned banks is at the lowest level in recent history, according to data from the Federal Deposit Insurance Corporation, a government agency that regulates banks.

  • There are 21 of those banks left — down from the recent peak of 48 before the financial crisis — following the failure of New Jersey's lone black-owned bank earlier this month.

The bottom line: Minority-backed institutions have been more volatile compared with other types of banking institutions.

  • Those banks are about "half as likely as community banks to operate continuously," according to FDIC research.
  • They're also "two and a half times as likely to fail as all other banks."
Bonus: Fewer, but bigger minority-owned banks
Expand chart
Data: Federal Deposit Insurance Corporation; Chart: Axios Visuals

The number of minority-backed banks is shrinking, but the banks' assets keep growing — though they're a small sliver of the entire U.S. banking industry's $17.5 trillion in assets.

  • Minority banks are formed to serve either Asian American, Hispanic American, African American or Native American communities.

When they shutter, more than three-fourths of the assets of the closed banks are distributed into other minority-backed banks, per the FDIC.

2. Trade war whiplash
Expand chart
Data: FactSet; Chart: Axios Visuals

The yield on the U.S. 10-year Treasury note touched a three-week low on Wednesday after a Reuters report dashed hopes the U.S. and China would sign a "phase one" agreement before the end of the year.

  • Yields also ticked slightly lower when the Fed released minutes from its last policy meeting at 2 p.m. ET.
  • Stocks retreated further from all-time highs.

The details: A "[trade] deal is still elusive, and negotiations may be getting more complicated," per Reuters.

  • Earlier this week, President Trump threatened to "raise tariffs even higher" if the U.S. and China don't strike a deal.
  • The latest from the Wall Street Journal this morning: China is inviting U.S. negotiators to Beijing for a new round of talks.

What they're saying: "The sooner ... phase one is signed (regardless of the details) the better, because both sides want a deal so the longer it’s delayed, the more the market will begin to assume a deal isn’t possible," Tom Essaye, founder of market research firm Sevens Report Research, wrote in a note to clients.

3. Pic du jour

Photo: Mandel Ngan/AFP via Getty Images

👆 Apple CEO Tim Cook toured the plant where Mac Pros are assembled in Austin, Texas, with President Trump, Treasury Secretary Steven Mnuchin and Ivanka Trump on Wednesday.

  • Apple produced the previous model of the computer at the facility, which is run by manufacturer Flex. The plant opened in 2013.
  • It announced it would continue to manufacture there after the Trump administration granted the company a reprieve on tariffs for goods imported from China.

Of note: President Trump told reporters that he was “looking at” whether to exempt Apple from tariffs on other imports from China.

  • Apple has 11 additional requests outstanding for exclusions from items subject to the most recent round of tariffs, which took effect in September.
4. Two big developments in the auto industry

Photo: Paul Hennessy/SOPA Images/LightRocket via Getty Images

Hours after General Motors sued rival Fiat Chrysler, the UAW president abruptly resigned amid a corruption scandal.

Why it matters: The developments "embroiled two of the country’s three biggest automakers and the union that represents their workers, a controversy the likes of which the industry has rarely experienced," as the New York Times notes.

  • What's going on: GM's suit alleges Fiat Chrysler Automobiles (FCA), which plans to merge with French automaker Groupe PSA, was involved in racketeering and paid millions of dollars in bribes to corrupt the bargaining process with the United Auto Workers union, likely costing GM billions of dollars, as Axios' Marisa Fernandez and Joann Muller report.

The details: On a press call with GM General Counsel Craig Glidden, the company referred to a “pattern of racketeering” by FCA between 2009 and 2015, which resulted in GM paying higher wages than FCA. The company alleges it also allowed FCA to use more temporary workers and lower-paid second-tier workers than GM.

  • The response from Fiat Chrysler Automobiles: "We are astonished by this filing, both its content and its timing. We can only assume this was intended to disrupt our proposed merger with PSA as well as our negotiations with the UAW.  We intend to vigorously defend against this meritless lawsuit and pursue all legal remedies in response to it."
5. The cost of speedy delivery
Expand chart
Data: FactSet; Chart: Axios Visuals

Target and Amazon have different approaches to appease impatient customers who want same-day delivery.

  • Target wants to fill more orders from its store inventory, which is cheaper than fulfillment centers. When it comes to same-day shipping, CEO Brian Cornell told CNBC yesterday that “90% of the cost goes away” when customers order online and pick up at a store, use curbside pickup or select shipping via Shipt for same-day delivery.
  • Amazon, which doesn’t have a network of stores like Target, said last month it spent nearly $10 billion in Q3 — 50% more than the prior year — on shipping and fulfillment costs.

The bottom line: Companies are racing to get people stuff faster, but that comes at a cost.

  • Investors have long been OK with Amazon spending big to invest in things like same-day shipping.
  • Shares of Target hit an all-time high on Tuesday after it reported upbeat quarterly results.
6. 1 🏢 thing: Boom times expected for U.S. commercial real estate

Illustration: Eniola Odetunde/Axios

Axios Managing Business Editor Jennifer A. Kingson writes: Next year could be "one of the strongest years on record" for the U.S. commercial real estate industry, according to a market outlook released Wednesday by CBRE, the world's biggest commercial real estate servicer and investment firm.

Why it matters: Commercial real estate activity is to be a leading economic indicator, and growth in the sector translates to more jobs and investments in local communities.

Details: "Amid slower economic growth and global uncertainty, U.S. commercial real estate will remain a haven for investment in 2020," the report predicts.

  • Factors cited for CBRE's bullishness: low inflation, low-interest rates, strong consumer spending, increased capital flows into the sector, and solid property fundamentals.

Yes, but: "Uncertainty surrounding trade negotiations, weakness in manufacturing and the approach of the presidential election season," are risks to the industry's growth, according to a release.

Dion Rabouin

If this newsletter was forwarded to you, sign up here. See you tomorrow!