Axios Markets: Last-ditch bank fight

1 big thing: Regulator wants to sink banks' recent lending limits | Monday, November 23, 2020

Open in app View in browser   Presented By Raytheon Technologies   Axios Markets By Courtenay Brown ·Nov 23, 2020 Welcome back. If this newsletter was forwarded to you, sign up here. (Today's Smart Brevity count: 1,085 words, a 4-minute read.) 🎙"Certain things just come together, but other things you have to work for." - See who said it and why it matters below.     1 big thing: Regulator wants to sink banks' recent lending limits Illustration: Aïda Amer/Axios   A major regulator is racing to thwart big banks' refusal to lend and service certain industries and projects — including Arctic oil drilling and new coal mining, Axios' Ben Geman and I report. Why it matters: America's biggest banks are increasingly scaling back ties with fossil fuel, prison and gun-manufacturing businesses amid public pressure and changing investment preferences. Driving the news: The Office of the Comptroller of the Currency — one of three key banking regulators — floated draft rules Friday that say banks can't turn away entire industries. Rather, they have to prove that they decided not to lend because applicants didn't meet "quantitative, impartial risk-based standards." "Politically controversial but lawful businesses" deserve "fair access to financial services under the law," the proposal says. Catch up quick: Banks like JPMorgan Chase, Citi and Goldman Sachs have crafted or expanded policies for new coal mines, coal-fired power and Arctic drilling. JPMorgan said last year it would no longer provide banking services to the private prison operators, while the Bank of America said in 2018 that it would stop financing businesses that make military-style guns. What they're saying: "There is a creeping politicization of the banking industry that has the propensity to be very, very dangerous," said Brian P. Brooks, acting comptroller of the currency, per Bloomberg. The other side: "Contrary to the claims of oil-backed politicians, banks don't want to finance more drilling in the Arctic not because of some vast liberal conspiracy, but because it's bad business," Sierra Club's Ben Cushing says. Reality check: The ruling — if enacted, which is a long shot — likely won't stop banks from shunning certain industries. It would be difficult to enforce. Daniel Stipano, a partner at law firm Buckley and former deputy chief counsel at the OCC, tells Axios a bank "would have to point to something besides a political judgement as the reason for not making the loan." The big picture: It's the latest effort under the Trump administration to whittle away at investments that factor in industries' societal impact. Earlier this month, the Labor Department finalized a rule that put a high burden on retirement funds that want to include investments that strip out fossil fuel companies and other non-sustainable businesses. What we're watching: The clock. The OCC's last-ditch effort may ultimately prove meaningless. Attorney James Goodwin of the left-leaning Center for Progressive Reform tells Axios that "short of a miracle, I don't see how they could get a final rule out before inauguration." The intrigue: The OCC is taking public comments until Jan. 4, and then would have a fast turnaround to complete the rule before President-elect Joe Biden takes office. The Biden administration — by installing its preferred OCC head — could unwind a completed rule, but that's complicated and slow compared to abandoning an incomplete proposal.     2. Catch up quick The COVID-19 vaccine developed by the University of Oxford and AstraZeneca showed an average efficacy of 70.4%. (Axios) The Fed-Treasury stimulus spat won't escalate: Jerome Powell said in a letter the Fed would return unused funds for emergency relief programs. (Reuters) Guitar Center filed for bankruptcy — the latest retailer to be pushed over the edge by the pandemic. The company says it has an agreement with creditors and expects to emerge by year-end. (NYT) Allstate's $1.2 billion bond sale is the biggest corporate deal to be underwritten solely by minority-owned firms. (Bloomberg)     3. Wall Street downgrades economic forecasts JPMorgan says the economy will shrink by an annualized 1% next quarter, adding to a growing number of firms trimming estimates as the coronavirus rages. Why it matters: It's the first major Wall Street bank that expects the economy will contract again as a result of the pandemic. What they're saying: "This winter will be grim, and we believe the economy will contract again in 1Q," JPMorgan economists wrote. The economy "now faces the headwind of increasing restrictions on activity. The holiday season — from Thanksgiving through New Year's — threatens a further increase in cases," they said. JPMorgan says economic growth in the the second and third quarters of 2021 will be an annualized 4.5% and 6.5% respectively. This quarter, it expects the economy to grow 2.8% on an annulled basis. The big picture: Others on Wall Street are ratcheting down estimates for economic growth, in the wake of the coronavirus wave and tightened restrictions. Economists at Goldman Sachs downgraded forecasts for Q4 and Q1 2021 to an annualized 3.5% and 1.0%, respectively, from 4.5% and 3.5%. They cited the "rapid and broad-based resurgence of the coronavirus." But it upped growth estimates for later next year, saying "the larger drag in the winter should imply an even larger reaccelerating on the back of mass immunization." Barclays says it expects economic growth to be flat in Q1 2021, vs. its previous expectation of 3% annualized growth, as restriction "measures weigh on service activity in the coming months." It still expects the economy will grow at a 5% annualized pace this quarter.     A message from Raytheon Technologies The future of aerospace and defense is here     At Raytheon Technologies, nearly 200,000 engineers, scientists and researchers are pushing the limits of known science to explore deep space, advance aviation and build smarter defense systems that protect all of us here at home. That's the future of aerospace and defense. Learn more at RTX.com     4. The biggest pandemic labor market drags Data: U.S. Bureau of Labor Statistics; Chart: Naema Ahmed/Axios State economies most exposed to industries that have been slow to bounce back from the pandemic shutdown — like tourism — are seeing the worst labor market pain. Why it matters: Even states that have the coronavirus more under control than others are taking harder economic hits, thanks to their dependence on sectors slammed by the pandemic. One example: Hawaii's unemployment rate, which fell 0.7 percentage points in October, is still more than double the nationwide rate, new Department of Labor data show. More than 91,000 people are out of work in the state — over 5 times more than the 17,000 who were out of work before the pandemic hit. Employment in the leisure and hospitality sector is down 50% from this time last year. The other side: In places like Nebraska and South Dakota, which have emerged as coronavirus hotspots, the unemployment rate is lower now than before the pandemic hit. Unemployment rates in these states peaked at lower levels than the national rate. Government officials there were less aggressive about imposing economic restrictions. Yes, but: Vermont, whose unemployment rate peaked at a level close to the nationwide peak, enacted strict economic restrictions and a mask mandate. Its unemployment rate is among the lowest in the country. The makeup of their rural economies mean "more of the people work in industries that wouldn't really be disrupted by a need for social distancing like agriculture," Eric Thompson, a professor at the University of Nebraska-Lincoln, told AP earlier this month. The big picture: The unemployment rate fell in 37 states and the District of Columbia. It rose in eight states, and held steady in five. The bottom line: States like Hawaii had some of the lowest unemployment rates in the country when the pandemic hit. Unemployment rates are largely improving, but it could be some time before their labor market bounces back the way it has in other states.     A message from Raytheon Technologies The future of aerospace and defense is here     At Raytheon Technologies, nearly 200,000 engineers, scientists and researchers are pushing the limits of known science to explore deep space, advance aviation and build smarter defense systems that protect all of us here at home. That's the future of aerospace and defense. Learn more at RTX.com   Quote: "Certain things just come together, but other things you have to work for." Who said it: Queen frontman Freddie Mercury, in a 1974 interview, describing the ease of writing a song like "Killer Queen," and the struggle of writing "March of the Black Queen." On Nov. 23, 1991, Mercury publicly confirmed that he had been diagnosed with AIDS. One day later, he died at the age of 45 from pneumonia brought on by AIDS.   Axios thanks our partners for supporting our newsletters. Sponsorship has no influence on editorial content. Axios, 3100 Clarendon B‌lvd, Suite 1300, Arlington VA 22201   You received this email because you signed up for newsletters from Axios. Change your preferences or unsubscribe here.   Was this email forwarded to you? Sign up now to get Axios in your inbox.   Follow Axios on social media: