Financial services media highlights - February 2024

Financial services media highlights - February 2024

The Briefing

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12 February 2024
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9 minute read
  Key highlights
  • As public companies are releasing earnings reports for 2023, tech companies are making waves with their results. 
  • Commercial office vacancy rates are at an all-time high, and banks that issue commercial mortgages are struggling as a result. 
  • Default rates for credit cards and auto loans are on the rise as consumers struggle with the high price of consumer goods and the return of student loan debt. 
  • As companies invest in electric vehicles and other new technology to combat climate change, they’re facing increased financial challenges. 
  • The Chinese government is taking steps to combat a struggling domestic stock market. 

All eyes are on the tech industry as public companies report their yearly earnings for 2023. 

Investors are watching the tech sector closely this earnings season, looking for insight into how the tech industry will change in 2024. Tech stocks performed extremely well in 2023, and stock prices have remained strong overall throughout January. However, there were layoffs at many major tech companies in the beginning of the year, sparking concerns about the overall health of the sector. 

One company that has made a splash this earnings season is rideshare app Uber, which reported its first annual operating profit since its IPO five years ago. The company reported an operating profit of $1.1 billion for 2023 and expects to post adjusted earnings of $1.26 to $1.34 billion for Q1 2024. Uber is also reportedly considering buybacks and dividends this year, which has sparked renewed interest from investors. 

However, not all tech companies are impressing investors this earnings season. One notable example of this is Snap, the parent company of social media giant Snapchat, which is recovering slower from a difficult 2022 advertising market compared to peers like Meta. The company missed its fourth-quarter revenue estimates, causing Snap stock to drop by 35% on the morning of February 7th. This comes after a huge rally throughout November and December. Snapchat cites the current conflict in the Middle East as a reason for its relatively tepid digital advertising revenue this quarter.  

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Another stock that many investors have their eye on this quarter is Nvidia, a leading tech hardware manufacturer. Nvidia is currently focused on developing artificial intelligence processors, which are in very high demand right now. NVDA stock is up by over 45% year-to-date, and Morgan Stanley recently raised its price target for the stock ahead of a planned earnings call on February 21st. 

 

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The global commercial property market is struggling, and banks around the world are feeling the repercussions. 

The commercial real estate market is on shaky ground as properties are seeing record-high vacancy rates and mortgages come due for refinancing over the next few years. Since the onset of the COVID-19 pandemic, businesses around the world have switched to remote and hybrid work models. This has left formerly bustling office complexes vacant and is negatively affecting banks that offer commercial property loans. 

New York Community Bank is the latest lender affected by this commercial property market downturn as they reported significant losses on real estate loans at the beginning of February. The bank’s shares dropped dramatically in price at the end of January, and rating agency Moody’s downgraded its credit rating. NYCB is currently exploring credit risk transfer options to remedy the situation. 

KKR Real Estate Finance Trust, an REIT specializing in commercial mortgages, also saw its stock values slide at the beginning of February. The REIT made significant cuts to its dividends as a result of losses on office mortgages. 

This sluggish US commercial real estate market is also causing problems for banks internationally. Banks in Japan, Germany, and Switzerland have also seen their bonds drop in value due to commercial real estate loans, and the trend is expected to continue for banks with exposure to commercial properties. 

 


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Consumer debt levels hit record highs as Americans struggle with credit cards and auto loans. 

Today’s consumers are struggling to keep up with record levels of debt, with young Americans hit particularly hard. Although the economy is doing well, many consumers aren’t able to keep up with the high prices of essential items. This means that they are forced to rely heavily on debt to stay afloat. 

Currently, Americans owe a collective $1.13 trillion in credit card debt, and 9.7% of that debt is delinquent. Adults under the age of 40 carry a disproportionate amount of this debt. This is likely due to the fact that student loan payments resumed in October 2023, and younger adults are more likely to have student loans. Consumers are also struggling to make car payments, as auto loan defaults hit a 13-year high at the end of 2023. 

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As consumers struggle to make payments and stay out of debt, lenders are also taking losses as a result of rising default rates. This comes as the Consumer Financial Protection Bureau plans to take steps to reduce credit card late fees, which will make it even more difficult for credit card providers to stay profitable. Lenders across the financial industry are tightening their purse strings to manage risk, making it more difficult for consumers to qualify for mortgages, credit cards, and car loans

 

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Both private companies and governments are taking steps to combat climate change, but it comes with unique financial challenges. 

As extreme weather events become more common and the effects of global climate change loom large, world leaders are working towards innovative new solutions. However, these new solutions will come with financial and political challenges. 

We’re already seeing these issues arise with the development of electric vehicles. In an earnings call with shareholders in early February, automaker Ford reported strong earnings, a large dividend payout, and a positive outlook for 2024. However, they also noted that profits could be 50% higher without their EV manufacturing, particularly their Ford F-150 electric pickup truck. The company is planning to reduce its EV spend as a result. 

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General Motors is also negotiating the high cost of EV development. The company just signed a $19 trillion deal with LG Chem to source EV battery materials from 2026 to 2035. While this is an exciting step forward, the long length of the deal indicates that GM is planning for relatively slow EV adoption rates. 

The upcoming presidential election could also affect the development and adoption of electric vehicles in the United States. The Biden Administration has passed a $7,500 tax credit for those who adopt certain electric vehicles, but this could change if Donald Trump is re-elected. The former president fought against EV tax credits in his first term and has already indicated that he would drastically change the current tax credit law if re-elected. 

 

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China takes steps to address a struggling stock market, leading to a slight uptick across its exchanges. 

After four years of stock market woes, the Chinese government has stepped in, replacing China Securities Regulatory Commission chair Yi Huiman. His successor, Wu Qing, is a high-ranking Shanghai official with a history of cracking down on local brokerages. While the government hasn’t publicly given a reason for the replacement, it is likely due to negative sentiment from both Chinese and international investors. 

China’s “national team” of state-back investors and financial institutions also increased their activity in early February. This gave many Chinese stocks a much-needed boost, with daily turnover reaching an equivalent of $98.3 billion on February 7th. Although this uptick is promising, it may not be enough to completely rehabilitate the markets. 

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Opportunities for deeper insight

We’ve seen a mix of highs and lows for the global markets in the first month of 2024. For example, the American stock market is performing well, with many tech companies continuing their strong performance. In contrast, the Chinese stock market continues to struggle. Many consumers also continue to struggle with high debt levels. Financial institutions will need to understand the complex nuances in the current economic landscape in order to succeed. 


Areas of particular interest include: 
  • Consumer debt: What factors are contributing to current consumer debt levels? How are these high debt levels affecting spending patterns?
  • Commercial properties: How could commercial properties be repurposed in light of the changing market? How do lenders plan to adjust to the world of remote and hybrid work?
  • Tech stocks: Will investors continue to buy into tech stocks? How will this affect innovation and change in the tech industry as a whole?
     

Interested in launching a study on these trends for due diligence or strategic missions? Potloc helps you unlock reliable insights at the speed of consulting. 

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