Happy Wednesday and welcome back to On The Money. I’m Sylvan Lane, and here’s your nightly guide to everything affecting your bills, bank account and bottom line.
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THE BIG DEAL–Bank profits rise 8.7 percent in first quarter of 2019: Federally insured U.S. banks made $60.7 billion in net income in the first three months of 2019, an 8.7 percent increase from the same period last year, according to data released Wednesday.
The Federal Deposit Insurance Corporation (FDIC) reported that the 5,362 commercial and savings banks insured by the regulator saw rising profits as interest on loans outpaced the costs to finance them.{mosads}
FDIC-insured banks made $4.9 billion more in profits in the first three months of 2019 than over the same period last year. For the first quarter of 2019, 62.3 percent of banks reported an increase in net income from 2018, while less than 4 percent of banks reported a decline.
I break down the data here.
Good times for the banking sector: The FDIC’s quarterly report showed the continued strength of the U.S. banking industry, which has flourished with record profits as the economy recovered from the 2008 recession.
- U.S. banks reeled in $236.7 billion in profits last year, including more than $28 billion in additional net income thanks to the Republican tax-cut law.
- The earnings boost for banks was powered in part by a 6 percent annual increase in net interest income, rising $7.9 billion to $139.3 billion in the first quarter.
- The rise in net interest income helped compensate for a 2.9-percent decline in non-interest net income, which fell $2 billion from 2018.
Risks on the horizon: But the data also showed banks taking higher credit losses and bracing for more defaults as 2019 continues.
- Banks wrote off $12.7 billion in uncollectable loans in the first quarter, an increase of $667.9 million, or 5.5 percent, from the same period last year.
- Banks also set aside $13.9 billion in loan-loss provisions — money allocated to cover defaulted loans and credit losses — in the first three months of 2019, 11.8 percent more than the same time in 2018.
- While banks’ balances for non-current mortgages dropped $2.2 billion, or 5 percent, from the previous quarter, overdue corporate debt rose $3.3 billion in that time — a 22.8 percent quarterly increase that was the highest since 2016.
Analysts, economists and federal regulators have expressed varying degrees of fear over the record high levels of corporate debt, particularly to corporations already deep in the red.
Some experts and financial sector critics have raised alarm over the growth of collateralized loan obligations (CLOs) packaging debt from highly leveraged companies. They compare such investment offerings to the bonds based on subprime mortgages that helped trigger the financial crisis in 2007.
But Randal Quarles, the Fed vice chair of supervision, tamped down risks to the financial system from CLOs in a speech earlier this month, arguing that leveraged lending “is not really a direct analog to the subprime [mortgage] lending” that caused the 2007 meltdown.
LEADING THE DAY
Pelosi insists she’s ‘optimistic’ for infrastructure deal: Speaker Nancy Pelosi (D-Calif.) said Wednesday she’s “optimistic” that lawmakers can strike a bipartisan infrastructure deal but acknowledged the long odds if President Trump keeps lashing out over investigations into his administration.
Pelosi noted that Trump has said he wants to work on infrastructure in most of their past conversations in person or on the phone, leading her to “still feel optimistic” that it remains an issue the president is interested in pursuing.
But Pelosi acknowledged while speaking during an event hosted by the Commonwealth Club of California that Trump’s desire for an infrastructure deal might not be enough to overcome the impasse regarding Democratic probes.
“Does he want to do it enough to not be in a huff over my saying that he’s involved in a cover-up? Well, we’ll see. But this is not for the faint of heart.”
Flashback: Last week, Trump abruptly left a meeting with Democratic leaders on an infrastructure plan after Pelosi accused him of engaging in a “cover-up.”
Don’t forget the Dem divisions over impeachment: Pelosi’s comments Wednesday came hours after special counsel Robert Mueller delivered his first public statement on his nearly two-year investigation, comments which brought new pressure from many Democrats to launch an impeachment inquiry. The Hill’s Cristina Marcos has more here on Pelosi’s remarks.
And if you want more on Mueller… Click here for our five takeaways from his remarks, the tough decisions awaiting Democrats, and Trump’s response.
Former Congressional Black Caucus staffers flex clout on K Street: The financial services industry is turning to former top staffers from the Congressional Black Caucus (CBC) for lobbying talent, a trend reflecting the growing power of the CBC and the increased scrutiny the industry is facing under the Democratic House.
A number of former chiefs of staff to black lawmakers have been recruited to K Street this year. The moves come with the Black Caucus at a record membership and with some of its senior members, including House Financial Services Committee Chairwoman Maxine Waters (D-Calif.) and House Oversight and Reform Committee Chairman Elijah Cummings (D-Md.), putting financial institutions in their crosshairs.
“Financial Services holds a particular distinction for CBC-centered leadership because it [the financial industry] was one of the last industries to desegregate. And its power, in terms of providing access to capital, and its power to deny capital, has had a disproportionate, and at times harmful, impact on black communities for centuries,” a former congressional aide told The Hill.
“These are serious matters, politically and policy-wise, that CBC chiefs consistently advise members on.” The Hill’s Alex Gangitano tells us more about this here.
- The key: For K Street, tapping those with CBC ties is an important step to court House leaders, particularly on banking matters. The CBC’s influence extends beyond Waters on the Financial Services Committee. Five of the six Financial Services subcommittees are headed by Black Caucus members, including Reps. Greg Meeks (D-N.Y.), Emanuel Cleaver (D-Mo.), Joyce Beatty (D-Ohio), Al Green (D-Texas) and Wm. Lacy Clay (D-Mo.).
THE HILL EVENT: Affordable Housing & the American Dream
On Tuesday, June 11th, The Hill will host Affordable Housing & the American Dream at the Newseum in Washington, D.C. The Hill’s Editor-at-Large Steve Clemons and staff writer Rafael Bernal will sit down with Reps. Emanuel Cleaver (D-Mo.) and Steve Stivers (R-Ohio) and an expert panel for a discussion on how leaders in Washington and the private sector can help ensure that every American has an equal chance of owning a home. RSVP here.
GOOD TO KNOW
- President Trump’s approval rating has stagnated at 46 percent, raising questions about whether presiding over strong economy will help him as much it aided other incumbent presidents seeking re-election.
- Economists at the New York Fed ask whether there is too much corporate debt in the financial sector.
- The Trump administration has again decided not to label China as a currency manipulator, but will keep a close eye on Beijing among others being watched for related concerns.
- Secretary of State Mike Pompeo lashed out at Chinese telecommunications firm Huawei, calling it an “instrument of the Chinese government.”
- The New York Times explains how small U.S. businesses are among the hardest hit by blowback to President Trump’s tariffs on $250 billion in Chinese goods.
- The Washington Post reports on how despite Trump’s promises the U.S. auto sector, American carmakers are reeling and facing a difficult future.
ODDS AND ENDS
- Ride-hailing company Uber announced Wednesday that it will ban passengers with “significantly below average ratings” from using the popular app.
- A bipartisan group of House members from New York are raising concerns about Chinese involvement in building New York City subway cars, zeroing in on the potential that the new train cars could be hacked or controlled remotely.
- A former Republican House member is joining the board of a cannabis company.
- And Fortune magazine is putting up a paywall.