US regional banks are still under pressure. That’s likely to continue

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Despite overcoming a crisis in 2023, the pain isn’t over for America’s regional banks.

The SPDR S&P Regional Banking exchange-traded fund has fallen roughly 13% this year. Shares of New York Community Bank have tumbled 71%, Bank OZK shares have slid 16% and Webster Financial shares have lost 11%.

Regional banks reported wide losses on their profits during the first quarter. Net income fell about 22% at PNC Financial from the prior year, 25% at M&T Bank and 24% at US Bancorp. Citizens Financial saw a 38% drop.

They also saw declines in their net interest income, an important profitability measure for financial institutions. PNC projects that its net interest income will fall between 4% to 5% in 2024 from last year. US Bancorp lowered its guidance and Citizens Financial “broadly reaffirmed” its expectations for net interest income to decline between 6% to 9%.

Elevated interest rates have been a drag on regional lenders, since they mean banks have to pay more interest on deposits. While that’s also been a pressure on big banks, their larger size has allowed them to weather the storm better. After the collapses of Silicon Valley Bank, Signature Bank and First Republic Bank last year, big banks also reaped benefits as customers yanked cash out of small lenders in favor of larger institutions.

The pain is likely to continue. Sticky inflation, a hot jobs market and strong economy have led investors to push back their expectations for when the Federal Reserve will cut rates. Fed Chair Jerome Powell said Tuesday that rate cuts will likely come later than expected. Markets are now projecting that the first cut may not come until September.

“Given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” Powell said at an event hosted by the Wilson Center.

The central bank in March shuttered the Bank Term Funding Program, established after regional banking turmoil last year to help lenders meet their liquidity needs. Sheila Bair, former chair of the Federal Deposit Insurance Corporation, said that she believes Congress should reinstate another program, the transaction account guarantee, that was in place during the financial crisis.

“I’m worried about a handful of [regional banks],” Bair told CNBC on Tuesday. “The big issue is whether there’s another shock to uninsured deposits because of a bank failure, and I think that is really the biggest challenge confronting regional banks right now.”

Tesla will ask shareholders to re-approve Musk multibillion-dollar payday thrown out by judge

Tesla will ask its shareholders to vote to approve the 2018 pay package that made CEO Elon Musk among the world’s richest people but that a Delaware judge threw out earlier this year, reports my colleague Chris Isidore.

The pay package gave Musk options to buy 303 million split-adjusted shares of Tesla at the cost of $23.34 a share each. At the time that a Delaware court threw out the pay package in January, it was worth $51 billion. But a drop in the value of Tesla shares since then has reduced its value to $40.7 billion.

In an initial vote in 2018, 73% of Tesla shares not held by Musk or his brother at that time voted in favor of the package. The company’s proxy statement filed with the Securities and Exchange Commission early Wednesday announcing plans for the vote said that “ratification will restore Tesla’s stockholder democracy.”

Delaware Chancery Court Chancellor Kathaleen McCormick ruled in January that Musk and the Tesla board “bore the burden of proving that the compensation plan was fair, and they failed to meet their burden.”

Tesla argued in its filing Wednesday that the pay package was fair to shareholders because the value of their shares had soared since 2018.

Read more here.

Climate change will make you poorer, according to a new report

Record-breaking heat waves, severe floods and acute wildfires, exacerbated by climate change, carry a colossal price tag: an approximately 19% reduction in global income over just the next 26 years, a new study published Wednesday found.

That financial gut punch won’t just affect big governments and corporations, reports my colleague Samantha Delouya. According to the United Nations, the world is heading toward a gain of nearly 3 degrees of global warming in the next century, even with current climate policies and goals — and researchers say individuals could bear the economic burden.

The researchers in Wednesday’s study, published in the journal Nature, said financial pain in the short-term is inevitable, even if governments ramp up their efforts to tackle the crisis now.

“These impacts are unavoidable in the sense that they are indistinguishable across different future emission scenarios until 2049,” two of the study’s researchers from the Potsdam Institute of Climate Impact Research, Maximilian Kotz and Leonie Wenz, told CNN via email.

However, they say immediate actions to reduce climate change could stem some losses in the longer term.

Noah Diffenbaugh, a professor and environmental researcher at Stanford University, said the economic damage from climate change will take different shapes. Not only can extreme weather events result in costly repairs to damaged property, but elevated temperatures can also impact agriculture, labor productivity, and even cognitive ability in some cases.

Read more here.