Commodities: Financial Services Roundup: Market Talk

The latest Market Talks covering Financial Services. Exclusively on Dow Jones Newswires at 4:20 ET, 12:20 ET and 16:50 ET.

1633 ET – Citigroup CFO John Gerspach, speaking at an investor event, said the bank would likely take an upfront hit of $20B under the tax plans recently passed by lawmakers. About $16B-$17B of that would be a write-down of the bank’s deferred tax asset, and the rest would be connected to repatriation. While Citigroup and other banks like Bank of America would take a one-time hit, in the longer run the tax plan is expected to significantly lower the tax rates banks pay, boosting profits. Bank executives have pushed for lawmakers to pass the plan, saying it will benefit their customers and stimulate growth. ([email protected])

1632 ET – The privately funded, publicly managed California Earthquake Authority says it now insures 1 million California residences, a record high but still a small fraction of California’s population of 39 million people. California is earthquake prone but its residents have long been reluctant to buy earthquake insurance because of the high cost. Earthquake damage isn’t covered by a typical homeowners insurance policy. “In 2016 we rolled out more coverage choices, more deductible options and more affordable rates, and many homeowners are pleasantly surprised to discover how flexible and affordable earthquake insurance has become,” CEA CEO Glenn Pomeroy says. ([email protected], @NicoleFriedman)

1627 ET – The NZ50 is up 0.1% in early trade to 8144.74, after a risk-off tone seeped into global markets. A2 Milk is up 0.5% to NZ$8.12 after it settled a legal dispute with Lion in Australia over marketing. “The parties have mutually agreed not to proceed with their cases against each other,” the company says in a regulatory filing, adding that the terms are confidential. Meanwhile, Fonterra Shareholders Fund is only slightly lower after the co-operative lowered its farmgate milk price. ([email protected])

1623 ET – Citigroup CFO John Gerspach, speaking at an investor event on Wednesday, said trading revenue is expected to fall a “high-teens percentage” in 4Q from a year earlier. He cited low volatility and the difficult comparison to the year earlier, when the trading business benefited from activity around the presidential election. He also noted that the weakness was largely in fixed income, currencies and commodities, which makes up a large share of Citigroup’s business. Other bank executives made similar remarks yesterday: Bank of America and JPMorgan projected trading revenue to fall about 15% in the quarter. One bright spot Gerspach noted was investment banking. ([email protected])

1528 ET – David Rosenberg, the widely read chief economist at Gluskin Sheff, says the Bank of Canada has set a “very high” bar to move off the sidelines and raise rates again. He says in note to clients it will be “long time” before BoC raises rates again, adding a number of uncertainties covering Nafta, housing, mortgage-financing rules among other things, “are simply “far too wide.” Higher interest rates “would do more to compound these uncertainties that Poloz et al are concerned about than alleviate them.” He also takes aim at economists indicating Canadian monetary policy might be too loose, saying raising rates now would trigger recession risks. He says he expects further weakness for C$, with a wait-and-see BoC and the Federal Reserve intent on raising rates. ([email protected]; @paulvieira)

1308 ET – Analysts say UnitedHealth is paying at the high end for DaVita’s medical group, based on its disappointing recent results, but they argue the deal makes strategic sense and the asset is a rare one. JPMorgan says the $4.9B price is around 14 times its estimate for the medical group’s 2018 EBITDA, but the shift away from paying medical providers fees for each service “places material strategic value on integrated (and particularly capitated) medical groups” like DaVita’s. Matt Borsch at BMO Capital Markets says “the seemingly lofty multiple that UNH will pay to acquire…is distorted by the earnings improvement potential we see under UNH,” both in the medical group’s own results and the related benefits to UnitedHealth’s Medicare Advantage performance. ([email protected]; @annawmathews)

1304 ET – Bank of Nova Scotia economist Derek Holt tells clients the uncertainty over Nafta is weighing heavily on Bank of Canada policymakers, and perhaps moreso than Wednesday’s rate-policy decision is letting on. BoC remains on hold when it comes to rates, Holt says, and is more mindful of the tenuous state of Nafta talks relative to economic data. Holt says BoC is likely more focused on the risk of raising rates based on economic data, only to find out later Trump makes good on his threat to begin the Nafta withdrawal process. “There is obviously a limit to the point to which monetary policy can be put on hold by never ending uncertainties, but I simply don’t buy that the data is screaming out that this limit is being breached now,” Holt tells clients. ([email protected], @paulvieira)

1150 ET – So-called “insure tech” is 10 years behind the fintech industry and could be slow to catch up, says Andy Lerner, managing partner of IA Capital Group, at an Insurance Insider event in New York. In banking, fintech companies benefited from a long-term trend of consumers using cash less and online payments more, he said. But “people buy insurance largely the same way they have in the past,” he says. Rick Zullo, principal at Lightbank, disagrees and says insurers are eager to adopt new technologies because they need to find ways to attract young talent to the insurance industry. ([email protected]; @NicoleFriedman)

1023 ET – The global economy is growing at its fastest pace since the financial crisis of 2008, and that strength is expected to continue into next year, but may be reigned in by tighter monetary policy at some point over the next two years, says Deb Clarke, global head of research at Mercer, in the global consulting firm’s latest economic outlook. The primary risk to almost all financial markets is that the Fed will raise rates more aggressively than expected, she says. “The pace and scale of the shift from monetary easing to tightening will be a major influence over economies and market through 2018 and beyond,” Mercer says. Among the other risks are geo-political uncertainties, which are harder to quantify, Clarke says. ([email protected]; @DaisyMaxey)

0753 ET – Royal Bank of Canada and Bank of Montreal stand out of their domestic peers thanks to relatively favorable loan-to-value ratios, UniCredit says. This means they have more leeway versus peers before housing price declines translate into pressure on asset quality. But the bond market still doesn’t reflect that. Therefore, UniCredit recommends switching Canadian senior bank bond exposure to RBC and BMO. Canadian banks are also active in European bond markets with a series of euro and sterling-denominated bonds outstanding.([email protected]; @tasosvos)

0740 ET – California’s Insurance Department is seeking to suspend or revoke Wells Fargo’s license for selling insurance, the state said late Tuesday. An internal investigation by Wells Fargo in April cited improper sales practices not just in banking but insurance products, and the state said it had found nearly 1,500 unauthorized policies issued to California consumers between 2008 and 2016. Mostly, it was renters’ coverage from American Modern Insurance Group. There also were term-life policies, mostly from Great-West Financial. In some instances, employees told consumers to provide personal information to receive a price quote, but employees later applied for the insurance for the customers, with premiums paid from their accounts. American Modern quit its sales program with Wells in 2012 after getting customer complaints, the state said. ([email protected])

0648 ET – Greek banks succeeded in meeting their targets for reducing non-performing exposure in 3Q, central bank data shows. Excluding off-balance sheet items, the NPL stock was lower by EUR2.7 billion to EUR99.1 billion or 50.1% of the their total portfolio. The figure is 0.8% better than the target. Their NPEs soared during the crisis, reaching EUR106.9 billion or 50.5% of total at the end of June 2016, from EUR14.5 billion, or 5.5% in 2008. The Greek banks agreed with the European Central Bank to reduce them by around 40% by the end of 2019. ([email protected])

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