Bloomberg - Evening Briefing - Schwab’s warning

Charles Schwab shares suffered their biggest intraday drop since the depths of last year’s regional-banking meltdown after the investing giant warned it will have to scale back in order to protect profits. Going forward, Schwab is planning to rely more on partners, like Toronto-Dominion Bank. The latest moves come after the investing giant reported that fewer clients in the second quarter opened new brokerage accounts than analysts were expecting. The warning hearkens back to a year ago, when investors started to sour on Schwab after the US Federal Reserve’s moves to rapidly increase interest rates saddled the company with paper losses as the value of its bond investments took major hits. At the same time, consumers were yanking their deposits held with the bank as they searched for higher-yielding alternatives, causing the company to seek out more expensive funding sources. —David E. Rovella

Equities traders across Wall Street’s biggest banks pulled off a clean sweep of higher-than-expected quarterly gains—by a startling margin. The 18% jump in combined revenue from helping clients bet on stocks was more than triple the increase analysts estimated. On conference calls, industry leaders pointed to a combination of swelling balances and a flurry of dealings, particularly in derivatives, led by their largest customers. “In institutional equities, we are back,” Morgan Stanley Chief Executive Officer Ted Pick said on Tuesday, touting his firm’s $3.02 billion haul. “It continues to be an equities world. You see it in the asset price momentum in the US. You see now the potential for that to broaden to more names and more sectors.”

Blue Owl Capital is pushing deeper into the red-hot private credit market with a deal to buy credit manager Atalaya Capital Management, which manages more than $10 billion. Blue Owl agreed to pay an initial $450 million for Atalaya, which focuses on private credit and asset-based lending. It marks the third acquisition in recent months for Blue Owl, which had $174 billion of assets under management as of March 31. Investment firms are expanding deeper into the private-credit market, which has become a serious rival to mainstream lending as banks have faced pressure to retreat. That’s pushed the market for privately negotiated loans to new heights—and raised questions about the risks it might pose to the financial system.

Insurance firms tied to Apollo and KKR are adopting an unconventional strategy: they’re skipping mortgage-backed bonds and buying underlying whole loans outright. It’s a trend that’s picked up over the last few years. In 2023 alone, insurers increased their holdings of residential mortgage loans by a whopping 45%, or about $20 billion. The loans typically don’t qualify for being bundled into bonds supported by Fannie Mae or Freddie Mac—these borrowers are usually riskier. Also, owning mortgages directly means having to deal with arduous tasks often left to specialists. So why bother with the hassle of owning loans directly, rather than in securitized form? Better yields.

Exiled Chinese tycoon Guo Wengui was convicted Tuesday of duping investors out of $1 billion to fund his luxury lifestyle. Guo, whose attacks on the Chinese Communist Party earned him friends like Donald Trump-adjutant Steve Bannon, was found guilty in Manhattan federal court of fraud and racketeering conspiracy. Having amassed a social media following through videos recorded from his penthouse overlooking New York’s Central Park or from the deck of his 152-foot superyacht, Guo claimed his fortune came from his wealthy real estate developer family in China. But US prosecutors said a portion of his wealth also came from stealing through bogus investment opportunities he hawked online. Convicted on nine of the 12 counts against him, he faces as many as 20 years in prison.

Former Trump aide Steve Bannon greets Guo Wengui in New York in 2018. Photographer: Don Emmert/AFP

Some of China’s largest state-backed financial firms are asking employees in Hong Kong to return a portion of their pay, extending Xi Jinping’s “common prosperity” campaign to the offshore business hub. Some Hong Kong-based executives and even former employees at China Everbright Group and China Huarong International Holdings are said to have been asked to pay back part of their past bonus in recent months. It’s unclear how many employees will be impacted by the policy and how far it will extend below the executive ranks.

After firing thousands of his employees earlier this year, Elon Musk appears to be hiring hundreds for his delayed robotaxi program. Tesla doesn’t yet have regulatory approval to put driverless cars on the road, and its vehicles still aren’t capable of safely maneuvering without constant human supervision. However, many investors believe it will eventually bring the technology to market and have bid the stock up.

US car repossessions rocketed higher in the first half of the year, up 23% compared with the same period last year. With high interest rates and residual inflation hitting household budgets, the spike in seizures may provide a window into the average consumer’s financial health at a key time for Federal Reserve policymakers. Repossessions started ticking up last year and have now surpassed pre-pandemic levels.

• Businessweek: The Trump interview on taxes, tariffs and the Fed.
• Billionaire money is flowing to Biden and Trump like never before.
• US says Trump security was tightened over evidence of Iranian plot.
• Biden calls for national rent control on US corporate landlords.
• New Jersey Senator Bob Menendez convicted on foreign-agent charges.
• JPMorgan to buy NYC building in a $300 million deal.
• Swiss luxury watch market succumbs to a brutal China-led slump.

In 1988, the late French President Jacques Chirac—then the mayor of Paris—famously bragged he would swim in the Seine to show how clean it was. He never did. More than 35 years on and with some €1.4 billion ($1.5 billion) earmarked for the river’s clean-up, current Paris Mayor Anne Hidalgo has made a similar pledge, with a lot more at stake. To show the Seine is ready for the Olympics that kick off this month, she has promised a swim this week (after having postponed it once before). It remains to be seen, however, if that show of faith will convince Olympic athletes to take the plunge. Earlier this year, Brazil’s reigning open-water champion Ana Marcela Cunha said “the Seine is not made for swimming.”

The River Seine at Pont Alexandre III bridge in Paris Photographer: Cyril Marcilhacy

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