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Credit Suisse Plunges After Warning Of Q2 Loss, Sees New Round Of Job Cuts

Credit Suisse Plunges After Warning Of Q2 Loss, Sees New Round Of Job Cuts

Yesterday it was Target (again), today it’s one of Europe’s largest…

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Credit Suisse Plunges After Warning Of Q2 Loss, Sees New Round Of Job Cuts

Yesterday it was Target (again), today it's one of Europe's largest banks: it is safe to say that our observation that "guidance cut" season has started was spot on.

On Wednesday morning, Credit Suisse joined the giant US retailer in issuing its third profit warning since January, when it warned that it would probably report a loss in the second quarter as its investment banking division was hit by market volatility from the war in Ukraine, the tapering of pandemic stimulus measures and monetary tightening in response to rising global inflation. Against that backdrop, the bank said it had suffered from “weak customer flows and ongoing client deleveraging, notably in the [Asia-Pacific] region”.

This was the bank's third warning in 2022: in January, Credit Suisse warned it would report a loss for the final quarter of 2021 on the back of a slowdown in revenues at its investment bank. Three months later, it announced that it expected a first-quarter loss due to an increase in legal provisions.

The group’s investment banking division also struggled in April and May because of low equity and debt issuance and widening credit spreads as countries around the world tightened monetary policy. Revenues at investment banks across the board are down significantly from record levels last year and many are preparing for staff reductions, according to analysts.

The second biggest Swiss bank also added that it will accelerate cost-cutting measures, as market volatility pushes back the prospect of a recovery for a bank beset by crises in recent years. Executives also braced for a potential round of job cuts and a freeze on hiring in the group’s investment bank in the second half of the year along with other competitors, according to people with knowledge of the planning.

“Given the economic and market environment, we are accelerating our cost initiatives across the Group with the aim of maximizing savings from 2023 onwards,” Credit Suisse said, without providing more details.

“The main culprit is once again the investment bank, where Credit Suisse expects the fourth quarterly loss over the last six quarters,” said Vontobel analyst Andreas Venditti.

“As a consequence, Credit Suisse announces an acceleration of its cost [cutting] initiatives. Similarly to cost measures executed in the past, the consequence is likely to be a further erosion in staff morale and therefore another negative impact on revenues.”

In an interview with Bloomberg on Tuesday, Credit Suisse’s global head of investment banking and capital markets David Miller said: “I’ve been using the entire first five months of this year running around seeing clients and telling them we are back.”

But other senior managers were preparing for a reduction in the bank’s headcount later this year should conditions fail to improve, according to people with knowledge of the matter. The plans include laying off underperformers, not replacing departing staff and hiring fewer graduates.

The bank is due to publish its second-quarter results on July 27, while chief executive Thomas Gottstein will provide a trading update on Thursday at a Goldman Sachs event. The bank announced an overhaul of top executive roles in April after posting a loss in the first quarter as it sought to move on from a succession of recent crises.

“As we look forward to the second half, the year 2022 will remain one of transition for Credit Suisse,” the bank said on Wednesday. “Given the economic and market environment, we are accelerating our cost initiatives across the group with the aim of maximising savings from 2023 onwards.”

Shares tumbled as much as 6.3%, to an almost one-month low, and taking their decline for the year to 30 per cent.

RBC said that weakness in businesses outside of investment banking was the biggest disappointment. Peers dropped, with Deutsche Bank down 2.7% and UBS down 2.3%. Here’s what analysts had to say:

JPMorgan analyst Kian Abouhossein (underweight) said that Credit Suisse’s warning for 2Q was expected based on peer commentary and Dealogic data, yet the pre-announcement is still worse than expected

  • Markets revenue performance is likely to be worse than peers due to the weaker performing credit businesses
  • Abouhossein notes that 2022 will be a year of transition for Credit Suisse, with accelerating cost initiatives across the bank that aim to maximize savings from 2023 onward
  • Says weaker customer flows and ongoing client deleveraging -- notably in the APAC region -- provide a negative read across for

UBS and Baer

  • RBC analyst Anke Reingen (sector perform) notes that while weak performance in the investment bank is not unexpected, weakness in other parts of the business, especially wealth management, is more disappointing
  • Says the report shows how challenging it is for Credit Suisse to improve its operating performance in the current environment
  • Notes that further cost saving measures are positive but will take time to show effect

 

Tyler Durden Wed, 06/08/2022 - 07:44

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Economics

Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Authored by Mike Shedlock via MishTalk.com,

The National…

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Housing Affordability Index Drops To Lowest Rate Since 1989, Still Way Too High

Authored by Mike Shedlock via MishTalk.com,

The National Association of Realtors says "affordability" dropped to 98.5 in June, the lowest since 1989.

Housing Affordability Index and mortgage rates via St. Louis Fed.

Affordability in June Was the Worst Since 1989

The Wall Street Journal reports Affordability in June Was the Worst Since 1989

It was more expensive to buy a U.S. home in June than it has been for any month in more than three decades, as record-high home prices collided with a surge in mortgage rates.

The National Association of Realtors’ housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, fell to 98.5 in June, the association said Friday. That marked the lowest level since June 1989, when the index stood at 98.3.

Housing Affordability Index

The NAR's Housing Affordability Index is based on median income data current  through 2017, projected forward. 

Only 13 months of data is available on Fred, the St. Louis Fed repository.

Affordability is based on whether the median family earns enough income to qualify for a 30-year fixed mortgage loan on the median single-family home without spending more than 25% of the income on payment for principal and interest.

An index value of 100 means that a family with the median income has exactly enough income to qualify for a mortgage on a median-priced home. An index above 100 means a median family has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. 

Inquiring minds may wish to look at the NAR's Housing Affordability Index Calculations.

Curiously, the NAR concludes the median household can nearly always afford the median home price.

Do you believe that? More importantly, even if accurate, so what? 

The median person who can afford a home and wants a home probably already has a home. 

First Time Buyer Index

In terms of new and existing home sales, what matters is what a buyer who does not have a home, but wants a home, is willing to pay and can pay. 

The First-Time Buyer Index for 2022 Q2 fell to 68 assuming a starter home price of $351,500. 

Can 68 percent of would-be buyers afford (and find) a $351,500 home in a neighborhood in which they want to live? 

68 percent is a much more reasonable number than the overall 98.5 percent calculation, but that still strikes me as too high. 

Case-Shiller National Home Price Index

I have not updated my full set of Case-Shiller home price charts for a while but that chart is current (May data). 

Case-Shiller lags by a few months so it's even worse than shown. 

The pre-pandemic index was 212 and it's now 306. That's a 44 percent jump with real median wages declining, property taxes soaring, food soaring, and energy soaring.

Yet, the NAR says that median overall affordability has declined only to the 98.5 percent level. Yeah, right.

Meanwhile, rent and food keep rising and the price of rent will be sticky. Gasoline is more dependent on recession and global supply chains.

Food Prices Rise Most Since February 1979

For more on the price of food, please see Food at Home is Up 13.1 Percent From a Year Ago, Most Since February 1979

For more on rent, please note Tennant's Unions Demand Biden Declare a National Emergency to Stop Rent Gouging

For more on producer prices please see Producer Prices Decline For the First Time Since the Pandemic Due to Energy

Spotlight on Fed Silliness

The Fed has blown three consecutive bubbles trying to produce two percent consumer inflation while openly promoting raging bubbles in assets especially housing.

*  *  *

Please Subscribe to MishTalk Email Alerts.

Tyler Durden Sun, 08/14/2022 - 12:30

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Economics

Summer Teen Employment

Here is a look at the change in teen employment over time.The graph below shows the employment-population ratio for teens (6 to 19 years old) since 1948.The graph is Not Seasonally Adjusted (NSA), to show the seasonal hiring of teenagers during the sum…

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Here is a look at the change in teen employment over time.

The graph below shows the employment-population ratio for teens (6 to 19 years old) since 1948.

The graph is Not Seasonally Adjusted (NSA), to show the seasonal hiring of teenagers during the summer.

A few observations:
1) Although teen employment has recovered some since the great recession, overall teen employment had been trending down. This is probably because more people are staying in school (a long term positive for the economy).

2) Teen employment was significantly impacted in 2020 by the pandemic.

Click on graph for larger image.

3) A smaller percentage of teenagers are obtaining summer employment. The seasonal spikes are smaller than in previous decades. 

The teen employment-population ratio was 38.4% in July 2022, down from 38.9% in July 2021. The teen participation rate was 43.6% in July 2022, down from 43.8% the previous July. 

So, a smaller percentage of teenagers are joining the labor force during the summer as compared to previous years. This could be because of fewer employment opportunities, or because teenagers are pursuing other activities during the summer.

3) The decline in teenager participation is one of the reasons the overall participation rate has declined (of course, the retiring baby boomers is the main reason the overall participation rate has declined over the last 20+ years).

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Economics

Braxia and KetaMD, CEOs McIntyre and Gumpel Speak on Acquisition

Last week, the Canadian company Braxia Scientific acquired 100% of the issued and outstanding stock of KetaMD, Inc. This is an exciting acquisition, and…

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Last week, the Canadian company Braxia Scientific acquired 100% of the issued and outstanding stock of KetaMD, Inc. This is an exciting acquisition, and in today’s interview, The Dales Report’s Nicole Hodges talks with CEOs Dr. Roger McIntyre and Warren Gumpel of Braxia Scientific and KetaMD respectively.

For some background information, KetaMD is a U.S. based, privately-held, innovative telemedicine company, with a mission to address mental health challenges via access to technology-facilitated ketamine-based treatments. Braxia Scientific is Canada’s first clinic specializing in ketamine treatments for mood disorders. They recorded revenue of $1.49m for 2022 fiscal year, ended March 31. On a year-over-year basis, revenue increased 47.5%.

Here’s some highlights from the interview.

KetaMD gives Braxia a presence in the US

Dr. McIntyre says that KetaMD gives Braxia what they’ve had as their vision from the beginning: a US presence. KetaMD is a living program. It’s already running, has infrastructure, and patients. McIntyre believes that a program like KetaMD is something Braxia’s needed to scale and obtain commercial success.

With telemedicine, Braxia has a potential to serve a gap in access. The zeitgeist of “patient going to medicine” has flipped, McIntyre says. “Now it’s medicine goes to the patient, and that is long overdue.”

COVID speeding a trend that was already happening

In 2020, 80% of physicians indicated they had virtual visits. That’s a number up from 22% the year before. But this is something that many doctors, McIntyre included, believe always should have happened. The pandemic only was the catalyst for innovation and making the option viable.

While some treatments will always need a clinic or a hospital, McIntyre believes some treatments can be done safely at home. And they are, for many chronic diseases. He feels implementing ketamine and psychedelics would be among these treatments where service could be expanded into the home. It would require careful SOPs in place, best practices, and surveillance. But he believes Braxia Scientific could deliver this with KetaMD.

Gumpel to stay as CEO of KetaMD

Gumpel says that KetaMD benefits in this acquisition from being part of the world’s most prominent researchers in depression, psychedelics, and ketamine. In the acquisition, he’ll stay on as CEO. He admits that Dr. McIntyre has been a huge part of collecting the data on the safety of ketamine treatment, and has a strong motivation to “see this thing through until most of society can access that – or at least the people that need it and want it.”

Gumpel admits he has a personal connection to ketamine treatment. As a person who has experienced bouts of depression for years, it saved his life, he says. He is grateful he was living within walking distance of ketamine treatment in Manhattan. It made him extremely aware of the accessibility gap, which in part inspired KetaMD.

Be sure to tune in for the full interview regarding Braxia and KetaMD, right here on The Dales Report!

The post Braxia and KetaMD, CEOs McIntyre and Gumpel Speak on Acquisition appeared first on The Dales Report.

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