☀️☕Wells Fargo’s huge fine crushes previous record held by Wells Fargo

22 December 2022

Happy Thursday🎄!

US large-cap S&P 500 closed 1.49% UP ▲ Tech-heavy Nasdaq Composite closed 1.54% UP ▲ Pan European STOXX Europe 600 closed 1.64% UP ▲ HK’s Hang Seng Index closed 0.34% UP ▲ Japan’s Nikkei 225 closed 0.68% DOWN 🔻 


JGB Yields soar, 🎓YCC, Nike slams, FedEx 🎓buyback


Wells Fargo’s huge fine crushes previous record held by Wells Fargo

📖   MoneyFitt EXPLAINS

🎓 Bank 


Markets in the US closed higher on Wednesday for their biggest up day so far in December on improving consumer confidence and easing inflation expectations from investors. Not too late for that Santa Claus Rally! Quarterly earnings from Nike and FedEx were also higher than forecast, taking the bellwether stocks 12% and 3.4% higher and a smaller than expected loss from Carnival Cruise Lines took its stock 4.7% higher.

But the big market news was over in the Land of the Rising Yield.

The surprise move by the Bank of Japan on Tuesday to widen the band for the 10-year Japanese Government Bond (JGB) from 0.25% to 0.50% around the unchanged 0% centrepoint was accompanied by a statement that it will sharply increase bond buying (which pumps MORE money into the economy), meaning the move was a “fine-tuning” of Japan’s ultra-loose monetary policy and NOT a withdrawal of economic stimulus. Also:

“This measure is not a rate hike… Adjusting the yield curve control does not signal . . . an exit strategy.”

Prices in the usually quite sleepy JGB market were sharply lower for the second day running, sending yields pushing up against the new upper boundary as traders bet big against the central bank’s statement that it wasn’t planning to raise interest rates. The feeling is that the move on the band is the beginning of the end for Japan’s six-years of negative interest rates and yield targeting, the unconventional YCC🎓.

Ironically, BoJ policy has long been to counter deflationary forces and ignite some inflation, with a “Price Stability Target” of 2%, and now here we are at 3.6% inflation, a 40-year high.

🎓Mini-Explainer: Japan’s Yield Curve Control

Yield curve control (YCC) is a policy by the Bank of Japan (BoJ) in which the central bank targets government bonds of different maturities to keep the yield on those bonds within a specified target range.YCC was introduced by the BoJ in 2016 as an unconventional (sometimes controversial) monetary policy to influence long-term interest rates in order to stimulate economic growth and achieve price stability (as buying JGBs in its “Quantitative Easing” was insufficient.)Critics argue that YCC has not been effective in achieving these goals and that the BOJ’s efforts to manipulate interest rates have distorted financial markets (the BoJ now owns about half of outstanding bonds) and can lead to unintended consequences (on some days, no JGB trades take place at all.)

Nike did well in the second quarter of its financial year (which ends in May 2023, so the second quarter is the three months to November) on deep, inventory-clearing discounts driving better sales especially in North America, including record demand during the Black Friday and Cyber Monday period. Helped by logistics issues clearing up and possibly a good sign of strong holiday season demand but may also just be front loading from inflation-scarred, cash strapped shoppers. Either way, this was the second quarter in a row that Wall Street’s highly paid analysts pitched their forecasts way too low for the company, which had EPS (earnings per share, the company’s net profits divided by the number of shares the company has issued) of 85 cents vs a 64 cent average forecast. (They were 25% off!)

FedEx’s EPS of $3.18 for the November quarter was 34% lower than the same period last year but way above the $2.82 average (highly-paid) analyst forecast. But what the market cared about more is that FDX (which tanked the whole market back in September when it slashed its forecasts and sank 16%), announced plans to slash an additional $1 billion in costs in anticipation of a recession and as the pandemic delivery demand bubble deflates. This brings cost cuts to $3.7 billion this year from parking planes, closing offices, stopping rural Sunday deliveries and furloughing freight division workers. Meanwhile, FedEx has been buying back shares🎓, which boosted EPS in the quarter by 6 cents per share, with more buybacks to come.

🎓Mini-Explainer: Share Buybacks

Companies can use extra cash (that is not used to grow the business through investing) to buy back shares, reducing the number of shares in issue and increasing the value of each share. Shareholders who don’t sell will own a higher percentage of the company. (Financial return ratios are also improved.)Share prices often react to the announcement of buybacks before they happen and the buying OF the shares also drives shares higher.An alternative use of extra cash is to pay shareholders special or higher dividends, though there can be tax implications.

Gloomy outlook for the economy from FedEx, but US consumer confidence unexpectedly rose to an eight-month high in December as inflation pressures subside and the labour markets remain pretty much red-hot. Fears of a recession persisted, though, so fewer households in the Conference Board survey plan to make big-ticket purchases over the next six months, though that could turn out to mean more spending on services. 


Wells Fargo’s huge fine crushes previous record held by Wells Fargo

Wells Fargo was set up during the California Gold Rush 170 years ago as a cash and gold transportation business using, famously, stagecoaches in the American West and developed the business into a thriving commercial bank 🎓. The iconic stagecoach is still WFC’s logo, and in its day was robbed 347 times (including attempts.)

“Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise… a corporate recidivist that puts one third of American households at risk of harm (with its) pattern of unlawful behavior”)

Unfortunately, the robberies seem to be going the other way now, with Wells Fargo having to pay the CFPB US$1.7 billion in another record-breaking fine (beating its own US$1 billion record) with US$2 billion in damages, for illegally charging consumers interest and fees. Expect more restrictions on its business to follow.

“At best you were incompetent, at worst you were complicit and either way you should be fired.”

The NY Times calls Wells Fargo “one of America’s worst-run big banks” following years of customer mistreatment. This time around, the focus was on not recording customer payments on home and auto loans properly, wrongfully repossessing cars and homes and charging overdraft fees even when customers had enough money to cover purchases they made.

“Wells Fargo’s inability to manage the basic requirements of serving its customers means that consumers, investors, and employees continue to pay the price.”

What actually IS a bank, we hear you ask? 

See the Explainer below and also here: 

 Letter B money terms in the excellent 

A to Z of Money Terms and Financial Jargon” 

project from our friends at 

The Money Awareness and Inclusion Awards (MAIAs)

Check out Letter A, Letter B (in comments), Letter C, Letter D, Letter E and now Letter F too! 

OOPS. The email version of yesterday’s MFM should have shown the following for stock market performance on Tuesday. We apologize for the error:

Japan’s Nikkei 225 closed 2.46% DOWN 🔻🔻

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS

🎓 Bank  

B is for BankA bank is a licensed organisation permitted to accept deposits from customers, and lend out that same money, keeping only a fraction of the total as cash or very low risk short-term assets that enable them to re-pay deposits if required.An example?The most familiar types of banks are retail or high street banks, but other types of banks include commercial, investment and private banks.More detail?Banks pay us interest to borrow our money (deposits) and receive interest from us when we borrow from them (loans) and make most of their profit from the difference between the two, as current and savings accounts pay much lower interest than loans charge.Last note?Challenger or neo-banks are using technology of many different types to disrupt this cosy business arrangement, either by making services more easily available, lower cost or easier to compare.

Thanks and (bank) credit to the The Money Awareness and Inclusion Awards (MAIAs)

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