Repeat offenders made up 40% of US corporate defaults in 2023, Moody's says

 The Manhattan skyline is shown from the New York City borough of Brooklyn·

Tue, Apr 16, 2024, 

By Matt Tracy

(Reuters) - Around 40% of U.S. companies that defaulted on their debt obligations in 2023 had previously done so, according to a new report from credit ratings agency Moody's.

These and other companies with a high level of debt struggled through an elevated interest rate and inflationary environment, said the report, which was released on Tuesday.

Companies acquired by private equity firms through leveraged buyouts made up a majority of this number, the report added. Most private equity-owned defaults took the form of distressed exchanges, whereby borrowers worked with lenders and investors to restructure their debt.

At the same time, however, Moody's found that the number of distressed debt issuers dipped to 227 in the first quarter of 2024 from 238 in the fourth quarter of 2023.

“The List's decline signals that the default rate will gradually ease in the year ahead, as fewer distressed debt issuers remain," the report's authors said.

Ratings of some higher-rated speculative-grade debt issuers were upgraded in the first quarter, after they were able to refinance debt with upcoming maturities as willing investors returned to the market.

The speculative-grade default rate peaked at around 5.8% in the first quarter, Moody's wrote. The firm expects the default rate to stabilize around its historical average of 4.7% by June and dip down to 3.4% by April next year.

(Reporting by Matt Tracy in Washington; Editing by Matthew Lewis)

Big banks led by Citi continue layoffs amid pressure to cut costs

FILE PHOTO: Bank of America logo is seen on the entrance to a Bank of America financial center in New York

Tue, Apr 16, 2024
By Niket Nishant and Manya Saini

(Reuters) - U.S. banking giants continued to shed employees in the first quarter, with Citigroup seeing the biggest drop.

Headcount at Citi declined by 2,000 employees after the third-largest U.S. lender completed a sweeping reorganization aimed at improving profits and reducing management layers.

Bank of America, Wells Fargo and PNC Financial together cut more than 2,000 jobs in the three months ended March 31 compared with the previous quarter.


Banks are under pressure to control costs due to the uncertain economic outlook. While investors are still expecting the Federal Reserve to tame inflation while avoiding a major economic slowdown, expectations remain in a flux about the potential for interest-rate cuts later this year.

Citi's reductions were part of a total 7,000 job cuts that will be reported in upcoming quarterly earnings as employees complete their notice periods, its Chief Financial Officer Mark Mason told reporters on Friday.

The layoffs were part of a broader goal to reduce Citi's staffing by 20,000 over the next two years.

Industry executives acknowledged the challenges in navigating the changing rate environment. Analysts said higher funding costs, contracting net interest margins and uneven trading results were likely to keep banks cautious.

"We managed headcount," Bank of America CEO Brian Moynihan told analysts on Tuesday. "We noted the expectation in January of last year that our headcount will be down throughout the year."

BofA's headcount has fallen by more than 4,700 from the first quarter of 2023.

Across Wall Street, investment banks brought in higher revenue, fueled by a revival in capital markets. Executives have become more optimistic that a surge in equity offerings will lift sentiment and spur mergers and acquisitions.

That would bolster the outlook for Goldman Sachs and Morgan Stanley, where headcount shrank by 900 and 396, respectively. Morgan Stanley's finance chief Sharon Yeshaya told analysts on Tuesday the investment bank was still making "opportunistic hires."

In 2023, rival Goldman Sachs undertook its biggest round of layoffs since the global financial crisis of 2008.

JPMorgan Chase, however, went against the trend. The largest U.S. bank continued to bolster its ranks, adding nearly 2,000 employees in the first quarter to a total of 311,921.

(Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Lananh Nguyen and Arun Koyyur)

Bank of America profits drop as key lending revenue weakens


David Hollerith
·Senior Reporter
Tue, Apr 16, 2024, 

Bank of America (BAC) said Tuesday that first quarter profits dropped 18% from a year ago as a key revenue source weakened, offering the latest example of how even the biggest banks are increasingly challenged by high interest rates.

Net interest income at Bank of America fell 3% from the year-earlier period "as higher deposit costs more than offset higher asset yields and modest loan growth," the bank said in a release.


That measure captures the difference between what a bank earns on its loans and other assets versus what it pays out on deposits. It is a critical contributor to profits for all banks.

Bank of America Chairman and CEO Brian Moynihan. REUTERS/Evelyn Hockstein (REUTERS / Reuters)

Three other giant banks — JPMorgan Chase (JPM), Wells Fargo (WFC), and Citigroup (C) — also disclosed challenges with this revenue source as higher-for-longer interest rates from the Federal Reserve continue to pressure lenders to pay more to keep their depositors.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

One sign of how higher deposit rates are affecting Bank of America is that its non-interest-bearing deposits fell 16% to $520.6 billion. Another is the higher rate it paid on US interest-bearing deposits, which rose to 2.53% in the first quarter compared with 1.28% a year earlier.

Bank of America's CFO Alastair Borthwick told analysts that the company's expectation is that the second quarter will be the "low point" for net interest income and "we expect the back half of 2024 to grow" — repeating guidance it had provided previously.

Its net interest income did rise when compared to the fourth quarter and beat expectations. The bank expects to earn $14 billion from that source in the second quarter, which is more optimistic than what it implied in previous guidance.

If the Fed does in fact pull back the number of cuts it expects to make in 2024 from the current estimate of three, that could also help Bank of America since elevated rates would allow it to charge more for its loans.

"If we have less rate cuts we will benefit from that," Borthwick said, adding that "generally speaking higher for longer is better for banks."

Bank of America's stock was down more than 4% in early trading Tuesday.

Deposit pricing pressure is also rising at Wells Fargo and Citigroup, which disclosed they are shelling out more for that funding than a year ago.

That pressure is likely to intensify now that investors no longer expect a rate cut from the Fed in June, due to hotter-than-expected inflation data this past week and a surprisingly resilient economy.

One bright spot for Bank of America was its Wall Street operations.

Revenue for investment banking, trading, and wealth management all rose from a year ago and the previous quarter, outperforming analyst expectations.

Trading and wealth management rose more than 2% and 5% while investment banking revenue of $1.57 billion was 35% higher compared with last year.


"Our wealth management team generated record revenue, with record client balances, and investment banking rebounded," said CEO Brian Moynihan.

"Bank of America’s sales and trading businesses continued their strong 2023 momentum this quarter, reporting the best first quarter in over a decade."