JPMorgan Chase is set to report second-quarter earnings – here’s what the Street expects – CNBC
JPMorgan Chase will be closely watched for clues on how the coronavirus pandemic is impacting banks’ retail and institutional businesses.
JPMorgan Chase reported second quarter earnings.
Here’s how JPMorgan did:
Earnings: $1.38 a share, compared with the $1.04 per share estimate of analysts surveyed by Refinitiv.
Revenue: $33 billion, compared with the $30.3 billion estimate.
JPMorgan, the biggest U.S. bank by assets, is also the first major lender to report earnings. The company will be closely watched for clues on how the coronavirus pandemic is impacting banks’ retail and institutional businesses.
The key question investors have is whether the second quarter will represent the nadir for bank profits this year: Big banks are expected to show the largest loan loss provision for any quarter since the financial crisis because of the pandemic, according to analyst Jason Goldberg of Barclays.
The fate of the industry is tied closely to the path of the coronavirus because the unemployment caused by states shutting down their economies impacts the abilities of customers to repay debts.
JPMorgan CEO Jamie Dimon said in May that the odds were “pretty good” that the economy would rebound in the second half of the year, driven by the reopening. But that scenario could be threatened by the recent progression of the coronavirus, which has already forced some states to reverse course and shutter businesses again.
A bright spot for the industry has been trading, which has benefited from surging volatility and the Federal Reserve’s unprecedented actions to prop up credit markets. At JPMorgan, the bank’s trading division was headed for a revenue increase of more than 50% compared with the year earlier, co-President Daniel Pinto said in late May.
While bank stocks have rebounded from their March lows, they have underperformed the broader indices, which have been buoyed by the roaring technology sector.
One factor keeping bank stocks down: Low interest rates have pressured net interest margin, a key measure of profitability in the banking sector. The industry’s loan books have also begun to shrink, driven in part by lower credit-card usage and the fear of rising defaults.
This story is developing. Please check back for updates.
Burger King is selling a burger made from cows on low-methane diet – CNBC
Burger King is selling a Whopper patty made from cows on the low-methane diet at selection locations.
Burger King on Tuesday announced a hot new diet tip: 100 grams of lemongrass a day to keep the methane away.
The Restaurant Brands International chain is rolling out a Whopper patty made from cows on the low-methane diet. The limited-time offer burger will only be available at select locations in Miami, New York, Austin, Portland and Los Angeles.
Burger King worked with scientists from the Autonomous University at the State of Mexico and the University of California, Davis to tackle the environmental impact of beef. Livestock was responsible for 3.9% of U.S. global greenhouse gas emissions in 2018, according to the Environmental Protection Agency. Worldwide, that number is roughly 14.5%, according to the United Nations’ Food and Agriculture Organization.
On average, the lemongrass diet reduces about a third of methane emissions per day during the last three or four months of the cow’s life, according to preliminary tests.
Concerns about climate change have led some consumers to reduce their overall meat intake and switch to eating meat alternatives occasionally. Nationwide, Burger King sells meatless burgers and sausage patties made by Impossible Foods. A report commissioned by the maker of plant-based meats in 2019 found that its burgers produced 89% fewer greenhouse gas emissions than a patty from cow’s beef.
Burger King is not the only restaurant chain looking to make its business more environmentally friendly. Starbucks pledged to become “resource positive.” As part of that promise, it’s adding meat alternatives to its menu and planning to eventually shift to resusable packaging. On Thursday, rival McDonald’s unveiled a new flagship location at Walt Disney World Resort that generates enough renewable energy to cover all of its energy needs on a net annual basis.
Can shopping malls survive the coronavirus pandemic and a new slate of permanent store closings? – USA TODAY
COVID-19 is putting the future of malls in jeopardy with JCPenney, Victoria’s Secret and others planning to close stores or filing for bankruptcy.
Consumers are scared to go out and retailers are floundering. Is there a future for the traditional indoor shopping mall?
Just when many shopping malls had finally figured out how to adapt to the era of digital retail, the coronavirus pandemic upended everything.
Having seen their recent move toward dining, entertainment, fitness and personal services come to a screeching halt a pivot that was supposed to help them survive the Amazon age malls throughout America are suddenly running out of time.
With J.C. Penney trying to avoid liquidation, smaller retailers closing or requesting rent relief, and venues like theaters still temporarily shut down due to COVID-19, anywhere from 1 in 4 malls to 1 in 2 could go out of business altogether, analysts projected.
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The whole business model of a mall, which is about pulling in as many people as you can and getting them to stay for as long as you can, has just unraveled, said Neil Saunders, managing director of consultancy GlobalData Retail.
The bleak turn of events has provided more fuel to online retailers already swiping market share away from malls that were relying on diminishing foot traffic to apparel shops and department stores in particular.
There are malls that this crisis will accelerate their closure, no doubt, said Kat Cole, president and chief operating officer of Focus Brands, parent company of mall classics like Cinnabon and Auntie Annes. How many is anybodys guess, but were hoping its a minority.
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Analysts at Coresight Research, which tracks retail closures, projected that about 25% of Americas malls would disappear within the next three to five years.
But that could rise to as many as 50% if we cant stop the bleeding, Coresight CEO Deborah Weinswig said in an interview. That ends up changing the face of America.
In general, analysts say that high-end A malls are in the best shape because their luxury retail tenants have higher profit margins and thus are better able to withstand the downturn. But so-called B and C malls, which have lower-priced stores and more vacancies, are facing a high risk of closure.
Theyre trying to plug the holes in a dam, Weinswig said.
Even malls that bet big on in-person experiences that were considered to be extremely resilient in the age of digital retail are suddenly experiencing nothing but pain.
A lot of the things that malls have built-in like gyms, movie theaters and restaurants, food service are just not able to operate and pull in customers the way they once did, Saunders said. Theyre either having to shut down or limit capacity or customers are very reluctant to go there.
Mall occupancy rates hit their lowest level in at least a decade in the second quarter of 2020 at 94.4%, according to CoStar Group, which tracks real estate.
Of the nations 1,793 enclosed shopping malls, nearly 500 are at risk due to their location being poor or due to their dependence on office workers or tourism for foot traffic, CoStar senior consultant Kevin Cody said.
Retailers filing for bankruptcy
While some retailers have flourished during the pandemic, nearly all of them such as Walmart, Target, Kroger and Home Depot offered essential services of some kind, including groceries and home improvement goods. Few are typically located in malls.
On the other hand, department stores and apparel retailers, which dominate most malls, have been floundering. And many are already facing existential crises.
Recent Chapter 11 bankruptcy filings have included department store chains J.C. Penney and Neiman Marcus as well as apparel retailers Brooks Brothers and J. Crew. Those four have said they hope to use the restructuring process to cut debt and emerge as more sustainable companies.
But their plans also include hundreds of store closures, including 242 planned by J.C. Penney alone, raising the prospect that malls throughout the country will be hollowed out in the coming months.
Retailers have already announced the closure of more than 80 million square feet of space so far in 2020, according to CoStar. That compared with 114 million for all of 2019, which had the liquidation of Payless ShoeSource, Gymboree and Charlotte Russe.
Malls are going to certainly see a lot of those closures. And I think that mall owners are going to have to get creative in order to survive, CoStar consultant Robin Trantham said.
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A security guard wearing a mask and riding a Segway patrols inside Penn Square Mall as the mall reopens in Oklahoma City in this May 1, 2020 file photo.
(Photo: Sue Ogrocki, AP)
Bill Taubman, chief operating officer of Taubman Centers, one of the largest mall property owners in the country, pointed out that most of the retailers that have tumbled into bankruptcy in recent months had significant challenges before the pandemic erupted.
For example, J.C. Penney, Neiman Marcus and J. Crew had billions of dollars in debt that weighed them down, placing them on watch-lists for Chapter 11.
The COVID crisis has impacted them in a way that has deteriorated their business plan. I can agree with that for sure. But I don’t know that COVID was the cause of the issue to begin with, Taubman said.
But he acknowledged that the pandemic will require malls to adapt their approach, especially because retail leasing is not expected to rebound quickly, even if a vaccine ultimately puts an end to the crisis.
I think we’re seeing a higher rate of evolution right now than we have in the past and we’re going to have to move, Taubman said. But there are so many new tenants out there that are interested in space and interested in experiencing bricks and mortar and I don’t think that’s going to fade. I think it’s going to take a hiatus for a while because people don’t have the money right now.
The challenges facing department stores, in particular, are especially problematic for malls and not just because of the foot traffic theyre supposed to deliver. Many malls also have clauses in their leases that allow other, smaller tenants to leave if anchor tenants drop out.
The department store is just a format that does not work anymore, said Chris Kuiper, a CFRA Research stock analyst who tracks mall companies. People dont want to wade through a four-story megastore to find a couple of items. So instead of these anchors being a traffic generator, they became an anchor in a literal sense, dragging down these malls.
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Experiential model fades
The great hope for malls was supposed to be a sharp pivot toward experiences and services. But in-person, indoor interaction is considered one of the riskiest activities during the pandemic and thus many of those operations have been shut down for months, with little promise of reopening soon amid an outbreak in states like Texas, Arizona and Florida.
That has unfortunately turned into a massive liability because those are the things that are going to stay closed, Kuiper said. So theyre really facing no good options at this point.
The key question is whether the experiential model is finished or simply on hold.
Philadelphia resident Marta Rusek, 35, considers herself a lifelong mall shopper and before the pandemic was regularly going to the AMC movie theater at her local mall.
Now, Rusek, who works as a nonprofit organizer and has a compromised immune system, has no plans to return anytime soon. She even recently dreamt about going to a mall again but called it a COVID-19 nightmare because in the dream she accidentally left her mask at home.
I’m not going to feel safe going into the theater or being around large crowds of people until the day those magic words that there’s a vaccine available and it’s over are spoken, Rusek said.
On that day, malls that had bet on food, entertainment, fitness centers and other services could zoom right back to the front of the pack.
Michael Brown, a partner in the consumer practice of global strategy and management consultancy Kearney who has studied the future of retail, said the experiential model remains compelling for malls in the long run.
We all believe that the COVID pandemic is temporary. We dont know if its temporary for six, 12, 18 months or longer, but it is temporary, Brown said. At some point in time, we will gather in public together to enjoy dining or entertainment or sports or recreation together. Thats why we say this is really just an accelerator. The strong will survive, but they will take a financial hit in the short term.
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Brown rejected the suggestion that Americans will stay away from mall restaurants, for example, after the pandemic.
Dining at home is nice, but the food doesnt arrive as hot, its not presented as well and somebody always has to do the dishes when youre done, Brown said. So its not a substitute for dining out.
Despite short-term difficulties for tenants like fitness centers, which have been forced to shut down in many states, malls are still likely to move in that direction when this is over if only because of the pressure e-commerce continues to place on physical stores, CoStars Trantham said.
While it may take a while for fitness centers and restaurants to expand at the same rate as they were before, we will still believe that they will recover eventually, Trantham said.
In the long run, mall property owners may need to pivot once again, turning toward alternative options for their space, like hotels, apartments, or online product fulfillment centers, analysts say.
Real estate is real estate, so if youve got a good piece of land you can turn that into something totally different, Kuiper said.
They also need to invest in new ideas like consolidated areas within the mall where shoppers can pick up products that they bought online from retailers located inside the mall, analysts said.
However, many malls cant make long-term plans right now. Theyre too busy dealing with the present.
For example, mall owner CBL & Associates warned in a public filing that it faces a risk of going out of business. The company missed a key interest payment in June, having racked up about $4.5 billion in debt.
CBL, which has 108 properties in 26 states, reported rental revenue of $161 million in the first quarter, down 18.5% from a year earlier, as store closures, rent concessions and bankruptcies took a toll.
Theres just too much debt on these assets that will never produce that level of cash flow anymore, Kuiper said.
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Malls come under pressure to provide rent relief
In many cases, retail tenants are requesting rent relief from mall property owners as they navigate the crisis. Nordstrom, J.C. Penney and The Cheesecake Factory are examples of retailers that have either failed to pay in full or are negotiating temporary rent reductions.
They dont have to close if the mall developers can figure out how to restructure their rents to make sense for their tenants, Focus Brands executive Cole said, referring in general to retailers that are seeking a break.
Without rent relief, store closures could accelerate. That will undermine mall finances and place additional pressure on them because with additional vacancies, remaining tenants wont want to pay full price for the space either, Saunders said.
In the present environment, its going to be really difficult for the mall and property owners to fill those gaps, Saunders said.
One alternative to rent relief might be for mall owners and retailers to join forces.
Mall owners Simon Property Group and Brookfield Property Partners are reportedly considering a joint bid to buy J.C. Penney in a strategy that mall companies have deployed with increasing frequency in recent years. In February, Simon was part of a group that agreed to buy fashion retailer Forever 21 out of bankruptcy, and in 2016, Simon was part of a group that bought fashion retailer Aéropostale out of bankruptcy.
Officials with Simon and Brookfield declined to comment on the reports.
Theyre thinking theyre going to save themselves by saving their customer the one that pays them rent, Kuiper said.
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But its a risky proposition because mall property owners dont have much experience running retail operations that are subject to the whims of fashion and the challenges of competing with digital players like Amazon.
The whole advantage of being the landlord is you dont care who your tenants are as long as they pay rent, Kuiper said. I get what theyre doing, and it might make sense on one level, but long term I just dont see it.
Even in a best-case scenario, malls are going to be weakened coming out of the pandemic, said Nick Shields, an analyst at Third Bridge who covers retail and real estate investment trusts.
Outdoor malls are best positioned to make it through, he said. This is their time to shine.
Mall owners will need to collaborate closely with tenants and local officials to come up with creative solutions to survive this crisis, in addition rent relief, said Coresights Weinswig. But a bevy of lawsuits by landlords against retailers for a failure to pay rent points to an adversarial posture that could lead to a downward spiral.
I think the back half (of 2020) is going to be unlike anything weve ever seen, she said.
Follow USA TODAY reporters Nathan Bomey and Kelly Tyko on Twitter @NathanBomey and @KellyTyko.
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