Banks want to pull the levers of global finance for good

Posted October 8, 2020 8:15 a.m. EDT

— The titans of Wall Street have long avoided taking a leadership role on environmental and social issues. Now, as public attitudes shift, they're changing their position.

What's happening: JPMorgan Chase announced Thursday that it will spend $30 billion over the next five years to promote racial equality. The announcement from the US largest bank comes after Citi and Bank of America each pledged around $1 billion to advance racial equity and economic opportunity.

JPMorgan's effort includes $8 billion for mortgages for Black and Latino homeowners, $14 billion in loans to expand affordable housing, $2 billion in loans for small businesses and a pledge to help 1 million people open low-cost checking or savings accounts.

"It's long past time that society addresses racial inequities in a more tangible, meaningful way," CEO Jamie Dimon said in a statement.

Gut check: It's a hefty commitment, but worth remembering that JPMorgan has $3.2 trillion in assets and made $36.4 billion in profit last year.

Earlier this week, JPMorgan said it will push clients to comply with the Paris climate agreement, which would require the world to achieve net-zero emissions by 2050. It will set emissions targets for its financing portfolio for 2030 and more closely track clients' carbon intensity.

Big picture: Such actions indicate a growing willingness on Wall Street to exert influence on the financial system in support of causes like racial equity and stopping climate change.

That's in part thanks to pressure from investors and advocacy groups. A proposal at JPMorgan's annual shareholder meeting in May for the bank to detail how it will reduce greenhouse gas emissions in its financing portfolio received support from 49.6% of shareholders, according to Bloomberg — a narrow defeat.

In recent years, CEOs have been hesitant to say they'll make changes to how they think about financing, even as they voiced support for causes like reducing emissions.

"What I say to our clients is: I don't want to be the sharp end of the spear, meaning I don't want to have to be the [one] telling you, or enforcing standards in your industry or in your business," Citigroup CEO Michael Corbat said at the World Economic Forum in January. "You should set those."

But the tide is clearly turning as taking a strong position on climate change and racial injustice becomes the norm.

"We must be willing to have frank conversations with our clients about what they need to do to reduce their emissions — and if we aren't aligned on the need to make this transition, then we must have the courage to walk away," Corbat wrote in a column for CNN Business in August.

Watch this space: John Butters of FactSet observed a 100% increase of mentions of "ESG" on earnings calls in the second quarter compared to the first three months of the year.

And after the killing of George Floyd, a Black man, by police in May, 144 S&P 500 companies made at least one mention of racial equality or justice issues on their second quarter earnings calls. Butters found just two references during the first quarter of the year.

Covid-19 treatments send drug stocks soaring

Shares of companies that have developed treatments for Covid-19 are on a tear after winning praise from President Donald Trump, who is infected with the virus.

The latest: Regeneron said Wednesday that it had applied for emergency use authorization from the US Food and Drug Administration for its experimental antibody treatment. It's the same antibody cocktail administered to Trump on Friday after his diagnosis.

In a video message Wednesday, Trump said he "felt good immediately" after taking the Regeneron treatment. "I call that a cure," he added.

The treatment is still in large-scale clinical trials, and some experts believe it's too early to say with certainty that it's effective.

"I would withhold judgment on this until we see the data," said Dr. Richard Besser, former acting director of the US Centers for Disease Control and Prevention. "These early results that keep coming out from companies in press releases strike me as being ... much more about the stock price than they are about science."

Speaking of stocks: Shares of Regeneron are up nearly 5% in premarket trading after jumping 4% in the past week. They've gained almost 58% this year.

Eli Lilly, which was also name-checked by Trump Wednesday, is asking the Food and Drug Administration for emergency use authorization for its antibody therapy. Data on the drug has been encouraging but is still preliminary, according to Stephen Evans of the London School of Hygiene & Tropical Medicine. At least 70 different antibody treatments for Covid-19 are currently being vetted.

Shares of Eli Lilly rallied more than 3% on Wednesday and are up another 2% in premarket trading Thursday.

Either Trump or Biden has a big choice ahead

Either Trump or former Vice President Joe Biden faces a hugely important decision in 2021: whether to renominate Federal Reserve chairman Jerome Powell.

Neither campaign has confirmed whether Powell will get a second term when his current stint ends in February 2022, my CNN Business colleague Paul R. La Monica reports. But the choice could have a significant impact on the trajectory of the economic recovery.

Trump's decision to halt stimulus talks Tuesday before backtracking a bit shows that investors, consumers and businesses may not be able to rely on the White House and Congress for more financial assistance. But Powell and the Fed have been doing all they can to prop up the economy, winning praise from both economists and Wall Street.

Remember: The Fed quickly lowered rates to zero in March and has since launched trillions of dollars worth of lending programs.

"Powell should get a second term if he wants it," said Larry Adam, chief investment officer of Raymond James. "He deserves credit for the speed and magnitude of the Fed's response to Covid-19."

Trump had been critical of Powell before the pandemic for not moving quickly enough to lower rates, but has since praised the Fed chief's response.

"When the crisis hit, Powell went all out and opened the spigots," said George Calhoun, professor of quantitative finance at the Stevens Institute of Technology. "I'm not sure what [the] rationale would be to have someone totally different at the Fed."

Up next

Initial US unemployment claims for last week post at 8:30 a.m. ET. Americans are expected to have filed 820,000 claims, down from 837,000 the week before.

Coming tomorrow: The Reserve Bank of India announces its latest interest rate decision.

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