New Jersey Is the New Hot Spot for Big Businesses to Go Broke​​​

Well-known companies in financial trouble are increasingly seeking bankruptcy protection in New Jersey, upending a decades-old norm of firms filing in the neighboring jurisdictions of Manhattan and Delaware, Bloomberg News reported. Bed Bath & Beyond Inc. and David’s Bridal LLC both sought chapter 11 protection last month in Newark and Trenton, N.J., respectively. A former chemical maker that’s affiliated with Berkshire Hathaway Inc. filed there last week. And Jersey City-based BlockFi Inc. did the same last year, along with a wave of retailers during the pandemic. Perhaps most notably, Johnson & Johnson’s legal saga over talc lawsuits is also playing out in Trenton, with the company placing its LTL Management LLC unit back into bankruptcy there in April in an attempt to settle about 40,000 lawsuits. Its first bankruptcy was tossed out by a federal appeals court. During the pandemic, other familiar names started to pop up in bankruptcy courtrooms in New Jersey. Lotion seller L’Occitane Inc., Modell’s Sporting Goods Inc. and kitchenware retailer Sur La Table Inc. all filed in the district — though the latter was headquartered thousands of miles away, in Seattle. ​​​Read more.
 

Treasury: U.S. Banks Have 'Substantial' Liquidity, Deposit Flows Are Stable​​​

The U.S. Treasury Department on Thursday said it was continuing to monitor market developments amid sharp drops in the shares of regional lenders PacWest Bancorp, Reuters reported. "We continue to closely monitor market developments," a Treasury official said. "The banking system has substantial liquidity, and deposit flows are stable." Shares of Los Angeles-based PacWest were down 60% after the lender confirmed it was exploring strategic options. Western Alliance's stock was down 58.2%, despite a statement from the bank saying it had no unusual deposit outflows and had adequate liquidity. Experts say the share price moves do not reflect the banks' fundamentals and are likely a result of short-selling activity following the collapse of First Republic Bank and its sale to JPMorgan Chase & Co. on Monday. First Republic was the third major casualty of the biggest crisis to hit the U.S. banking sector since 2008. ​​​Read more.
 

Latest ABI Industry Viewpoints Segment Examines SVB Collapse and Banking Crisis​​​



The latest of ABI's Industry Viewpoints series features ABI Editor-at-Large Bill Rochelle talking with Robin Russell of Hunton Andrews Kurth LLP (Houston) about Silicon Valley Bank's (SVB) collapse and the current banking crisis. Russell was a speaker on the "The SVB Collapse: What Went Wrong, and What Happens Next?" panel at ABI's 2023 Annual Spring Meeting. Click here to watch. ​​​
 

Sen. Elizabeth Warren Seeks Information from First Republic’s Former CEO​​​

Sen. Elizabeth Warren (D-Mass.) has written to the former chief executive of failed First Republic Bank asking for more information on his and other executives’ pay, their support for rolling back bank regulations and management practices ahead of the bank’s collapse, the Wall Street Journal reported. “You owe your customers and the public an explanation for the decisions that resulted in the costly failure of your bank,” Warren wrote to Michael Roffler, the CEO when the bank collapsed. Earlier this week, First Republic was seized by regulators, who struck a deal to sell the bulk of its operations to JPMorgan Chase. Its collapse was the second-biggest bank failure in U.S. history, behind the 2008 collapse of Washington Mutual, and also spelled the end of what was considered one of banking’s most successful strategies: attracting wealthy depositors and giving them five-star service. The San Francisco-based bank lost $100 billion in deposits in a March run following the collapse of fellow Bay Area lender Silicon Valley Bank. First Republic’s failure was set off by the Federal Reserve’s rapid series of interest-rate increases, which led depositors to seek better returns elsewhere. Read more. (Subscription required.)

The Senate Banking Committee held a hearing today titled, “Holding Executives Accountable After Recent Bank Failures.” Click here for a link to a video replay and prepared witness testimony. ​​

WEF: A.I. Will Cause ‘Significant Labor-Market Disruption’ over Next 5 Years​​​

Global labor markets are poised for a new era of turbulence as technologies like artificial intelligence accelerate the decline of clerical work, while simultaneously increasing demand for technology and cybersecurity specialists, Fortune reported. Over the next five years, nearly a quarter of all jobs will change as a result of AI, digitization and other economic developments like the green energy transition and supply chain re-shoring, according to a report published by the World Economic Forum in Geneva on Monday. While the study expects AI to result in “significant labor-market disruption,” the net impact of most technologies will be positive over the next five years as big data analytics, management technologies and cybersecurity become the biggest drivers of employment growth. The emergence of AI applications like ChatGPT, which uses machines to simulate human reasoning and problem-solving, will have a particularly pronounced impact by displacing and automating many roles that involve reasoning, communicating and coordinating, the report said. Some 75% of surveyed companies said they expect to adopt AI technologies over the next five years, which they predict will eliminate up to 26 million jobs in record-keeping and administrative positions — such as cashiers, ticket clerks, and data-entry and accounting positions. The WEF study surveyed more than 800 companies that collectively employ 11.3 million workers across 45 economies from all over the world. Read more.

In related news, the White House today hosted its first gathering of chief executives of companies building artificial intelligence since a boom in A.I.-powered chatbots has prompted growing calls to regulate the technology, the New York Times reported. Vice President Kamala Harris and other administration officials are scheduled to meet with the leaders of Google, Microsoft, OpenAI, the maker of the popular ChatGPT chatbot, and Anthropic, an A.I. start-up, to discuss the technology. The White House planned to impress upon the companies that they had a responsibility to address the risks of new A.I. developments. “We aim to have a frank discussion of the risks we each see in current and near-term A.I. development, actions to mitigate those risks, and other ways we can work together to ensure the American people benefit from advances in A.I. while being protected from its harms,” said Arati Prabhakar, the director of the White House office of science and technology policy. Hours before the meeting, the White House announced that the National Science Foundation plans to spend $140 million on new research centers devoted to A.I. The administration also pledged to release draft guidelines for government agencies to ensure that their use of A.I. safeguards “the American people’s rights and safety,” adding that several A.I. companies had agreed to make their products available for scrutiny in August at a cybersecurity conference. Read more. ​​
 

U.S. Claims for Unemployment Aid Jump, but Remain Low​​​

The number of Americans applying for unemployment benefits jumped last week but remains low overall, even as the Federal Reserve has furiously raised interest rates to beat down inflation and cool the labor market, the Associated Press reported. The Labor Department reported today that applications for jobless claims for the week ending April 29 rose by 13,000 to 242,000 from 229,000 the previous week. The weekly claims numbers are considered a proxy for layoffs. The four-week moving average of claims, which flattens some of the week-to-week volatility, rose by 3,500 to 239,250. Overall, 1.81 million people were collecting unemployment benefits the week that ended April 22, about 38,0000 fewer than the previous week. Read more.

Survey: Most Americans Lack the Cash to Cover a Surprise $400 Expense​​​

Most Americans don’t have the financial resources to cover a surprise expense of $400 without taking on debt, according to a new survey, Bloomberg News reported. Just over one-third of respondents said they have cash on hand to cover the expense, and the figure rises to 48% when including those who said they’d use a credit card but pay it off immediately before incurring interest charges, according to a poll conducted by decision intelligence company Morning Consult for Bloomberg News. Among the remainder, most said they’d borrow via cards or some other kind of debt to meet the expense, while 17% said they would not be able to pay it at all. The data highlight widespread financial fragility, even in an economy with unemployment near 50-year lows, and the erosion of the savings cushion that some households built up in the pandemic. It also shows how many Americans could be pushed into taking on more debt — even as interest rates surge — by a relatively commonplace event, like the need to repair a car or appliance, or a medical bill. ​​​Read more.
 

U.S. Homeowners Hold Near-Record Equity Even After Price Declines​​​

New data from Attom showed that the share of U.S. homes that are equity-rich dropped slightly in the first quarter of this year, but remained close to historic highs, Bloomberg News reported. Some 47.2 percent of mortgaged homes were equity-rich – meaning that the borrower holds at least half the equity – in the January-March period, down from 48 percent the previous quarter, a report published today by the property data provider shows. The drop comes as home prices are declining across much of the country after a decade-long boom that gathered pace during the initial years of the pandemic. While housing markets have shown some signs of stabilizing recently, mortgage borrowing costs that have doubled since the start of last year will likely continue to curb demand and prices. Higher levels of equity help to shield homeowners from foreclosure risks, and could also protect the economy from the impact of a more severe housing downturn like the one that led to the 2008 crash. The Attom report shows that some 238,000 homeowners faced possible foreclosure in the first quarter of 2023, less than 0.5 percent of outstanding mortgages — and even among that at-risk group, more than 90 percent had at least some equity built up in their homes. ​​​Read more.
 

Supreme Court Takes Up Case that Could Curtail Agency Power to Regulate Business​​​

The Supreme Court agreed on Monday to take up a case that could make it easier to curtail the power of administrative agencies, a long-running goal of the conservative legal movement that could have far-reaching implications for how American society imposes rules on businesses, the New York Times reported. In a terse order, the court said it would hear a case that seeks to limit or overturn a unanimous 1984 precedent, Chevron v. Natural Resources Defense Council. According to the decision, if part of the law Congress wrote empowering a regulatory agency is ambiguous but the agency’s interpretation is reasonable, judges should defer to it. At issue in the case, Loper Bright Enterprises v. Raimondo, is a rule that requires fishing vessels to pay for monitors who ensure that they comply with regulations meant to prevent overfishing. The National Marine Fisheries Service established the rule, and a group of companies has challenged whether the agency has the authority to do so. When the Supreme Court decides on the case, most likely in its next term, the outcome could have implications that go beyond fisheries. If the court overturns or sharply limits the Chevron precedent, it would become easier for business owners to challenge regulations across the economy. Those include rules aimed at ensuring that the air and water are clean; that food, drugs, cars and consumer products are safe; and that financial firms do not take on too much risk. In the fishing dispute, a divided three-judge panel of the Court of Appeals for the District of Columbia Circuit had upheld the rule. Citing the Chevron precedent, Judge Judith W. Rogers wrote, “When Congress has not ‘directly spoken to the precise question at issue,’ the agency may fill this gap with a reasonable interpretation of the statutory text.” Justice Ketanji Brown Jackson recused herself from the Supreme Court’s decision to hear the case, apparently because she had participated in the arguments while still on the appeals court. ​​​Read more.
 

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