Court Loss

The U.S. Supreme Court dealt a blow to Fannie Mae and Freddie Mac investors on Wednesday, throwing out their claim that the federal government exceeded its authority by collecting more than $100 billion in profits from the government-sponsored enterprises. Shares of both tumbled more than 30% on the news.

The decision is a setback for firms that have sought for years to persuade the government to release Fannie and Freddie from government control.

The case was sent back to a lower court, where investors might be able to collect damages on a separate claim. But the ruling means shareholders “can’t recover the bulk of the overpayments they sought,” said Bloomberg Intelligence analyst Elliot Stein.

What’s next? The news doesn’t do much to change the already bearish view many on Wall Street had of Fannie and Freddie. “The ruling reinforces our view that the common shares for the company are worth zero, and that almost under any scenario we can think of, there is still some value to the junior preferred shares,” Wedbush analyst Henry Coffey said of both.

Cashing Out

Investors in Wall Street banks are poised for a bumper payout season, with early estimates suggesting the six biggest U.S. banks could return more than $140 billion to shareholders.

All easily passed the annual Federal Reserve stress tests, meaning they are officially clear of restrictions on dividend payments and share repurchases imposed at the height of the pandemic.

Bank stocks rose on Thursday in postmarket trading on the news, with Bank of America Corp., Morgan Stanley, Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Goldman Sachs all gaining. 

Plans for distributing capital can be announced after market close on June 28. Big share buybacks would be controversial among progressive legislators, who have argued that excess capital should be invested in businesses or employees. Industry lobbyists are already out in force to defend potential plans, with Kevin Fromer, president of the Financial Services Forum, arguing this week that increased dividends and buybacks are “a promising sign for the economy.”

What’s next? Despite the likely controversy, analysts expect banks to press ahead with big payouts to close out 2021. “Significant excess capital supports prospects for increased dividends and buybacks,” said Susan Roth Katzke, an analyst at Credit Suisse Group AG.

Double the Returns

Banks have far outpaced the broader market all year

Source: Bloomberg data

Mining Curbs

China’s intensifying crackdown on Bitcoin miners has jolted the cryptocurrency market. Bitcoin briefly fell below $30,000 on Tuesday after having reached nearly $65,000 in mid-April.

Miners are starting to shift operations to other countries, industry watchers say, after local governments in China in places such as Inner Mongolia and hydro-rich Sichuan shut down power to operators.

The hashrate, which measures the processing power used in Bitcoin mining, has dropped by about 40% in the past couple of weeks, according to data from BTC.com.

What’s next? The outlook for prices — as ever with the Bitcoin — is polarized. “Fundamentals are healthy and there is too much negativity priced in,” said Felix Dian, who runs a crypto-focused fund at MVPQ Capital. Meanwhile, JPMorgan strategists said in a note to clients they are bearish on the outlook. 

Still, there is growing agreement that China’s outsized dominance of crypto-mining is weakening. “In the future you’ll have a different geographical distribution of hashpower,” said Sam Bankman-Fried, the former Jane Street trader who now runs the crypto derivatives exchange FTX. “It’s expensive to move rigs but it’s not impossible.”

Rental Lure

The astonishing rebound of Hertz Global Holdings Inc. from bankruptcy is gaining pace. The company nearly doubled the size of its first rental-car securitization since emerging from bankruptcy to $4 billion, Bloomberg News reported Wednesday.

In addition to benefiting from a surge in consumer demand for travel as economies open up, Hertz is getting a boost from the global chip shortage, which has driven up used car prices. This has made the firm’s second-hand fleet more valuable. In a sign of increasing industry confidence more broadly, Europcar Mobility Group rejected a 2.2 billion-euro ($2.6 billion) takeover bid from Volkswagen AG, saying it undervalued the company.

The faster-than-expected rebound means that U.S. and European rental car companies, having slashed their fleets when Covid hit, are now struggling to meet consumer demand for cars, with prices soaring for vacationers. 

What’s next? “The residual value of Hertz’s fleet of cars is a strong driver of demand,” said Daniel Lucey, a senior portfolio manager at Sun Life Capital Management. “I don’t think we’ve ever seen a deal before with a higher level of oversubscription.”

Kangaroo Lift

Airlines everywhere are looking at Australia’s flagship carrier, Qantas, with envy. While losses at airlines globally from Covid-19 are set to surpass $174 billion by the end of 2021 — wiping out half a decade of profits — Qantas is riding high. 

Its stock has surged 120% from a March 2020 low. The airline says it’s on track to deliver an underlying profit for the year ending this month.

At the core of Qantas’s success is Australia’s stringent response to Covid. The near-elimination of the virus within the country, combined with a ban on overseas travel, have created a domestic-travel boom. With a land mass bigger than India, flying is often the most practical way to move between cities. What’s more, the airline has used the pandemic to restructure, cutting 8,500 jobs and carving out A$15 billion ($11.4 billion) in costs. The airline’s main domestic rival, Virgin Australia, has become a lesser threat after collapsing in the pandemic.

What’s next?  “I don’t see any way Qantas won’t come out of this very strongly,” Ian Chitterer, a vice president at Moody’s Investors Service in Sydney, said. “You can’t imagine the opportunities would have presented themselves to the same degree were it not for the pandemic.”

— With assistance by Adam Tempkin, Joanna Ossinger, Lynn Thomasson, Angus Whitley, and Jesse Hamilton