The Fed’s Jay Powell Signals a Retreat on Banking Rules

Jay Powell’s surprise

For months, Wall Street C.E.O.s have been complaining bitterly and lobbying against the prospect of higher capital requirements, which would require them to keep more money on hand and would lower their profits. It appears they have scored a big win.

Jay Powell dropped the bombshell in his testimony before the House on Wednesday. Markets were still digesting the Fed chair’s go-slow comments on interest rate cuts when he signaled that proposed new rules to force lenders to beef up their books would be scaled back, or reworked.

“I do expect that there will be broad and material changes to the proposal,” he said.

The capital rules, known as the “Basel III Endgame,” would apply to the largest banks. They would have to set aside a bigger emergency cushion to soak up losses stemming from shocks like the bank run last year that led to the collapse of Silicon Valley Bank and prompted a wider crisis.

But the proposals have come under fire from bank chiefs, industry lobbyists, Republican lawmakers and even some liberal members of Congress, who fear that a mandate to set aside billions to fight the next potential crisis could feed another one.

Critics fear that Basel III would crimp lending just as banks grapple with upheaval in commercial real estate. Lenders face a looming “maturity wall” of as much as $1.5 trillion in commercial real estate loans set to come over the next two years.

That risk came into blaring focus during Powell’s testimony. The stock price of New York Community Bank, a Long Island-based lender with a mountain of souring real estate loans, plummeted on news it was seeking emergency funding. (More on that below.)

Is the political will waning in an election year? When pressed by House members on the same issue last month, Treasury Secretary Janet Yellen said she was concerned that credit availability “is not significantly diminished.” Last year, she sounded more supportive of Basel III as a defense against the next crisis.

(It’s worth noting that Yellen doesn’t set the rules. That responsibility falls to the Fed, the F.D.I.C. and the Office of the Comptroller of the Currency in conjunction with international standards set by the Basel Committee on Banking Supervision, the global regulatory body.)

Expect Round Two on Thursday. Powell is set to testify before the Senate Banking Committee. Elizabeth Warren, the Massachusetts Democrat and a committee member, has pushed Powell to “resist bank lobby pressure” and approve tougher capital requirements for banks.

HERE’S WHAT’S HAPPENING

President Biden is set to pitch raising corporate taxes in the State of the Union address. The speech tonight is expected to feature the accomplishments of Bidenomics, and hint at second-term policy goals, such as increasing levies on big companies and reducing housing costs. Polls have consistently shown that voters question Biden’s handling of the economy despite a series of indicators showing the U.S. far outperforming most of its peers.

The House passes a $460 billion spending bill to avert a partial government shutdown. Speaker Mike Johnson again needed Democrat votes to overcome hard-right members of his Republican Party. The deal will fund much of the federal government through Sept. 30.

JPMorgan Chase reportedly weighed a deal for Discover. The banking giant opened talks with the credit card company in 2021, according to The Financial Times, before Capital One made a $35 billion bid for the company last month. A tie-up between JPMorgan and Discover would have most likely faced intense regulatory scrutiny.

A former Google employee is charged with sending A.I. tech to a Chinese firm. Prosecutors accused Linwei Ding, a Chinese citizen and former engineer at the tech giant, of trying to supply a Beijing-based company with trade secrets on artificial intelligence. The case comes as the U.S. is pushing allies, including the Netherlands and Japan, to tighten restrictions on semiconductor technology exports to China.

NYCB gets a lifeline

Former Treasury Secretary Steven Mnuchin came to the rescue of New York Community Bank, leading a more than $1 billion investment round that appears to have quieted many of the concerns stalking the lender for weeks.

Shares in the Long Island bank were up in premarket trading after a wild ride on Wednesday. The transaction is also notable for its reliance on private equity, the big names involved, and how the bank’s woes haven’t (yet) prompted a wider crisis.

It’s the latest instance of a struggling bank seeking private equity help in recent months. The deal by Liberty Strategic Capital, Mnuchin’s investment firm, comes after a series of recent private equity and bank deals, including:

• FirstSun Capital Bancorp and HomeStreet announced a merger in January backed by Wellington Management.

• Banc of California’s agreement to buy PacWest, which was backed by Warburg Pincus and Centerbridge Partners last July.

Private equity firms are also plowing into lending, traditionally the preserve of banks, in what some are calling a “boom” in private credit or shadow banking.

Mnuchin is reconnecting with a familiar name. NYCB appointed Joseph Otting, the comptroller of the currency during the Trump administration, as C.E.O. (He replaces Alessandro DiNello who was only appointed last week, but will return to a previous role as a nonexecutive director.)

Mnuchin and Otting worked together previously as chairman and C.E.O. of OneWest Bank, which bought most of the assets of IndyMac after the mortgage lender collapsed in the financial crisis. Mnuchin made hundreds of millions from that deal. He will join the NYCB board.

NYCB’s problems have so far been self-contained. The KBW Nasdaq Regional Bank Index, which tracks the performance of dozens of NYCB’s peers, has gained over the past month while NYCB has sunk. That might be because NYCB is especially exposed to the commercial real estate. The sector is still struggling to recover from high interest rates and the pandemic-era shift to hybrid working.

Mnuchin was confident that the cash injection would be enough of a cushion. With the investment, he said, “we believe we now have sufficient capital.”

The PGA Tour tees up a new deal

As the PGA Tour seeks to fend off the Saudi-backed LIV Golf, it has been making deals with the likes of Steve Cohen and LeBron James. Now, it’s spinning off a media company to a start-up founded by two industry veterans, write Benjamin Mullin and Lauren Hirsch.

The PGA Tour will sell Skratch to Pro Shop. Skratch publishes a range of golf content, including how-to videos and behind-the-scenes footage of professional players; Pro Shop will also get the rights to show clips and highlights. The PGA Tour will take a minority stake in Pro Shop as part of a $20 million funding round (the companies didn’t disclose Pro Shop’s valuation).

Pro Shop wants to marry content and commerce as digital advertising languishes. The company was founded by Joe Purzycki, a former C.E.O. of Puck, and Chad Mumm, an executive producer on “Full Swing,” a Netflix documentary series about the PGA Tour.

Pro Shop plans to acquire a golf equipment business and sell programming to media companies. “We’re not trying to service everybody,” Purzycki told DealBook. “We have a very specific ethos in bringing golf and culture together.”

“Full Swing” was a PGA Tour effort to extend its reach. The second season premiered on Wednesday. Christopher Wandell, a senior vice president of media development at the PGA Tour, said 63 percent of Season 1 viewers tuned into PGA Tour coverage soon after its debut. “Everything that we’re doing between now and the next time our media rights are available in the U.S. in 2031 is to generate increased and diversified” fans, Wandell told DealBook.

The bet is that Skratch will succeed outside the PGA Tour. “Our vision for Skratch was always to reach a different type of audience — but in order to reach that type of audience, Skratch really needs to have on-camera talent with an opinion,” Wandell added, saying that was difficult under the PGA Tour.

Other Pro Shop backers include Powerhouse Capital, the venture capital firm that has previously invested in the podcasting start-up Wondery and The Athletic, the sports website acquired by The New York Times in 2022.

A star litigator sets up his own shop

As a senior litigator under Benjamin Brafman, Marc Agnifilo established a reputation as a top criminal defense lawyer, with a client list that included Martin Shkreli and Roger Ng, a former Goldman Sachs banker prosecuted in the 1MDB scandal.

Now, Agnifilo and two colleagues, Zach Intrater and Teny Geragos, are setting up their own shop, Agnifilo Intrater, DealBook is first to report.

The three have been climbing up the ranks of the criminal defense bar. Agnifilo began his career as a prosecutor for the Manhattan district attorney and then the U.S. attorney’s office in New Jersey, where he prosecuted gangs as the head of the violent crimes unit. He later joined Brafman & Associates in 2006, becoming a senior trial counsel and, in his now former boss’s onetime estimation, his “heir apparent.”

Intrater worked at the U.S. attorney’s office in New Jersey for 11 years before joining Brafman’s firm. And Geragos — whose father is Mark Geragos, the noted defense lawyer — joined in 2016.

Among their notable cases: Beyond Shkreli and Ng, Agnifilo has also defended Keith Raniere, the founder of the Nxivm cult who is serving 120 years for sex trafficking and other crimes.

Agnifilo also represented John Venditto, the former supervisor of the Town of Oyster Bay, N.Y., in a political corruption trial, and Stefan Buck, a Swiss banker who had been accused of helping wealthy American clients commit tax fraud.

Agnifilo Intrater will specialize in big, complex criminal defenses. “We are going to focus relentlessly on what we do best — winning hard criminal cases,” Agnifilo told DealBook in a statement.

THE SPEED READ

Deals

Policy

Best of the rest

We’d like your feedback! Please email thoughts and suggestions to [email protected].