Business

➚ BUY: Zero. The world’s decade-long experiment with negative interest rates is over after Japan lifted its floor to zero. Officials are confident that big wage hikes secured in recent weeks by its unions are enough to jumpstart an economy that’s spent much of this century dealing with deflation. “Essentially we’re a normal country” now, one local banker told Reuters.

➘ SELL: Subzero. Unilever is spinning off Ben & Jerry’s, its crown jewel turned headache. Steep price increases — in part to cover the soaring costs of dairy, cocoa, and sugar — have propped up declining sales but sent buyers to cheaper brands. In 2022, Ben & Jerry’s sued Unilever to stop it from selling its brands in Israel.

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Bill Demchak is the chief executive of PNC, America’s eighth-biggest bank.

What were you doing a year ago?

I was on a conference call with a bunch of other bank CEOs trying to figure out how to put deposits into First Republic to keep it from failing.

Another bank, New York Community Bank, just got rescued. Is this a one-off or the start of another round of problems?

I don’t know NYCB all that well, but their problems aren’t new. What’s new is a new regulator looking at old books. There was a big shock of, hey, everything’s fine, oops, no it isn’t, and everything goes downhill fast because people have last year fresh in their minds. They’ve attracted new capital, which is smart capital by all accounts.

So I don’t think it’s a here-we-go-again moment. Real estate is going to be a problem, but not a systemic shock.

Have we seen the last midsized bank to fail?

My guess is that hundreds of small banks will default because of real estate. My guess is also that you won’t have heard of most of them. They’ll be resolved through mergers by the FDIC and it won’t even make headlines.

Does the U.S. have too many banks? Canada has something like 30. We have 4,500.

The structure of the banking system today — continued pressure on fees, cost of regulation, cost of technology, fraud and cyber — has caused a big swath of the U.S. banking system, in my view, to be untenable. True community banks, many of them family-owned, I think serve an important purpose and will be around forever. But the midcap banks that were $5 billion balance sheet banks and tried to be heroes and grow to $50 billion find themselves in a really uncomfortable place.

PNC bid for First Republic last spring, and I don’t think it’s a secret that you weren’t thrilled with how the process was run. Would you participate again?

We tried to do something that was economically attractive for our shareholders, that would grow the franchise, and help the country out of a bind. Win, win, win. In the process, we would have been seen as a safe institution that had regulators’ blessing to grow larger. In that way, JPMorgan getting First Republic was somewhat unfortunate because [the government] almost said the opposite — that we can only give it to a giant bank. That was disappointing.

I know they’re working on improving a process that was, probably by their own admission, a bit of a mess. In their defense, they hadn’t been put to the test in years. The skill sets and the playbooks were probably a little stale, and there were new players. In hindsight, it’s easy to say, ‘why did you do it that way? you could have saved the [deposit insurance] fund a lot of money,’ which is true. But nobody knew which way was up and there wasn’t a lot of time to figure out the right answer.

I remember seeing you a few years ago, just after you bought BBVA’s U.S. business for $12 billion and I asked if you were done doing M&A. I think you said, “no, but that’s not by choice.” The sense was that PNC was as big as regulators were going to allow. Has the past year changed that?

I think so. Whether they meant to or not, last March regulators basically said that large banks are safe and smaller banks aren’t. You were either a G-SIFI, or you were a regional bank. And I don’t think we go back to a world where a reasonable-sized corporation says ‘I’m going to have a regional as my lead bank.’

So the need for scale is greater than it’s ever been, and I think regulators see it. I think they want to create challenger banks to the big two or big three. I hope I’m right. But I’m also more willing to push on that than perhaps I was two years ago.

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A new security law in Hong Kong, fast-tracked through its legislature at the urging of China’s leaders, broadens the definition of state secrets to include material relating to the economy, science, and technology, and toughens prison terms for violators.

The law, which Hong Kong’s chief executive said is needed to root out espionage, expands controversial measures pushed by Beijing in 2020 in response to political protests in the territory. It’s likely to further unnerve global companies that are already wary of the region and voting with their feet, mostly to Singapore.

TikTok bid puts Mnuchin’s Gulf money under the microscope

THE SCOOP

Sen. Ron Wyden, the chair of the powerful Senate Finance Committee, sharply criticized former Treasury Secretary Steven Mnuchin, and his ties to money from the Middle East, in his effort to buy TikTok from its Chinese owner.

Mnuchin told CNBC last week that he’s assembling a group of investors to buy the platform after the House overwhelmingly passed a bill forcing it to either be sold within six months or banned from app stores. The White House has urged the Senate, where the bill has powerful backers and opponents in both parties, to move quickly.

Mnuchin gave few details on who might be part of his bidding group except to say he was working with a “combination of U.S. investors.” But much of the $2.5 billion investment fund he raised after leaving office came from governments in Saudi Arabia and other Gulf states, where Mnuchin was a frequent visitor during his time in government.

“I’m absolutely concerned about the Chinese government’s access to Americans’ personal data,” he said. “But every concern that has been voiced about Chinese influence is equally valid when it comes to a Saudi government that murdered a Washington Post journalist after planting spyware on his wife’s phone.”

The New York Times reported that Saudi Arabia had committed $1 billion to Mnuchin’s Liberty Strategic Capital fund, and that the governments of Qatar, Kuwait, and the United Arab Emirates were in for $500 million each. (Mnuchin has acknowledged that his investors include foreign governments, as well as wealthy families and insurance companies.)

In a 2022 letter to Mnuchin’s successor, Janet Yellen, Wyden suggested that Mnuchin may have used a swing through the Gulf in the final days of the Trump administration to fundraise on the taxpayer’s dime. He filed paperwork for his investment firm the day after he left office.

There’s no guarantee that the Senate will pass the bill, and it’s unclear what a sales process might actually look like. Blue-chip U.S. companies including Microsoft and Walmart have shown interest in TikTok before, but Mnuchin’s recent rescue of a troubled New York bank, for which he put together $1 billion in a matter of days, has burnished his image as a credible buyer in sticky situations.

A representative for Mnuchin didn’t respond to a request for comment.

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