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The collapse of US regional bank stocks is not over yet: Morgan Stanley

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  • “Still ahead” for regional bank stocks, Morgan Stanley’s Daniel Skelli told Bloomberg on Monday.
  • This is because lenders are facing profitability issues, changes in legislation and the risks associated with their exposure to commercial real estate, he said.
  • Shares of US regional banks fell after the collapse of Silicon Valley Bank and Signature Bank in March.

The collapse in U.S. regional bank stocks is not over yet as the sector faces potential regulatory changes and risks from stress in the commercial real estate market, according to the head of wealth management at Morgan Stanley.

“These small and medium-sized regional banks still have some work to do due to their increased lending to the commercial real estate sector, which is struggling with high vacancy rates,” Daniel Skelli, Head of Asset Management, Morgan Stanley, Market Research and Strategy, said Bloomberg on Monday.

Regional banks bore the brunt of the turmoil that shook the financial sector last month after the collapse of Silicon Valley Bank and Signature Bank. First Republic Bank is down 87% year-to-date, while PacWest is down 50% and Western Alliance is down 32%.

This, combined with profitability concerns among regional banks, is forcing Skelly and his team to “still be relatively cautious” about banking stocks, which they’ve been neglecting for some time.

“You have problems not only with profitability for the regions, they, of course, are most affected by commercial real estate. And so when you think about these zero-cost-of-capital deals that are rolling out, we’re starting to see some notable updates there,” Skelly said.

Another factor to consider, Skelly said, is regulatory clarity and possible changes to banking rules in the coming months.

“When you think about big banks, they have been cleaning their balance sheets for more than 10 years, they are more exposed to a strong consumer… But if you look again at the regulatory environment for the regions, it is evolving. We will hear in May, in June, new rules regarding capital ratios, liquidity and requirements, etc.,” Skelli said.

“The events of the past month or so, in terms of swift action by the Fed and FDIC, have certainly been likely to be credit-sensitive and creditworthy. But if you think about equities in terms of new equity ratios, growth slowdown, potential buyback slowdown, we think there’s still some pain ahead.”

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Republican Party at odds with abortion

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When the interim election results came out last November, it soon became clear that the Republicans hadn’t been able to make the big gains that many predicted. Post-election analysis showed that abortion was one of the main reasons for this surprising result. The Supreme Court’s decision to set aside Roe v. Wade, who has been the country’s legislator for almost half a century, came as a shock to many Americans, who took access to abortion for granted and then went to the polls en masse to voice their concerns. The sting of the loss was stronger than the pleasure of the gain: those who were concerned about the decision rated abortion as a more important factor in determining their vote than those who supported the court’s decision.

Republicans who hoped the problem would go away were disappointed. State voting measures and elections have kept the controversy alive, and a new controversy over mifepristone, an abortion drug, has fueled the heat. Recent Yahoo News/YouGov Poll shows that most Americans are in favor of permanent access to this drug. He also found that “Americans who say abortion is a very important voting issue” believe Democrats are “better up to the task” than Republicans, by a margin of 52% to 27%. The Republican Party has taken a minority position on the issue that determines the election and is divided on how to respond.

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Cambridge Analytica AI Scandal Coming

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The exciting pace of development means that data protection regulators need to be prepared for another scandal like Cambridge Analytica, says Wojciech Wewerowski, EU data watchdog.

Wewerowski is the European data protection supervisor and he is a powerful figure. Its role is to hold the EU accountable for its own data protection practices, keep an eye on cutting-edge technology and help coordinate law enforcement across the union. I spoke with him about the lessons we need to learn from the past decade in technology and what Americans need to understand about the EU’s data protection philosophy. That’s what he had to say.

What technology companies need to learn: These products should have privacy features built into them from the start. However, “it’s not easy to convince companies that they should take privacy models by design when they need to be very fast,” he says. Cambridge Analytica remains the best lesson of what can happen if companies skimp on data protection, says Wiworowski. The company, which has become one of Facebook’s biggest advertising scandals, has removed the personal data of tens of millions of Americans from their Facebook accounts in an attempt to influence how they vote. He adds that it’s only a matter of time before we see another scandal.

What Americans need to understand about the EU’s data protection philosophy: “The European approach is related to the purpose for which you use the data. So when you change the purpose for which the data is used, and especially if you do it in relation to the information you provide to people, you are breaking the law,” he says. Take Cambridge Analytics. The biggest violation of the law was not that the company collected the data, but that it claimed to collect the data for scientific purposes and surveys, and then used it for another purpose – mainly to create political profiles of people. This was brought to the attention of data protection authorities in Italy, who temporarily banned ChatGPT there. Authorities allege that OpenAI illegally collected the data it wanted to use and didn’t tell people how it was going to use it.

Does regulation encourage innovation? This is a common statement among technologists. Wiewiórowski says the real question we should be asking is: Are we really sure we want to give companies unrestricted access to our personal data? “I don’t think rules…really get in the way of innovation. They are trying to make it more civilized,” he says. After all, the GDPR protects not only personal data, but also trade and the free flow of data across borders.

Big technological hell on earth? Europe is not the only one playing hardball with technology. As I reported last week, the White House is mulling AI liability rules, and the FTC has even demanded that companies remove their algorithms and any data that may have been collected and used illegally because happened to Weight Watchers in 2022. Wewerowski says he is pleased to see President Biden urging tech companies to take more responsibility for the safety of their products, and finds it encouraging that U.S. policy thinking is aligned with European efforts to prevent AI risks and put companies on the hook for causing harm. “One of the big players in the tech market once said, ‘The definition of hell is European law with American enforcement,'” he says.

Find out more on ChatGPT

The inside story of ChatGPT’s creation by the people who created it

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Lyft is ‘significantly’ cutting staff: NPR

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The Lyft logo is mounted on a Lyft driver’s car in Pittsburgh. This week, the company announced a significant reduction in staff in order to save money.

Gene J. Puskar/AP


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Gene J. Puskar/AP


The Lyft logo is mounted on a Lyft driver’s car in Pittsburgh. This week, the company announced a significant reduction in staff in order to save money.

Gene J. Puskar/AP

Lyft wants to “significantly reduce” its workforce as part of a company-wide restructuring. CEO David Risher announced on Friday.

The taxi company declined to give specific numbers to NPR about the potential impact of these layoffs. Wall Street Magazine informed that layoffs could affect about 30% of Lyft workers, or about 1,200 jobs.

“David has made it clear to the company that his focus is on creating a great and affordable rider experience and driving driver revenue,” a spokesman for NPR said.

“This requires reducing our costs and structuring our company so that our leaders are closer to riders and drivers,” the spokesperson said. “This is a difficult decision and we are not taking it lightly. But the result will be a much stronger and more competitive Lyft.”

Risher took over the reins of Lyft just this week, replacing company founders John Zimmer and Logan Green. But during a staff meeting a few weeks ago, Riescher told employees layoffs were “in the air.”

“We need to be a faster, flatter company where everyone is closer to our riders and drivers so we can get the job done,” he said in a public message to employees on Friday.

Affected workers will be notified by next Thursday.

Several companies in the tech sector are experiencing turmoil, thanks in part to a significant decline in digital advertising revenue. Facebook parent company Meta announced in March that it was laying off 10,000 people. Also last month, Amazon announced it was cutting another 9,000 jobs after it had previously announced that 18,000 employees would lose their jobs.

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