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Earnings should boost hot bank trades: RBC’s Gerard Cassidy

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One of the year’s hottest trades may get a boost from earnings season.

RBC Capital Markets’ Gerard Cassidy expects financials to exceed Wall Street expectations when they start reporting this week.

“The big beats are likely to come from the loan loss reserve releasing numbers,” the firm’s head of U.S. bank equity strategy told CNBC’s “Trading Nation” on Friday. “Last year because of the pandemic, the banking industry set aside billions of dollars in anticipated credit losses, and the reserves for these losses weren’t used.”

Financials were the third worst performing S&P 500 group in 2020, behind energy and real estate. So far this year, Financial Select Sector SPDR Fund, which tracks the group, is up more than 19%.

According to Cassidy, that’s about to change. He believes the banking sector will be among the best performers this year due to the unprecedented economic recovery.

“That was not factored in last year when the banks set aside this money to cover these losses,” he said. “So, we expect in the first quarter that’s going to be the big driver of the earnings beat, partially offset though with slower growth in the net interest income and maybe some net interest margin pressure as well.”

JPMorgan Chase ushers in earnings season on Wednesday — along with Goldman Sachs and Wells Fargo.

Cassidy anticipates Bank of America, which reports quarterly results on Thursday, will be the biggest winner. It’s up 32% so far this year.

He lists strong management, its wide exposure to the U.S. recovery and diverse revenue stream as the chief bullish factors.

“Ninety percent of their business, comes from the United States,” said Cassidy. “With the Federal Reserve forecasting the growth of this country’s economy coming in at 6%, they will be one of the biggest beneficiaries of that growth.”

Cassidy names Credit Suisse as the bank facing the most challenges right now. He cites its massive losses in connection with the Archegos Capital hedge fund implosion.

“There has been a number of management changes over the years in that organization,” Cassidy said. “Because of that possibly the controls and procedures weren’t as solid as they’ve been at some of the domestic U.S. firms.”

Shares of Credit Suisse are off more than 26% since March 1.

Disclosure: RBC Capital Markets has investment banking relationships and/or non-investment banking relationships with JPM, BAC MS, GS, and CS.

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Beijing urges ‘basic manners’ after Philippines’ blunt South China Sea tweet

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National flags of China and the Philippines.

Thomas Peter | AFP | Getty Images

China called for “basic manners” and cautioned against “megaphone diplomacy” after Philippine Secretary of Foreign Affairs Teodoro Locsin Jr. lashed out at Beijing in an offensive tweet.

On Monday, Locsin told China in a tweet to “get the f— out” as the two countries engaged in a war of words over the South China Sea. The secretary has been a vocal China critic in President Rodrigo Duterte’s government and is known for his occasional blunt remarks.

In several tweets over the subsequent days, Locsin apologized to Chinese State Councilor and Foreign Minister Wang Yi and said he was “provoked by the latest grossest territorial violation.” Meanwhile, Duterte’s spokesman Harry Roque reportedly said the Philippine president has reminded officials that profanity has no place in diplomacy.

Chinese Foreign Ministry Spokesman Wang Wenbin responded to Locsin’s outburst in a Tuesday statement, saying that “facts have proven time and time again that megaphone diplomacy can only undermine mutual trust rather than change reality.”

But Beijing also has a track record of firing insults at other countries.

Such aggressive tactics by Chinese diplomats have in recent years increasingly played out on social media platforms such as Twitter, which is blocked on the mainland. Observers dubbed those tactics “wolf warrior diplomacy,” taking after a series of hugely popular movies where Chinese fighters defeat adversaries globally.

South China Sea dispute

Beijing on Tuesday reiterated that Bajo de Masinloc — which it calls Huangyan Island — and its surrounding waters fall under China’s jurisdiction.

Bajo de Masinloc, also known as Scarborough Shoal, is a chain of reefs in the South China Sea that lies around 120 nautical miles from the nearest Philippine coast and 470 nautical miles from the nearest coast of China.

China claims most of the South China Sea, based on what it says are nine dashes that delineate Chinese territory in historic maps. An international tribunal in 2016 dismissed the so-called nine-dash line as legally baseless — a ruling ignored by Beijing.

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How Apple turned dongles into a big business

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If you bought a computer or a phone in the last five years, you know what a dongle is. They connect headphones to charging ports, laptops to TVs or card readers, and so on. Today, it’s hard to do many everyday tech tasks without them, which makes dongles a big business. That’s in large part due to Apple, which removed its headphone jack from the iPhone lineup and switched almost entirely to USB-C (now Thunderbolt 3) ports on its computers in 2016.

Apple, Belkin and other accessory companies have created a huge market for these dongles, which is estimated by Facts and Factors to bring in more than $25 billion by 2027. But with wireless tech constantly on the heels of adapters like these, companies that once made most of their money on dongles – Belkin CEO Steve Malony said around 70% of its business was once made from dongles – are investing in the future of device connections.

Watch the video to learn more.

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Steve Jobs, Apple emails reveal Facebook rift spans decade

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An email chain revealed by Epic Games as part of its lawsuit against Apple provides earlier context about Facebook’s battle with Apple over its App Store.

Last August, Facebook said Apple’s App Store rules were hampering it from releasing its Facebook Gaming app for iPhones in the way it wanted to.

Facebook COO Sheryl Sandberg said the company had to remove the part of the app that played games — the point of the app — in order to secure approval on Apple’s App Store for iPhones.

Now, emails between three former Apple executives, including Steve Jobs, from 2011 show that a similar conflict between Apple and Facebook was likely part of the reason for a delay for the release of a Facebook app for iPads over a decade ago.

Tensions between Apple and Facebook over what the App Store rejects are ongoing. Last year, Facebook publicly accused Apple of using its control over the App Store and iPhone to “harm developers and consumers.”

The exchange was published as part of a cache of exhibits used in the Apple-Epic trial, but was removed after it was posted.

Apple’s iPad came out in 2010, but Facebook didn’t release an app for it until October 2011. Between those two dates, a Facebook engineer even quit in a public blog post, citing delays in the app’s release partially because of a “strained relationship with Apple.”

In July 2011, Apple’s then-software head Scott Forstall sent an email to former Apple marketing chief Phil Schiller and Jobs. In the message, he said that he had spoken with Mark — presumably Facebook CEO Mark Zuckerberg — about the Facebook iPad app.

He wrote that he told Mark that Facebook should not include “embedded apps” in its Facebook iPad app.

“Not surprisingly, he wasn’t happy with this as he considers these apps part of the ‘whole Facebook experience’ and isn’t sure they should do an iPad app without them,” Forstall wrote.

At the time, Facebook was turning its social network into a platform for games and apps. The most famous of these was Farmville, a game where users tended gardens inside their Facebook accounts.

Facebook wanted Apple to compromise. Mark suggested, according to Forstall:

  • Facebook could omit a directory of Apps in the Facebook app — not even links.
  • Facebook could prevent third-party apps from running in an “embedded web view,” or basically a browser inside the Facebook app.
  • Facebook wanted Apple to allow user posts in the news feed related to apps. Forstall wrote that those were filtered at the time, because tapping those posts would do nothing.
  • Facebook proposed having tapping one of those app links in the feed switch the user to a native app or take them to the App Store if one exists, or otherwise link out to Safari, the iPhone web browser.

Jobs, then CEO of Apple, replied from his iPad: “I agree — if we eliminate Fecebooks third proposal it sounds reasonable.”

Three days later, Forstall followed up, saying he had a long conversation with Mark, and that Facebook didn’t like Apple’s counterproposal to forbid Facebook apps to link out to Safari.

But according to Mark, there is no obvious way to distinguish between a poker game and the NYT. Both are Facebook developers and provide Facebook integration,” Forstall wrote.

Schiller, who was Apple’s head of marketing until last year and runs Apple’s Executive Review Board that makes calls whether apps will be approved by Apple, summed up Apple’s position.

“I don’t see why we want to do that,” Schiller wrote. “All these apps won’t be native, they won’t have a relationship or license with us, we won’t review them, they won’t use our APIs or tools, they won’t use our stores, etc.”

When Facebook’s iPad app eventually launched, it said it would not support its own Credits currency on iOS for apps like Farmville — a compromise along the lines of what Apple’s executives discussed.

In recent years, the rivalry between the two Silicon Valley neighbors has heated up. Current Apple CEO Tim Cook has taken lightly veiled shots at Facebook’s handling of user privacy, and used Facebook as the example for a recent feature about asking apps “not to track.”

Facebook has mounted an ad campaign to say that the iPhone maker’s privacy features hurt small businesses. It has also continued to tweak Apple’s App Store policies, criticizing Apple’s 30% App Store fee for online events in addition to its complaints about its gaming app.

Facebook isn’t part of Epic Games’ argument in its legal battle against Apple and its App Store policies. The trial started on Monday and is expected to run three weeks.

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