Hamas is not Israel’s only concern

This is an audio transcript of the FT News Briefing podcast episode: ‘Hamas is not Israel’s only concern’

Marc Filippino
Good morning from the Financial Times. Today is Thursday, October 12th. And this is your FT News Briefing.

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US bank earnings look like they’ve taken a turn for the worse. And the jury in Sam Bankman-Fried’s criminal trial heard some pretty stunning testimony. Plus, Israel is worried about another front in an already brutal conflict.

Mehul Srivastava
The concern is that were this to become an all-out conflict between Israel and Hizbollah then it’d be fighting Hamas in the south and Hizbollah in the north.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Big US banks will start reporting earnings on Friday. JPMorgan Chase, Wells Fargo and Citigroup will all release quarterly reports. But the good times might be coming to an end for Wall Street. Here to walk us through what to expect is the FT’s US banking editor Joshua Franklin. Hey, Josh.

Joshua Franklin
Hi.

Marc Filippino
So the past few quarters when we’ve talked to you about bank earnings, it’s been pretty good news. But this time around, analysts are saying that the majority of the six biggest US banks will see their third-quarter profits fall year on year. What’s changed?

Joshua Franklin
Nothing good lasts forever for these banks. So basically, what banks have been really benefiting from, from the last 12 to 18 months has been rising interest rates. They’ve been able to charge more for loans that they make, but they haven’t really been offering savers higher interest rates on their deposits. So the profit margins on their lending activities have really been pretty high levels. But now how things are playing out is lending has started to slow down a little bit, especially when it comes to corporate lending, just because with interest rates where they are borrowers are a little bit shyer about taking out new loans. And then also there is just more and more pressure on banks to reward savers with higher interest rates to keep their deposits at the bank.

Marc Filippino
OK. So they’re taking a hit. What’s their plan to bring profits back up?

Joshua Franklin
So part of it is banks kind of recognise that the profits that they’ve seen over the last 12 to 18 months weren’t really sustainable. That wasn’t the long-term trajectory. So they’ve been kind of preparing for this, kind of guiding down expectations. And now I think really it’s about maximising the loans that they make, being careful around, from a credit perspective, make sure they don’t make loans that turn out not to be repaid in the long term and also gradually increasing the rates that they offer savers on their deposits to make sure that deposits don’t fall too much at these banks.

Marc Filippino
I see. So it’s kind of an incentive for people to keep depositing their money. That’s the consumer side. What about the investment side? How’s that doing?

Joshua Franklin
So investment banking really has been in the doldrums for coming up on two years now, because the Fed lifting interest rates as quickly as they did, we’ve seen dealmaking activity, mergers, acquisitions, initial public offerings really dry up. Banks for the last few months have been talking about green shoots of activity, more dialogue with clients showing more inclination to do deals. We’ve seen a few IPOs in the US. I think this quarter is still not going to be a good quarter. The five biggest investment banks, including Goldman Sachs, JPMorgan and Morgan Stanley, on average, investment banking revenue is seen being down. But there’s more and more optimism that things could be better in 2024.

Marc Filippino
Joshua Franklin is the FT’s US banking editor. Thank you, Josh.

Joshua Franklin
Thanks very much.

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The trial against FTX founder Sam Bankman-Fried continued yesterday, and the star witness delivered pretty damning testimony during her second day on the stand. Caroline Ellison ran the FTX trading firm called Alameda Research before it collapsed last year. Ellison said Bankman-Fried ordered her to carry out a cover-up. He wanted to conceal that the business was funnelling more than $4bn to him and senior staffers and hide that Alameda was borrowing $10bn from FTX customers. FTX collapsed months later after an enormous hole in its balance sheet was exposed. Ellison pleaded guilty to fraud last year. Bankman-Fried has pleaded not guilty.

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The surprise attack by Hamas on Saturday overwhelmed Israel’s defences along its southern border. But in the days since, the Jewish state has also been fighting on another front: its northern border with Lebanon. Here to talk about the concerns of a wider war in the region is the FT’s Mehul Srivastava. He’s currently in Tel Aviv. Hey, Mehul.

Mehul Srivastava
Hi, how are you?

Marc Filippino
I’m doing all right. So we’ve been hearing about the exchange of rocket fire and artillery on the border between Israel and Lebanon over the past few days. What’s going on there, and who is involved?

Mehul Srivastava
So every time Israel has an ongoing conflict with Hamas, you will see some sympathetic exchange of artillery or rockets from Lebanon in the southern border into Israel’s northern border. Quite often this is claimed by small groups of Palestinian militants that operate inside Lebanon. But this time around, one of them was claimed by Hizbollah, which is an arch enemy of Israel. The concern is that were this to become an all-out conflict between Israel and Hizbollah, then it’d be fighting Hamas in the south and Hizbollah in the north.

Marc Filippino
Mehul, explain for our listeners what Hizbollah is, and what role it plays in the conflict between Palestine and Israel.

Mehul Srivastava
So Hizbollah is a resistance movement that was born in the 1980s when Israel had gone into Lebanon to try and wrench out Palestinian militants who were attacking Israel from that territory during a civil war. Now, supported by Iran, it has become one of the most powerful militias in the Middle East and has spent the last decade trying to encircle Israel in order to become a more powerful regional rival to Israel’s military, which is the most powerful military in the Middle East.

Marc Filippino
OK. So it sounds like Hamas and Hizbollah kind of play off one another but aren’t exactly aligned. How close are the two groups?

Mehul Srivastava
Not as close as Israel alleges, but close enough to be an issue of major concern. Hamas is a Sunni-Palestinian resistance movement that’s focused on the idea that through violent means, it can either overthrow the state of Israel or become a greater player in whatever eventual Palestinian state may one day be born. Hizbollah stretches all over the Middle East as a Shia movement backed by Tehran. While it claims to have the liberation of Jerusalem and Israel as one of its goals, it has a large number of other goals which do not match what Hamas is trying to do.

Marc Filippino
I see. So Hizbollah and Hamas are both attacking Israel but with slightly different goals. And now there are fears that Hizbollah might see Hamas’s attack on Saturday as an opportunity to launch its own. What’s the risk that this conflict could develop further in Lebanon or even potentially draw in Iran?

Mehul Srivastava
This has been a concern here in the Middle East as a large number of regional rivalries that are playing out in this conflict in many ways. For instance, the Israelis have been very adamant and the American government has been very adamant that Iran shouldn’t step in by its proxy, Hizbollah. But so far, even in the past in other conflict that Israel has had with Hamas, we have not seen Hizbollah step in any major way. To make sure that it doesn’t happen, Americans have moved a carrier group, the USS Gerald Ford, which very clearly is intended to deter Iran from pushing Hizbollah into turning this into a two-front conflict for Israel. And Iran has been very clear, it publicly has denied having any involvement in this assault on Saturday.

Marc Filippino
Mehul Srivastava is covering the conflict between Israel and Hamas for the FT. Thanks, Mehul.

Mehul Srivastava
Thanks for having me.

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Marc Filippino
Before we go, Birkenstock’s initial public offering, well, it kind of tripped over its own feet. Birkenstock opened at $41 a share on Wednesday, down from $46 in its pricing the night before. Investors were hoping that the German sandal company would take a sturdy and sensible step in the IPO market, but alas, it did not. Arm, Instacart and Klaviyo all priced large IPOs at or above the top of their target ranges last month. But the sheen quickly wore off after they listed, and shares in these groups have been choppy in the weeks since.

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You can read more on all of these stories at FT.com for free when you click the links in our shownotes. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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