By Pete Schroeder

WASHINGTON (Reuters) -U.S. bank profits and deposits were broadly steady in the second quarter, suggesting sector turmoil earlier this year has abated, but regulators are still keeping a close eye on unrealized losses, the Federal Deposit Insurance Corporation said on Thursday.

Overall industry profits in the second quarter fell 11.3% year-on-year to $70.8 billion, driven by the acquisitions of Silicon Valley Bank and two other large lenders which failed from March to May after depositors yanked their cash. Stripping out those rescue deals, profits were up 5.7% from the prior year.

While deposits declined for the fifth quarter in a row, they were down just 0.5% compared with a record 2.5% decline in the first quarter. That was driven by a decline in uninsured deposits, while insured deposits actually rose again in the second quarter by 0.8%.

The quarterly data has become closely watched following this year’s crisis, when Federal Reserve interest-rate hikes doused banks’ U.S. Treasury securities portfolios, causing unrealized losses which in turn spooked depositors.

Unrealized losses on securities increased 8.3% in the second quarter, rising to $558.4 billion, the FDIC said, although that increase comes after banks had reporting declining unrealized losses for two straight quarters.

“Despite the period of stress earlier this year, the banking industry continues to be resilient,” FDIC Chairman Martin Gruenberg said in a statement.

“However, the banking industry still faces significant challenges from the effects of inflation, rising market interest rates and geopolitical uncertainty.”

Thursday’s results are the first to include the impact of the failure of First Republic Bank, which was seized by regulators in May and sold to JPMorgan Chase.

The FDIC’s “problem bank” list was unchanged at 43 firms in the second quarter.

Christopher Wolfe, who oversees Fitch Ratings team covering North American banks, said there was nothing surprising in terms of unrealized losses, adding that the Fed – which has been battling to bring inflation under control – may raise rates one more time.

That could see unrealized losses rise “incrementally,” he said. “But most of the pain from rates has already been felt.”

(Reporting by Pete Schroeder; additional reporting by Saeed Azhar. Editing by Chizu Nomiyama, Michelle Price and Marguerita Choy)

By David Lawder

WASHINGTON (Reuters) – The International Monetary Fund and World Bank on Thursday issued a rare joint statement pledging to step up their cooperation to address climate change, debt vulnerabilities and countries’ digital transitions.

The statement, released ahead of a G20 leaders summit in India this week, said the two institutions can help address mounting challenges facing the global economy – from increasing climate disasters to slowing growth and geopolitical fragmentation – by working together.

“The Bretton Woods institutions, with their universal membership and specialist expertise, are well-placed to make a critical contribution to help countries tackle these challenges,” IMF Managing Director Kristalina Georgieva and World Bank President Ajay Banga said in the joint statement.

The IMF and World Bank were established in 1944 at a meeting in Bretton Woods, New Hampshire.

Banga is scheduled to attend his first G20 summit after starting as the World Bank’s new president in June, with a mandate to expand the lender’s resources to help tackle climate change, pandemics, fragility and other global crises alongside its traditional anti-poverty mission.

U.S. President Joe Biden at the G20 summit intends to focus heavily on reforming the World Bank and other multilateral development lenders to scale up their lending for climate and infrastructure. The U.S. sees the institution as an important counterbalance to China’s overseas lending.

The joint IMF-World Bank statement said the two institutions would collaborate on climate change on a “more structured and institutionalized footing.This includes formalizing regular meetings of the new Bank-Fund Climate Advisory Group every two months to consider climate-related developments on key projects, including loans through the IMF’s new Resilience and Sustainability Trust, which provides middle-income countries with financing on climate resilience and transition projects.

DEBT VULNERABILITIES

The two institutions also said they will incorporate climate considerations into their work on debt sustainability for low-income countries.

The IMF and World Bank have worked closely on debt sustainability issues, both pushing for improved restructuring frameworks. They launched a sovereign debt roundtable last year to standardize restructuring concepts and speed up debt treatments.

“We will enhance our joint work to help prevent further build-up of debt vulnerabilities, assisting countries to strengthen debt management and transparency and public finances,” Georgieva and Banga said, adding that they would also deepen support to creditors and debtors engaged in debt restructurings.

On the digital transition, the two institutions said they would collaborate to help countries to connect their citizens to online services and reduce barriers to digital inclusion.

“We will step up our joint work to help countries increase the effectiveness of revenue collection and expenditure systems and reap the benefits of new digital technologies while mitigating the risks,” Georgieva and Banga said.

That will include improving cross-border payment systems while ensuring that such innovations spur growth, poverty reduction and job creation, they added.

(Reporting by David Lawder; Editing by Paul Simao)

(Reuters) – Microsoft will pay legal damages on behalf of customers using its artificial intelligence (AI) products if they are sued for copyright infringement for the output generated by such systems, the company said on Thursday.

Microsoft will assume responsibility for the potential legal risks arising out of any claims raised by third parties so long as the company’s customers use “the guardrails and content filters” built into its products, the company said. It offers functionality meant to reduce the likelihood that the AI returns infringing content.

With the proliferation of generative AI – computer programs capable of generating text, images, sounds, other data – users have raised concerns over the technology’s ability to generate content without referencing it to its original authors.

Microsoft is stacking its growth on GenAI, building on its investment in ChatGPT-maker OpenAI, and has incorporated the technology in a wide array of its products, including cloud services, Search and enterprise productivity software.

The company’s Copilot Copyright Commitment extends Microsoft’s existing intellectual property indemnification coverage to copyright claims relating to the use of its AI-powered assistants called Copilots and Bing Chat Enterprise.

(Reporting by Yuvraj Malik in Bengaluru; Editing by Shailesh Kuber)

(Reuters) – Founders behind defunct self-driving startup backed by Ford and Volkswagen launched a new autonomous trucking firm, Stack AV, on Thursday with investment from Japan’s SoftBank Group.

SoftBank declined to disclose its investment in response to a Reuters inquiry, but Bloomberg News said it will provide more than $1 billion, citing an economic development official in Pittsburgh where the startup will be based.

The city was also home to defunct Argo AI, which was founded in 2016 by Bryan Salesky, Peter Rander and Brett Browning. It was shuttered last year over Ford executives’ concerns that profitable, fully autonomous vehicles were still some ways into the future.

Stack AV, which has 150 employees, marks another opportunity for the Argo AI founders to work on full self-driving technology, which remains far away from mass deployment despite billions of dollars in investment.

“With our proprietary technology and expertise as well as the commitment from our long-term partner in SoftBank, we are confident we will revolutionize the trucking and freight industries,” said Salesky, CEO of Stack AV.

Salesky got his start developing automated vehicles for a Defense Department sponsored competition 16 years ago and has served as director of self-driving cars development at Google.

Rander, who has led teams that worked on Uber’s self-driving prototypes, will be the president of the startup, while Browning will be the chief technology officer.

Their bet comes amid rising concerns among investors and industry executives over tougher-than-expected technological and regulatory challenges that must be overcome before heavy trucks, some weighing over 15 tons, will be allowed to roll down highways without a driver behind the wheel.

Autonomous trucking firm TuSimple said this year it would lay off 30% of its global workforce to preserve cash while rival Embark said would lay off 70% of its employees and start evaluating options, including winding down the business.

Others still developing self-driving systems for trucks include Aurora, which partners with PACCAR and Volvo, and Daimler Truck, which has said it could have autonomous trucks in commercial operation by 2027.

(Reporting by Jaspreet Singh in Bengaluru and Abhirup Roy in San Francisco; Editing by Arun Koyyur and Tomasz Janowski)

By Caroline Valetkevitch

NEW YORK (Reuters) – Global stock indexes were mostly lower on Thursday, with the S&P 500 and Nasdaq falling with shares of Apple, and the U.S. dollar advanced after weaker-than-expected U.S. jobless claims data.

Initial claims for state unemployment benefits fell unexpectedly to 216,000 in the week ended Sept. 2 from a revised 229,000 the week before. The latest week’s numbers were the lowest since February.

A separate report showed U.S. worker productivity in the second quarter was not as strong as initially announced.

Recent data has underscored the view that the U.S. economy remains resilient and that U.S. interest rates may need to stay higher for longer.

China’s onshore yuan slid to a 16-year low versus the dollar, weighed down by a property slump, weak consumer spending and shrinking credit growth in the world’s second-largest economy.

China trade data released on Thursday, while not as dire as economists predicted, still showed a nearly 9% slide in exports and a more than 7% drop for imports.

The U.S. dollar index was up 0.1%, with the euro down 0.22% to $1.0703.

Recent economic reports are “supporting the case for continued aggregate income growth while pushing recession worries further into the future,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

Shares of Apple were down 3.2% after sources familiar with the matter said China has in recent weeks widened existing curbs on the use of iPhones by state employees.

The Dow Jones Industrial Average rose 93.72 points, or 0.27%, to 34,536.91, the S&P 500 lost 15 points, or 0.34%, to 4,450.48 and the Nasdaq Composite dropped 156.57 points, or 1.13%, to 13,715.90.

The pan-European STOXX 600 index lost 0.14% and MSCI’s gauge of stocks across the globe shed 0.36%.

U.S. Treasury yields mostly slipped following the U.S. economic data.

The yield on the benchmark U.S. 10-year Treasury note fell to 4.27%.

In the energy market, U.S. crude recently was unchanged at $87.54 per barrel and Brent was at $90.48, down 0.13% on the day.

(Additional reporting by Gertrude Chavez-Dreyfuss in New York, Marc Jones in London and Kevin Buckland in Tokyo; Editing by Susan Fenton and Nick Zieminski)

By Jarrett Renshaw and Nichola Groom

(Reuters) -The U.S. Interior Department on Wednesday said it would cancel oil and gas leases in a federal wildlife refuge that were bought by an Alaska state development agency in the final days of former President Donald Trump’s term.

President Joe Biden, a Democrat, has pledged to protect the 19.6 million-acre (7.9 million-hectare) Arctic National Wildlife Refuge (ANWR) for polar bears and caribou.

“As the climate crisis warms the Arctic more than twice as fast as the rest of the world, we have a responsibility to protect this treasured region for all ages,” he said in a statement.

Trump’s Republican administration had issued the Alaska Industrial Development and Export Authority (AIDEA) seven leases a day before Biden’s inauguration.

Environmentalists praised the decision but it was lambasted by a Republican Senator from Alaska, where officials have sought to open up drilling in the reserve to secure jobs and revenues for the state.

The government also said it would forbid new leasing on more than 10 million acres in the National Petroleum Reserve in Alaska, a 23 million-acre area on the state’s North Slope that is the largest undisturbed public land in the United States.

The actions are the latest effort by Biden to rein in oil and gas activities on public lands, part of a broader agenda to combat climate change.

Biden, who is gearing up to run for re-election in 2024, possibly against Trump, also faces pressure to boost domestic fuel supplies to keep pump prices low. Earlier this year, the government approved a $7 billion ConocoPhillips drilling project in Alaska that drew criticism from the United Nations, which has urged member countries to accelerate the transition away from fossil fuels.

AIDEA said it would challenge the cancellation of the leases in court.

“This latest action by the Department of the Interior shows arbitrary disregard for Federal law, based on campaign trail rhetoric,” AIDEA said in a statement. “Campaign promises are not enough to justify this agency action.”

The Interior Department said a new environmental review had determined that the analysis that underlies the agency’s 2021 lease sale was “seriously flawed,” giving Secretary Deb Haaland authority to cancel the leases.

FRUSTRATION IN ALASKA

Trump’s Interior Department in January 2021 sold leases in ANWR over the objections of environmentalists and indigenous groups. A Republican-passed tax bill in 2017 opened the area to oil and gas leasing and directed the department to hold two lease sales by December 2024.

The oil and gas industry largely failed to embrace the 2021 lease sale, which generated just $14 million in high bids, mostly from AIDEA.

Months after the first and only ANWR lease sale, Biden’s administration said it would suspend the leases issued pending an environmental review. AIDEA later sued, and last month a federal judge in Alaska dismissed the state agency’s claims, saying the government’s delay in implementing the ANWR leasing program was reasonable.

The two other entities that won leases at the ANWR lease sale withdrew from their holdings in 2022.

Alaska Senator Dan Sullivan said Alaskans were furious about the decision.

“There is palpable anger and frustration among Alaskans about the Biden administration’s unrelenting assault on our economy and our ability to lawfully access our lands,” he said in an emailed statement.

Earthjustice was among environmental groups commending it.

“Looking ahead, we hope to see the strongest possible protections for the Arctic Refuge and the Western Arctic in the years to come,” Abigail Dillen, president of the group, said in a statement.

However, reactions from indigenous groups were mixed.

The decision “flies in the face of our region’s wishes and self-determination,” said Voice of the Arctic Inupiat. The Gwich’in Steering Committee, another native group, applauded the action and said oil and gas development would threaten the Gwich’in peoples’ way of life.

Alaskan oil production has dwindled in the last three decades. The state currently produces less than 500,000 barrels per day of crude, down from more than 2 million bpd in 1988, according to government figures.

(Reporting by Jarrett Renshaw in Washington and Nichola Groom in Los Angeles; Additional reporting by Valerie Volcovici in Washington; Editing by David Gregorio and Edwina Gibbs)

By Caroline Valetkevitch

NEW YORK (Reuters) – World stock indexes fell while the benchmark U.S. Treasury yield rose and the U.S. dollar hit its highest in six months on Wednesday after stronger-than-expected U.S. services sector data suggested inflation pressures remain.

Weighing heavily on Wall Street stock indexes, shares of Apple fell 3.6% after the Wall Street Journal reported, citing people familiar with the matter, that China had banned officials at central government agencies from using iPhones and other foreign-branded devices for work.

The Institute for Supply Management (ISM) said its non-manufacturing PMI rose in August, with new orders firming and businesses paying higher prices for inputs.

Some investors said the data may add to signs that interest rates could remain elevated for longer. The U.S. Federal Reserve is still expected to pause in its rate hikes when it meets later this month.

Also on Wednesday, Fed Bank of Boston President Susan Collins said that while there are signs of progress in cooling inflation, now is a time for the central bank to proceed carefully when it comes to its next monetary policy steps.

The Nasdaq ended more than 1% lower, leading declines on Wall Street. Technology was down the most among major S&P 500 sectors.

The Dow Jones Industrial Average fell 198.78 points, or 0.57%, to 34,443.19, the S&P 500 lost 31.35 points, or 0.70%, to 4,465.48 and the Nasdaq Composite dropped 148.48 points, or 1.06%, to 13,872.47.

The pan-European STOXX 600 index ended down 0.6% and MSCI’s gauge of stocks across the globe also shed 0.6%.

The yield on the benchmark U.S. 10-year Treasury note rose 3 basis points to 4.298%. The yield has risen about 21 basis points over the past three sessions, its biggest three-day gain about a month.

In other data, manufacturing activity in Germany, Britain and the euro zone declined, while their service sectors fell into contraction territory.

Also, the U.S. central bank’s latest “Beige Book” summary of surveys and interviews released on Wednesday showed economic growth was “modest” in recent weeks while job growth was “subdued” and inflation slowed in most parts of the country.

“The two big challenges facing the Fed right now are the risks that inflation could become entrenched and the risks that the consumer could falter when excess savings dry up,” Jeffrey Roach, chief economist at LPL Financial, wrote in a note.

The dollar index rose to a fresh six-month high of 105.03, and was last at 104.85, up 0.1%, with the euro up 0.03% to $1.0723.

Oil prices reversed early declines to end higher, as traders anticipated further draws on U.S. crude oil inventory.

Brent crude futures settled up 56 cents at $90.60 a barrel while U.S. crude futures settled up 85 cents at $87.54.

(Reporting by Caroline Valetkevitch; additional reporting by Gertrude Chavez-Dreyfuss in New York and Nell Mackenzie in London and Kane Wu; Editing by Edmund Klamann, Sam Holmes, Will Dunham and Sharon Singleton)

WASHINGTON (Reuters) -Top U.S. Senate Republican Mitch McConnell said on Wednesday he plans to serve the rest of his two-year term as party leader and his full six-year term in office, allowing for the possibility that he would step down from leadership before leaving office.

KEY QUOTE

“I am going plan to finish my term as leader and I’m going to finish my Senate term,” McConnell told reporters.

THE TAKE

Two recent episodes in which McConnell, 81, froze up while in public have raised questions about how long he will continue to serve and McConnell has offered few details as to what caused the incidents.

Already the longest-serving party leader in U.S. Senate history, McConnell’s current term as leader expires in January 2025, while his term as a senator runs through January 2027.

McConnell did not address the two-year gap between the end of his current job as leader and end of his Senate term. A spokesperson declined further comment.

CONTEXT

* There is precedent for long-serving and powerful party leaders remaining in office after leaving their leadership role. Democratic former House Speaker Nancy Pelosi has done so and is currently serving in the rank-and-file as speaker emerita.

* McConnell tripped at a Washington dinner on March 8 and was admitted to a hospital for treatment of a concussion. He returned to the Senate in April. He has frozen up twice in public since then, most recently while speaking to reporters in his home state of Kentucky on Aug. 30.

* McConnell has served as Senate majority leader from 2015 to 2021 and as Senate minority leader since then.

(Reporting by Katharine Jackson, additional reporting by Makini Brice and David Morgan; Editing by Scott Malone and Bill Berkrot)

By Raphael Satter

WASHINGTON (Reuters) -The recently disclosed Chinese hack of senior officials at the U.S. State and Commerce departments stemmed from the compromise of a Microsoft engineer’s corporate account, Microsoft Corp said in a blog post on Wednesday.

Microsoft said the engineer’s account had been penetrated by a hacking group it dubs Storm-0558, which is alleged to have stolen hundreds of thousands of emails from top American officials including Commerce Secretary Gina Raimondo, U.S. Ambassador to China Nicholas Burns and Assistant Secretary of State for East Asia Daniel Kritenbrink.

The blog post addressed some unanswered questions around the incident, which drew fresh scrutiny to Microsoft’s security and led to calls to investigate the company’s practices.

Notably, the post explained how hackers were able to extract a cryptographic key from the engineer’s account and use it to access email accounts that it should not have given them access to.

Microsoft said it had fixed the flaws that led to the key being accessible from the unidentified engineer’s account which gave the hackers such wide latitude to steal emails. A Microsoft representative said the engineer’s account had been hit using “token-stealing malware” but did not provide further detail about the incident or its timing.

The Chinese Embassy in Washington did not immediately return an email. Beijing has previously described the allegation that it stole emails from top U.S. officials as “groundless narratives.”

(Reporting by Raphael Satter; editing by Jonathan Oatis, Sandra Maler and David Gregorio)

WASHINGTON (Reuters) – The U.S. will move forward on a package of appropriations bills to avert a possible government shutdown “as early as next week,” the key Senators Democrat Patty Murray and Republican Susan Collins said in a statement on Wednesday.

(Reporting by Makini Brice; Editing by Scott Malone)