Bad times for debt collectors; Main Street Lending Program draws boos
Receiving Wide Coverage ...
“Banks have rushed to borrow a record €1.3 trillion from the European Central Bank at deeply negative interest rates, in the latest monetary policy drive to boost liquidity in the eurozone’s coronavirus-stricken economy. It is the first time that a major central bank has offered multiyear loans to banks at an interest rate below its main deposit rate, introducing a so-called dual-rate system.”
“The ECB said on Thursday that 742 banks had applied to borrow €1.31 trillion under its main refinancing scheme, which will lend them money over three years at rates as low as minus 1%, providing they meet certain lending thresholds. Given the ECB’s main deposit rate is minus 0.5%, the ultra-cheap lending is effectively a subsidy for the banking system and provides further evidence of how the ECB is pulling out all the stops to try to prevent the pandemic causing a credit crunch.”
Meanwhile, the Bank of England “said it increased the target for its bond-buying program to £745 billion ($935 billion), from £645 billion. Officials said that without further stimulus, inflation risked drifting far from the bank’s 2% annual goal.”
“Economic activity in Europe is tentatively picking up as governments gradually relax restrictions on work and daily life. But hopes for a quick rebound from the deep downturn those policies caused have faded, putting the onus on central banks and treasuries to repair the region’s economies.”
Wirecard’s disclosure Thursday that it can’t account for €1.9 billion in missing cash “casts considerable doubt over its future,” the FT says. “The missing cash was equivalent to all the profits the [company] had declared since 2012, and Wirecard said if it failed to file audited financial statements on Friday, it would be at the mercy of lenders who could terminate €2 billion worth of loans.”
“The revelation triggered a collapse in its stock market value to just €5 billion and left its bonds trading for less than 40 cents on the euro. The violent reaction in financial markets indicates its future survival is at stake, and caps a tumultuous 18 months for a company that for much of its history was regarded as Germany’s next great technological hope.”
“Wirecard shares crashed another 50% in chaotic trading on Friday, as two of Germany’s biggest investors threatened legal action over an escalating accounting scandal that leaves the future of the once high-flying payments company in doubt," the Financial Times reports. "Union Investment, which was until recently a top 10 shareholder, joined fellow asset manager DWS in threatening to sue the company that for almost two decades was regarded as a rare German tech success story.”
The company’s “troubles intensified Friday after two banks in the Philippines meant to be holding over $2 billion on behalf of the company said they don’t have the cash and never did,” the Wall Street Journal said.
Wall Street Journal
Repos gone bust
Businesses that normally clean up during recessions, like “repossession agents, debt collectors, bankruptcy lawyers and vulture investors,” are struggling these days. The reason? “Borrowers are staving off defaults with stimulus checks. Banks are offering reprieves, worried about looking callous in the middle of a crisis. Congress gave the majority of mortgage holders a way to suspend monthly payments for a year if they want to.”
The future doesn’t look so bright, either. “With the credit recycling machinery largely frozen, banks may be less willing to make loans, especially riskier ones, when the pandemic passes and the economy fully restarts.”
Deutsche Bank said it “will pay $9 million to settle claims stemming from an outage in 2016 of its swaps reporting platform. The fine by the Commodity Futures Trading Commission appears to close the book on longstanding issues related to information the bank is required to provide regulators about its swaps reporting business.”
The bank “also agreed to pay a civil penalty of $1.25 million to settle separate claims related to a type of market manipulation known as spoofing by two Tokyo-based traders.”
Meet the new boss
ING named chief risk officer Steven van Rijswijk as its new CEO to succeed Ralph Hamers, who is leaving to become CEO of UBS later this year.
New York Times
“A tidal wave of bankruptcies is coming,” the Times reports. “Experts foresee so many filings in the coming months that the courts could struggle to salvage the businesses that are worth saving.”
“Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies — filings by companies with $1 billion or more in debt. And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis.”
Too little, too late?
The Federal Reserve’s $600 billion Main Street Lending Program, which “is supposed to provide low-cost loans to small and midsize businesses, is off to a rocky start. Small-business owners can’t find banks willing to do the loans.”
“The much-delayed program” has prompted “lingering questions over whether there will be enough banks participating to make the loans. The program is supposed to provide low-cost loans to firms with fewer than 15,000 workers, but it has taken the Fed nearly three months to launch it and many have criticized it for being too little, too late.”
“You’d think after all of this delay, this would launch more smoothly than PPP [Paycheck Protection Program]. As it turns out, it looks like it’s dead on arrival, which is sad.” — Matt Valeo, CEO of Documo, a software company for secure documents, commenting on the Main Street Lending Program, which he tried to borrow from but couldn’t find any banks that had either heard of it or were participating in it.