Businesses hitting credit lines; Coronavirus could put banks in the red

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That will cost you

Credit Suisse said it docked about 2.2 million Swiss francs ($2.24 million) from former CEO Tidjane Thiam’s 2019 bonus because of the “significant impact” last year’s spying scandal had on the bank’s reputation. Thiam “was granted 10.7 million francs in salary, bonus and share awards last year, down from 12.6 million francs the year before. His bonus of 7.2 million francs, could have been at least 2.2 million francs higher.” Wall Street Journal, Financial Times

Wall Street Journal

Proactive

Royal Bank of Canada was close to unloading more than $600 million of commercial real-estate debt “seized from clients in recent days, trying to protect itself from pain spreading through the mortgage market. In a sign of how quickly the market is deteriorating and the pressure institutions feel to quickly deal with the situation, the bank was expected to choose a buyer” imminently.

“Mortgage bonds of all kinds have tumbled in value in recent weeks, even those that had top ratings from credit agencies," the paper says. "Investors are worried borrowers will default en masse as the economy slows to a halt. That has prompted margin calls from banks that lend against these bonds. Borrowers can either try to sell the debt themselves at fire-sale prices or post more collateral to buy time — or the lender can seize the bonds and try to sell them itself.”

Coronavirus challenges

European banks are struggling with “an accounting change pushing banks to write down loans earlier” as the world deals with COVID-19. International Financial Reporting Standards, or IFRS 9, which took effect in 2018, “force[s] banks to make provisions on every loan from the start. The allowance can be quite low initially, but lenders must impair loans more aggressively as soon as a credit risk ‘increases significantly.’”

The rule "forces banks to write down many loans just as things get tough," the paper says.

“Bank finance directors would like to follow the prudential regulators’ advice to look through the new rules, yet they must still produce first-quarter numbers that will keep their auditors happy. The risk for investors is that the coronavirus crisis could force lenders to raise capital for what proves to be a temporary challenge.”

Temporary reprieve

Sweden’s financial regulator said it will delay until June the release of its anti-money laundering investigation into Skandinaviska Enskilda Banken due to the coronavirus. The report had been expected next month.

Financial Times

In the red?

The coronavirus crisis “could wipe out a full year of U.S. banking profits and push the sector into the red for the first time in more than a decade,” S&P Global Ratings warned. “The agency report on the effects of plunging interest rates and soaring customer defaults painted a worst-case scenario that would represent a dramatic reversal of fortune for a sector that made $195 billion last year.”

American Banker reports with businesses shuttering and employees furloughed "there will be loan losses and big challenges ahead."

Bloomberg News

Turning to credit lines

More than 130 companies have drawn down at least $124.1 billion from their bank credit lines over the past three weeks, the paper says. “The true figure is likely to be much higher, since publicly traded companies are not required to report the drawdowns immediately and privately held companies often have no obligation to announce them at all.”

“The economy is really suffering. It has hit an iceberg and nobody knows frankly how long this will last,” said Carlos Hernandez, the executive chair of global investment banking at JPMorgan Chase. “It’s not unreasonable to assume that more businesses will draw their lines.”

Failure

Holland’s ABN Amro said it took a $200 million hit — equal to about 9% of full-year profit — after one of its large clients, a trading firm, failed. The unnamed firm was “unable to meet margin calls on its trades in U.S. options and futures,” the paper says.

Eye on Italy

Is Italy’s “banking sector strong enough to withstand the economic shock” of the coronavirus?, the paper asks.

Easing on overdraft fees

Two of the U.K.’s biggest banks said they will forgive some or all overdraft fees to help customers get through the crisis. “Barclays said it would not charge any interest on all overdrafts from Friday March 27 until the end of April to give customers extra headroom in times of financial uncertainty. Lloyds Group announced that from April 6, all customers with an agreed overdraft would be given the first £300 interest free for three months.” In both cases the changes will be made automatically.