Deutsche probed on Epstein dealings; Wells drops independent auto dealers

Wall Street Journal

Copy cat

China’s central bank, “dabbling with Western-style unconventional monetary policy,” has agreed to spend “400 billion yuan ($56.1 billion) to buy slices of unsecured loans made by regional lenders to small and micro enterprises. The move, unveiled late Monday by the People’s Bank of China, prompted economists to draw comparisons with efforts like the Federal Reserve’s Main Street Lending program. Beneficiaries must promise not to lay off workers, much as the Fed encourages borrowers to retain employees.”

“The People’s Bank of China will buy 40% stakes in loans with maturities of at least six months, made between March and year-end. Qualifying banks must lower lending rates for small businesses and buy back the loans after a year. The central bank won’t bear the losses if loans turn sour.”

Fighting the last war

Italian banks are facing big losses on securities backed by nonperforming loans (NPL) from the 2008 financial crisis just as they’re trying to deal with this year’s coronavirus crunch. “The main problem with the market is that unlike mortgage-backed securities, whose payouts depend on homeowners’ continuing to pay their loans, payouts on the NPL securities rely on debt collectors’ being able to recover payments, often from borrowers who haven’t met obligations for several years.”

“The shake-up is hurting Italian banks’ efforts to continue cleaning up. And it is raising questions about how they will deal with a new, and likely bigger, wave of nonperforming loans coming up. Since the coronavirus outbreak in Italy, loan recovery has been hard. Debt collectors have struggled to reach borrowers to negotiate even partial payments on unpaid loans. Courts, where many cases end up, have been shut. And any attempts to sell property used as collateral for the loans are difficult with the real-estate market frozen.”

Buyer beware

“Japanese regulators have warned the nation’s banks for the first time about the risk of investing in overseas securitized corporate loans, which have run into trouble from a wave of U.S. bankruptcies. Japan’s banks collectively hold nearly 20% of the $750 billion global market for corporate debt packaged into securities called collateralized loan obligations, according to a report by the central bank and the Financial Services Agency—an outsize portion given that the securities aren’t issued in Japan.”

“Until recently, the Financial Services Agency, Japan’s main bank regulator, had paid relatively little public attention to the CLO issue. The report released this week was the first time it teamed up with the Bank of Japan for a comprehensive review.”

Delayed

The completion of the New York City Metropolitan Transportation Authority’s new contactless fare payment system has been delayed by about two months due to the coronavirus pandemic. “The new payment system allows riders to avoid vending machines by letting them pay for rides using a tap-and-pay credit card, a smartphone or a smartwatch, which they hover above an electronic reader. It is currently available at about half of the system’s 472 subway stations, as well as on Staten Island bus routes.”

The system, called OMNY, “was supposed to be available across the entire subway system by October, weeks after an anticipated surge in ridership at the end of the summer.” It is now scheduled to be available at all stations by December.

New York Times

New Deutsche scandal

The New York Department of Financial Services has “spent months investigating Jeffrey Epstein’s dealings with Deutsche Bank, which lent money to the disgraced financier and held dozens of accounts for him until shortly before he died,” the Times reports. “The investigation, which has not been previously reported, could result in an enforcement action against Deutsche Bank as soon as this month, before the first anniversary of Mr. Epstein’s arrest on federal sex-trafficking charges.”

“The investigation focuses, at least in part, on the bank’s decision to continue doing business with Mr. Epstein even after employees raised concerns. Compliance officers in the bank’s anti-money-laundering operation alerted the federal government to several transactions in which Mr. Epstein sent money overseas in 2015, while employees worried about the reputational risks of doing business with a registered sex offender. Ultimately, senior bank executives opted to maintain the relationship with Mr. Epstein because it was so lucrative.”

“We regret the decision to associate with Epstein,” a Deutsche Bank spokesman said.

Elsewhere

No soup for you

Wells Fargo, “one of the biggest lenders for new and used car purchases in the U.S.,” has told “hundreds of independent auto dealerships” that it will no longer do business with them, CNBC reports. “A Wells Fargo spokeswoman confirmed that the bank, which only makes auto loans through car dealerships, will no longer accept loan applications from most independent shops. Independent dealerships typically sell used cars, unlike franchise dealerships that focus on new vehicles from specific manufacturers.”

“The move follows Wells Fargo’s retrenchment from parts of the mortgage market as the coronavirus pandemic took hold in the U.S. The bank is operating under a dozen consent orders tied to its 2016 fake accounts scandal, and one of those orders, from the Federal Reserve, limits the bank’s ability to grow its balance sheet until it fixes compliance shortcomings. Still, the move was more related to concern about the credit quality of loans made by independent dealerships rather than the asset cap, according to a person with knowledge of the bank’s operations.”

To the rescue

Bank of America Tuesday “pledged $1 billion to help communities across the country address economic and racial inequality, the first big bank to vow monetary support following violent protests after the death of an unarmed black man at the hands of police in Minneapolis,” Reuters reports. “The events of the past week have created a sense of true urgency that has arisen across our nation, particularly in view of the racial injustices we have seen in the communities where we work and live,” CEO Brian Moynihan said.

The bank “said its four-year commitment will include programs such as virus testing and other health services, especially focusing on communities of color, support to minority-owned small businesses, and partnerships with historically black and Hispanic educational institutions.”

The bank also committed to hiring more employees from low- to moderate-income and disadvantaged communities, American Banker’s Laura Alix reports.