Disaster plan called a disaster; European banks balk at free money

Receiving Wide Coverage ...

Seesaw distribution

“The country’s largest banks are often heavy lenders to small businesses, but during the first of the [Small Business Administration Paycheck Protection Program’s] two rounds, community banks and regional institutions did most of the lending,” according to an academic study of the program. “The 20 largest banks accounted for 41% of small business lending throughout the country before the pandemic, but issued only 20% of the first-round loans.”

“Since then, big banks made vastly more loans. Businesses in harder-hit states like California and New York have claimed a larger share of the money so far in the second round, which started in late April after Congress approved a fresh round of funds when money quickly ran out during the initial wave.”

Despite initial fears that the $310 billion second round of the Paycheck Protection Program “would dry up within a few days, nearly two weeks later, more than 40% of the money remains available, even as small businesses continue to suffer from the fallout of the coronavirus pandemic,” the Wall Street Journal reports.

One reason: “Some borrowers sought duplicate loans from several lenders as a backstop against loan denials or delays, according to bankers and small business advisers. Bigger banks found that more than 10% of their applications were duplicates, according to loan brokers and industry officials. Some smaller lenders reported that half their applications were rejected because the applicant had gotten a loan elsewhere.”

Separately, “[I]ndividuals who are working with banks to combat misconduct in the $660 billion program estimate that fraud rates could be as high as 10% to 12%,” American Banker reports.

The deal’s off

Far Point Acquisition said Thursday it will not pursue a $2.6 billion deal to buy Swiss payments company Global Blue AG, “citing damage to that business from the coronavirus pandemic. Far Point said its board of directors urged shareholders to vote against the deal after learning of the financial difficulties faced by Global Blue, which processes retail purchases for international shoppers,” the Wall Street Journal said.

“Global Blue relies on global travelers who use its network to buy luxury goods such as watches and clothes tax-free. Its main business unit helps merchants digitize the process of refunding value-added taxes for international shoppers.”

“The deal, which included a $1 billion investment from Jack Ma, the billionaire founder of Alibaba, was agreed in January just before the spread of coronavirus brought international travel to a halt,” the Financial Times said. “Global Blue derives 85% of its revenue from its tax-free shopping business, which is heavily reliant on international travelers.”

Wall Street Journal

Can’t pay me enough

The European Central Bank “has offered to pay eurozone banks if they keep loans flowing to eurozone businesses. But many banks—still struggling with bad loans left over from the last crisis—have turned the central bank down,” the Journal reports. “The trouble is, the stimulus relies on a eurozone banking sector that is weak, fragmented and burdened with problem debts from its last crises.”

“Under the program, first launched in 2014, the ECB pays eurozone banks to borrow money for three years, provided they channel that money into fresh loans for the real economy. The response has been lackluster. The ECB has sweetened the loans several times, most recently last week, but analysts still don’t know if many more eurozone banks will bite. That could lead to more business failures in Europe and lasting damage from the crisis.”

Cold Turkey

Turkey blocked three international banks — Citigroup, BNP Paribas and UBS — from trading its currency Thursday in “an effort to stymie investors who are betting that the country’s weak financial standing will continue to deteriorate.” The country’s banking regulator “determined that the lenders had failed to fulfill their liabilities in Turkish lira transactions with Turkish banks. The watchdog didn’t say how long the ban would remain in force.”

“The ban was issued hours after a new regulation that gave the banking regulator, known as the BDDK, increased powers to prosecute alleged market manipulation and the publication of misleading information.”

Financial Times

Flying blind

The no-questions-asked forbearance and payment deferral programs on consumer and mortgage debt could mean that U.S. lenders and their investors are “flying blind” when it comes to the extent of bad debt, the FT says.

“Consumers do not need to document that they are under duress; they just have to ask. The result is that investors are left to look at lenders’ disclosures of forbearance take-up, and at loan volume trends, and make uneducated guesses about how these will translate into delinquencies and write-offs in the months and years to come.”

“Banks that scrambled to grant forbearance to stressed borrowers are now trying to gauge the underlying condition of deferred loans,” American Banker’s Jim Dobbs reports.

Washington Post

Disastrous response

A separate SBA vehicle for small businesses, the long-standing Economic Injury Disaster Loan program, "has been so overwhelmed by demand that it has significantly limited the size of loans it issues, while blocking nearly all new applications from small businesses. Congress gave the disaster loan program more than $50 billion in new funding in recent relief bills to offer quick-turnaround loans to businesses slammed by the coronavirus pandemic. But by many accounts, it is failing spectacularly.”

“After initially telling businesses that individual disaster loans could be as high as $2 million, SBA has now imposed a $150,000 limit without publicly announcing the change. Additionally, the agency has faced a backlog of millions of applications for the disaster loan program for the past several weeks, several SBA officials have said.”

Quotable

“I’ve no concerns about the stability. But we don’t need banks that are just able to absorb losses. We need banks that are able to lend to British businesses. We have to stand up tall, be confident and lend to British business. That’s what I’m concerned about.” — Sajid Javid, the U.K.’s former Chancellor of the Exchequer , in an interview with Sky News, in which he said the government should “somehow force” British banks to raise more capital to make more loans.