Fed again moves to calm markets; Dimon out of hospital

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QE or not QE?

The Federal Reserve said Thursday it would inject $1.5 trillion into the money markets “aimed at preventing ominous trading conditions from creating a sharper economic contraction,” the Wall Street Journal reports. “The cash injections don’t represent a full-on return to the type of long-term asset purchases, called quantitative easing, that the Fed deployed in successive campaigns during and after the 2008 financial crisis. That is because the Fed is only lending money for one to three months at a time.”

However, “a separate move by the Fed marked a much clearer step in that direction. The central bank said that beginning Friday it would shift purchases of $60 billion in short-term Treasury bills, which have maturities of one year or less, toward a broader range of maturities that reflect overall issuance by the Treasury Department.” Wall Street Journal, Financial Times, American Banker

The Fed’s “shock announcement that it is willing to offer up to $1.5 trillion in fresh short-term loans to big banks may have captured the most attention simply for the radical size of the number," a Journal commentary notes. "But some analysts see the central bank’s plan to shift from buying $60 billion in Treasury bills a month toward a broader array of Treasurys as the most important piece of the puzzle in the action.”

Home, sweet home

JPMorgan Chase said CEO Jamie Dimon “has been released from the hospital and is recovering at home, a week after undergoing emergency heart surgery.” Dimon turns 64 on Friday.

“We want you to know that his doctors said he is doing very well in all aspects of his recovery,” co-presidents Daniel Pinto and Gordon Smith, who are running the bank in Dimon’s absence, said in a memo to the bank’s employees. “He is in good spirits and looking forward to reengaging with our team soon.” Wall Street Journal, Financial Times

JPMorgan Chase CEO Jamie Dimon
JPMorgan Chase CEO Jamie Dimon

Wall Street Journal

Shortcuts

The Financial Accounting Standards Board Thursday “issued additional optional relief to companies transitioning away from the London interbank offered rate. The relief, which largely consists of accounting shortcuts, is intended to help companies more quickly modify existing financial contracts and debt and lease agreements that reference Libor,” which is scheduled to go away at the end of 2021.

“FASB, which sets accounting standards for U.S. companies, expects Thursday’s guidance to allow companies to more efficiently apply generally accepted accounting principles to modifications of financial contracts and hedging relationships. The relief is optional and will be in effect for about one year after Libor phases out.”

Financial Times

Tapping credit lines

In addition to the myriad other problems banks face as a result of the coronavirus panic, here's another: “As corporate bond markets grind to a halt, banks’ corporate customers are tapping credit lines — known as revolving credit facilities — to ensure they have enough cash on hand to survive a prolonged downturn in financial markets,” the paper says. As a result, “banks have convened emergency meetings” to address that issue, as well as “new accounting rules that are exacerbating loan losses and disruption in their own offices.”

“Companies in the oil, airlines, hospitality and healthcare sectors have been most active in requesting drawdowns,” the paper says, but banks’ “treasury departments are modeling what happens if the liquidity concerns spread to other industries as well.”

We need more

Banks like UBS and Credit Suisse that cater to the wealthy, are asking their clients to put up “extra collateral against their loans as the coronavirus pandemic roils stock markets. Banks try to attract wealthy clients by offering them so-called Lombard loans, which are secured against a portfolio of liquid assets like equities and bonds. However, the market turmoil has sent the value of shares tumbling, forcing wealth managers to ask their customers to pledge extra collateral.”

Delay

Wirecard, the German payments company accused of fraudulently inflating its business in certain countries, “said a special audit of its accounting by KPMG will take longer than expected, delaying presentation of its full-year results until the end of April, the last possible day for publication under German law,” the paper says.

“The extensive inspection of relevant documents, including those of external companies, and coronavirus-related travel restrictions make the extended timeframe necessary,” Wirecard said.

Quotable

“This is like a cross between September 11 and the global financial crisis of 2008. Every company is drawing down their credit lines before their bankers can pull them, invoking material adverse change clauses.” — Tim Coleman, a restructuring specialist at PJT Partners, about the rash of companies drawing down their bank credit lines

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