Fed extends emergency lending programs; Visa reports 23% profit hit

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Europe reports

Deutsche Bank, Barclays and Banco Santander “all reported a big jump in loan-loss charges in the second quarter, as the companies they bank for struggle to repay debts, and unemployment rises across the regions in which they operate. Deutsche Bank set aside €761 million ($892 million) to cover potential losses on loans to borrowers hurt by the coronavirus pandemic although it reported a small second-quarter profit on the back of strong investment banking performance on Wednesday.”

“Barclays’ net profit dropped 91% after it set aside £1.62 billion ($2.10 billion) in provisions for losses from loans. Santander reported a €12.6 billion charge from a lower valuation of some previous acquisitions, which it attributed to the deterioration in the economic outlook caused by the pandemic. The charge is a one-off and won’t have impact on its liquidity and capital ratios, but it drove the lender to a second-quarter loss of €11.13 billion.” (Also, Financial Times on Deutsche Bank, Barclays and Santander)

Receiving Wide Coverage ...

Emergency extension

The Federal Reserve “extended by three months the operation of all of its emergency lending programs that had been set to run through September to support economic activity during the coronavirus pandemic,” the Wall Street Journal reported. “In a statement, the Fed said that the extension of the programs, through December 31, would ‘facilitate planning by potential facility participants and provide certainty that the facilities will continue to be available to help the economy recover.’ All five Fed board members voted to extend the programs.”

The Fed “announced the decision as its monetary policymakers began a two-day meeting,” the Financial Times said. The facilities had “provided a critical backstop, stabilizing and substantially improving market functioning and enhancing the flow of credit to households, businesses, and state and local governments,” the Fed said.

The Fed’s decision, “while not surprising, signaled how lasting the economic damage from the coronavirus is proving,” the New York Times said.

“Prolonging the life of the facilities is one of several continuing steps in recent weeks by policymakers to stabilize the economy as the pandemic stretches through the summer and likely through the end of the year,” American Banker’s Brendan Pedersen reported.

Separately, “Joe Biden plans to call on the Federal Reserve to play a bigger role in addressing racial economic inequality, demanding the central bank look beyond its current focus on containing inflation, aiming for full employment and maintaining financial stability.” The presumptive Democratic presidential nominee wants to “amend the Federal Reserve Act to require the Fed to report regularly on ‘racial economic gaps’ and explain ‘what actions the Fed is taking through its monetary and regulatory policies to close these gaps.’ Mr. Biden will also ask the Fed to accelerate plans to revamp its payments-processing system, making it easier for low-income households to get instant access to funds, rather than waiting days for checks to clear.”

“Mr. Biden’s proposals largely amplify actions and pledges that Fed leaders have taken in recent years. But his view that the Fed should shoulder more responsibility for addressing racial inequality underscores growing pressure on the institution to wade into areas issues that politicians have struggled to address. If he is elected president, Mr. Biden would have the opportunity after taking office to appoint a new chairman and two new vice chairs, who could carry out his vision of an expanded mission for the Fed.”

Wall Street Journal

Down, but not out

Visa’s quarterly net income fell 23% to $2.4 billion from $3.1 billion a year earlier as revenue dropped 17% to $4.8 billion. “Credit-card payments volume dropped 20%,” but “debit-card payments volume rose 3%. Suppressed travel activity helped push cross-border transactions, excluding those within Europe, down 47% in the quarter.” But “U.S. payments activity ‘meaningfully improved’ each month of the quarter, and spending picked up globally throughout the quarter.”

Shady deal

“Wirecard’s rapid unraveling last month in an accounting scandal is bringing new scrutiny” to a deal last year in which SoftBank “gave a $1 billion jolt to the German fintech [that] temporarily quieted questions about the legitimacy of its profits. SoftBank lent its name and reputation to the digital-payments company, but offloaded the financial risk to other investors. Mutual funds and pension funds that bought Wirecard bonds are sitting on massive losses.”

Fraud charged

The Small Business Administration’s inspector general office has been “inundated” with “more than 5,000 complaints of suspected fraud from lenders” in its Economic Injury Disaster Loan and EIDL Advance grant programs. “Nearly 3,800 of the suspected fraud complaints came from just six lenders. Among them, nine financial institutions reported a combined total of $187.3 million in suspicious transactions. In addition, more than 1,000 complaints have been received through its complaint hotline.”

Financial Times

Big Bang Theory

UBS chairman Axel Weber is calling for a “regulatory Big Bang” to “speed economic recovery” in the eurozone. “To speed up the very slow pace of organic integration and consolidation, we need a regulatory Big Bang,” Weber wrote in an op-ed. “To reshape the European financial sector the way that 1986 deregulation repositioned London, it is time to introduce a fully-fledged EU banking framework for cross-border banking groups.”

“This regulatory Big Bang would provide the nucleus of a proper single European market in financial services, a decisive advantage for consumers, banks and the economy as a whole. There is no better time than now. Strengthening and deepening the single market would allow the EU to come out of the crisis stronger and more united than before.”

Dividend green light

Australia “has eased restrictions on banks and insurers over paying shareholder dividends this year.” However, the companies were told “to keep dividend payout ratios below 50%,” compared with 85% last year.

Elsewhere

David has left the building

New York State health authorities are investigating a weekend charity concert featuring Goldman Sachs CEO David Solomon — who opened the show “with an hour-long DJ set, performing under the moniker DJ D-Sol” — for “gross” violations of public health rules, Governor Andrew Cuomo said Tuesday. “(The) concert that happened in the town of Southampton was just a gross violation of not only the public health rules, it was a gross violation of common sense,” Cuomo said at his daily briefing.

“Some videos posted to social media appear to show people gathered in close proximity around the stage,” Reuters reported. Goldman spokesman Jake Siewart said Solomon “performed early and left before the show ended. The vast majority of the audience appeared to follow the rules, but he’s troubled that some violated them and put themselves and others at risk.”

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