Fed tweaks Main Street Lending Program; bank offices' post-pandemic look

Wall Street Journal

Main Street revisited

The Federal Reserve Monday “lowered the minimum loan amount and raised the maximum loan limit under its Main Street Lending Program,” which provides loans to small and midsize businesses to help them rehire workers. “It also extended loan terms to five years from four years and will allow businesses to defer principal payments for the first two years of the loan, instead of the first year. Before Monday’s changes were announced, some analysts had warned banks might be reluctant to participate in a complex, new program amid broader bandwidth issues.”

“Unlike the Paycheck Protection Program for small businesses, the Fed’s loans can’t be forgiven. But the latest changes are designed to make the program attractive to a wider range of firms and potentially to the banks that the Fed will rely on to underwrite and extend the loans. Banks can then sell up to 95% of those assets to the Fed, freeing banks’ balance sheets up to make more loans to other borrowers.”

“The changes appear to be in response to concerns that the program as originally conceived could be too restrictive for companies to participate,” American Banker’s Hannah Lang reports. “The higher Fed stake in loans, in particular, could help to assuage some concerns banks had about participating in the program and holding extra risk on their balance sheets.”

Sticking its neck out

HSBC’s recent “public signal of the bank’s support for China over the future of Hong Kong … marked an unusual public foray into the politics of Hong Kong. Generally, the bank has stuck to a well-worn playbook for China and other sensitive countries such as Saudi Arabia, according to people familiar with the matter: say as little as possible publicly, while privately assuring governments of the bank’s interest in their economic success.”

The recent signing by Peter Wong, the bank’s Asia chief, of a “petition backing a security law China is preparing to impose on the city was the culmination of more than a year of internal debate over an issue that, given HSBC’s history and reliance on Asia, is a particularly thorny one for the bank: How to address China’s growing influence in Hong Kong and the trade dispute with the U.S. It also showed the bank’s commitment to President Xi Jinping’s China as it retreats in Europe and the U.S. The bank took action after being pilloried by pro-Beijing figures and the state media for not getting behind the law.”

Bank bond rally

“European bank bonds have rallied over the past few weeks, escaping crisis territory thanks to the easing of coronavirus lockdowns and the proposed launch of a European Union-wide recovery fund. Yields on the riskiest type of junior bank debt have fallen back significantly from their peak level at the worst point in the coronavirus-inspired selloff across markets in mid-March, despite a small reversal in their recent rally Monday.”

“The risks have been reduced by the Franco-German proposal to provide extra financial support to the weakest eurozone nations without requiring them to borrow more money. At the same time, the European Central Bank has acted to support the debt of riskier eurozone nations such as Italy.”

Financial Times

Sticking with it

Deutsche Bank is continuing to support its U.S. operation “despite broader financial pressures” on the bank. “The German lender has allocated capital to its investment banking division, which has its largest operations in the U.S., in each of the past three months to keep up with clients’ demands for extra financing and trading, regional chief executive Christiana Riley told the FT. The allocation comes despite a pandemic that has put further pressure on Deutsche’s already-stretched balance sheet and shareholder skepticism about the wisdom of keeping a U.S. operation that does not cover its cost of capital.”

“She added that the U.S. division would not lose out to the type of home-country bias that banks often display during a crisis, as evidenced by U.S. banks pulling back from lending to European corporates. A perception of a Germany-versus-U.S. divide is ‘a very simplistic view,’ Riley said.”

Opening salvo

Barclays “’deliberately misled’ the market over the terms of its emergency capital raising from Qatar at the height of the 2008 financial crisis and ‘concealed’ a $3 billion loan to the Gulf state,” according to the opening day’s arguments in London’s High Court Monday. “Amanda Staveley’s PCP Capital is suing Barclays for alleged deceit over its arrangements with Qatar, which it relied on for fresh capital during two emergency fundraisings in 2008 worth £11.8 billion. This enabled the bank to escape a U.K. government bailout.”

“Ms. Staveley’s PCP led a parallel investment in Barclays by Abu Dhabi in October 2008 but claims it would not have put money in if it had known Qatar had been offered a different deal. Barclays denies wrongdoing and says PCP’s claim is ‘without merit.’”

New York Times

The new normal

“Grab-and-go packaged meals may replace midday generous buffets and three-figure lunches. Plexiglass could divvy up trading floors the size of football fields. Heat maps, accessible on a mobile app, will help identify the restrooms with the smallest crowds.” That’s what Wall Street workers can expect when they start to trickle back to the office starting this month.

“At Goldman Sachs, which is expected to bring back a first wave of employees to its downtown Manhattan headquarters this month, workers with a body temperature of more than 100.4 degrees will not be allowed to work from the office. At Citigroup, which plans to bring back a small cohort as early as July, workers will be required to stand six feet apart while waiting for the elevator. And at the Midtown offices of Neuberger Berman, conference room seats have been removed and additional hand sanitizer dispensers have been plastered to walls and entryways.”

Quotable

“I am confident the changes we are making will improve the ability of the Main Street Lending Program to support employment during this difficult period.” — Fed Chair Jerome Powell announcing changes to the program in order to make it more attractive for small and midsize businesses to take out the loans and for banks to make them.