Morning Scan

FHFA discussing delay of refi fee; virus pressures European bank restructuring

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Wall Street Journal

Delay, not cancel

The Federal Housing Finance Agency, the regulator for Fannie Mae and Freddie Mac, as of last Friday was negotiating delaying a proposed 0.5% fee on mortgage refinancings “with industry groups but was opposed to canceling it outright, according to people familiar with the discussions. Industry groups, including the American Bankers Association and the Mortgage Bankers Association, have generally sought to eliminate the surcharge altogether.”

Analysts say Mark Calabria, the FHFA director, “wants to ensure the firms have a viable path to exit government control even if President Trump isn’t re-elected in November. Democrats have opposed plans to privatize the firms without broad changes to housing finance that only Congress can implement.”

Fast track reform

The coronavirus “is fast-tracking plans for fundamental restructuring” at Europe’s “beleaguered banks after years of poor performance. Many of the region’s most prominent lenders are tearing up old business models, cutting business lines or doubling down on domestic markets as they try to find a formula that works for them.”

“Many European lenders have toiled for years as margins were squeezed by low interest rates in the wake of the last financial crisis. As a result, banks in Europe were among the most vulnerable institutions as the coronavirus pandemic sent already challenged economies into a tailspin and pushed loan-loss provisions to their highest level in a decade. Finding and then sticking to the right business model now is seen as crucial to banks’ longer-term survival and to get buy-in from investors.”

Financial Times

Perfect storm

Covid-crippled property markets are ringing the alarm for banks,” an FT op-ed warns. “On both sides of the Atlantic, hallowed retail names have fallen into bankruptcy. Many corporate giants around the world meanwhile plan to rationalize office use with a balance of working at home and hot desking at the office. Rent arrears are in the billions. In short, a toxic combination of coronavirus and soaring online sales, the so-called Amazon effect, have rocked the commercial property market.”

“Since property collapses frequently lead to banking crises, this should ring alarm bells. Have central banks and financial watchdogs underestimated the threat posed by collapsing real estate prices to the financial system?”

Home sweet home

“Banks, asset managers, insurers and accountancy firms in London’s financial center and across the country are setting out plans for staff to work from home more regularly, as emergency measures introduced during the pandemic turn into permanent lifestyle changes. Some big City employers such as NatWest Group and Standard Life Aberdeen have already announced that most staff will not be returning to the office until early next year, while companies including Schroders have updated their policies to allow staff to work from home most of the time.”

“We have proven that working from home is possible for most roles,” Stefan Seiler, group head of human resources at UBS, told the FT. “What is clear is that there will be more working from home, we will see more flexible work arrangements.”

Wirecard breakup

“The break-up of the collapsed German payments company Wirecard has started after it agreed to sell the remnants of its U.K. business to Railsbank, a U.K. start-up backed by Visa. The deal, which is expected to be completed in November, would involve Railsbank taking on Wirecard’s U.K. payment card technology, clients and some staff.”

“On Friday, the administrators said an agreement had been signed for the sale of Wirecard’s Brazilian business to PagSeguro Digital, a New York-listed competitor. They added that the sales process for Wirecard North America, formerly Citigroup’s Prepaid Card Services business, was ‘well advanced’ adding that ‘final acquisition offers are expected here shortly.’ ”

Elsewhere

Let the cuts resume

Wells Fargo “resumed job cuts in early August after it paused layoffs in March because of the COVID-19 pandemic,” a spokeswoman told Reuters. “We expect to reduce the size of our workforce through a combination of attrition, the elimination of open roles, and job displacements,” she said, “adding that Wells Fargo was working to bring its expenses more in line with its peers and create a company that is more ‘nimble.’”

Quotable

European banks face a profitability crisis. In response to decadelong low returns, European banks have been busy restructuring, but it is hard to shrink to greatness.” — Citigroup banking analyst Ronit Ghose.

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