Fintech lender Affirm mulling IPO; Fannie, Freddie profits improve

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Still bullish

Bank stocks have been hit hard by the coronavirus, but some investors are still bullish on the sector, the Wall Street Journal reports. They reason that “the banks, and particularly the big ones, have piled up so much capital and expanded their already-dominant positions since the last crisis that they are more immune to an economic collapse than before. These investors expect some pain but they think the market has overreacted, especially since they believe bank stocks were already undervalued before the coronavirus.”

One of those investors appears to be Warren Buffett, whose Berkshire Hathaway bought another $522 million of Bank of America stock over the past three days, according to Reuters, boosting its stake to more than one billion shares, or 11.8% of the company’s shares. “Berkshire has spent more than $1.7 billion on 71.5 million Bank of America shares since July 20, including the latest purchases, according to regulatory filings.”

Wall Street Journal

Going public?

The fintech startup Affirm “is laying the groundwork for an initial public offering that could value” the company “at as much as $10 billion. The point-of-sale lender offers online shoppers the ability to pay for goods in installments through short-term loans. The option to finance purchases with Affirm appears on the websites of thousands of merchants ranging from Walmart to Expedia Group. Earlier this month Affirm said it was joining with Shopify to make the function available to the fast-growing e-commerce platform’s merchants, expanding its reach further.”

“Affirm was valued at $2.9 billion in April 2019, according to PitchBook, but its target has risen since then—to more than $5 billion and possibly as high as $10 billion. Affirm began in 2012. Its founder is Chief Executive Max Levchin, who earlier hit it big when he co-founded the company that is now PayPal Holdings with Peter Thiel.”

Rebounding

Fannie Mae and Freddie Mac reported sharply improved earnings in the second quarter compared with the prior quarter “amid a decline in unemployment as parts of the economy reopened … adding to evidence of a rebound in the U.S. housing market.” Fannie Mae said its net income rose to $2.55 billion from $461 million in the first quarter. “Net income in the second quarter of 2019 was $3.43 billion.”

“Fannie’s smaller sister company, Freddie Mac, reported net income of $1.78 billion, compared with $173 million in the first quarter of this year and $1.51 billion a year earlier.”

The Federal Housing Finance Agency “quietly imposed new liquidity requirements on Fannie Mae and Freddie Mac in June that will require the mortgage giants to hold more liquid assets to cover sudden funding shortfalls, but that the companies say may result in lower net interest income,” American Banker’s Hannah Lang reports.

U.K. troubles

“The coronavirus pandemic pummeled British banks in the second quarter as many companies struggled to reopen and individuals reduced spending and deferred payments on loans. The industry is also grappling with Brexit and the increasing likelihood of negative interest rates. The challenging economic conditions add to uncertainty facing British banks as politicians try to reach a trade agreement with the European Union. The European Banking Authority this week reminded lenders that the transition period for Britain’s EU exit expires at the end of the year. The U.K. and EU have yet to strike an agreement on their future trade relationship.”

“Another complication facing U.K. banks: The Bank of England has shifted its tone in recent months toward possibly using negative interest rates, which can squeeze bank profitability.”

Making amends

Federal Reserve Chair Jerome Powell “said the central bank was deeply committed to fostering a diverse and inclusive work environment after a former staff economist published a lengthy blog post critiquing the treatment of women and minority economists in academic and policy-making circles.”

“Mr. Powell said he hadn’t read the post by Claudia Sahm, a Ph.D. economist who now works for the Washington Center for Equitable Growth, a liberal think tank. Ms. Sahm, who worked at the board from 2008 until 2019, said a toxic culture at all levels of the profession, including at the Fed, had hindered efforts to make the field more diverse and inclusive and undermined the quality of research and policy advice.”

Financial Times

Profit challenged

The new CEO of the U.K. digital bank Monzo “said the company was banking on new products to help it to profitability as it warned that the coronavirus pandemic had threatened its ability to continue operating. In his first interview since taking charge of the British digital bank in May, TS Anil said ‘navigating through Covid is painful and difficult,’ but insisted that the group had successfully laid the ‘foundations’ for a sustainable business over the past year.”

“Monzo’s app-based current account has attracted more than 4.3 million customers since it opened in 2015, but the challenges of converting its popularity into profits have been exacerbated by the recent crisis. Its latest annual report, to be published on Thursday, the bank said that uncertainties created by the pandemic ‘cast significant doubt’ on its ability to continue as a going concern. The company added, however, that its directors were ‘confident in Monzo’s ability to execute its business plan and raise capital if necessary.’”

Quotable

“There’s been a lot of pain and injustice and unfair treatment that women have experienced in the workplace, not just among economists, but among economists and at the Fed. That’s been going on for far too long.” — Federal Reserve Chairman Jerome Powell, responding to charges by a former Fed economist that the economics profession fosters a toxic culture.

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