House passes extra PPP funding; big banks rake in deposits in first quarter
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PPP 2.0 passes
By a vote of 388 to 5, the House Thursday passed a $484 billion spending measure that includes $310 billion more in loans for the Paycheck Protection Program, which ran out of its initial $350 billion allocation last week. “To address concerns that the loans were initially snatched up by businesses with well-established ties to their banks, $60 billion of the new funds will be set aside for medium, small and community lenders,” the Wall Street Journal said. “Roughly $60 billion will also go toward another small business program that has run out of money, the Economic Injury Disaster Loans, as companies have scrambled for federal assistance during the global economic downturn.” Wall Street Journal, Financial Times
As the House vote was going on, “the Small Business Administration issued new guidance that suggested dozens of publicly held companies that previously received loans under the program should return the funds by May 7,” the Washington Post reported. The original PPP “contained a vague requirement that businesses certify that ‘current economic uncertainty makes this loan request necessary.’ The new guidance is more explicit and said companies that had other sources of cash probably would not qualify.”
“All borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application," the new guidance states. “Borrowers still must certify in good faith that their PPP loan request is necessary.”
At least three restaurant chains said Thursday they were returning loans they had already received “after a public backlash against big companies taking money at the expense of the small companies the fund was created to help,” the Financial Times said. Ruth’s Chris Steak House said it is handing back the $20 million loan it got.
In addition, according to the Post, the Kura Sushi USA restaurant chain canceled its $6 million loan. “In a statement the company posted on its website, the company’s president and chief executive, Jimmy Uba, said that Kura Sushi USA played by the rules set out by lawmakers but had no idea how intense the competition for funding would be.”
“The founders of fast-salad chain Sweetgreen also decided to return funds to the program, saying that it had been approved for $10 million at the end of last week but found out at the same time that the program had run out of funds.”
Wall Street Journal
U.S. banks took in a record $1 trillion in deposits in the first quarter, with nearly 60% of it going to the four biggest – JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. “The $590 billion in deposits they gained in the first quarter is nearly double the previous quarterly record of $313 billion for the entire U.S. banking industry, according to Federal Deposit Insurance Corp. data.” JPMorgan alone took in $273 billion, “akin to swallowing another top 10 bank.”
“The growth in deposits shows how different this crisis is from the last one. In 2008, America’s biggest banks were the bad guys that nearly destroyed the economy. Now, they are a refuge for jittery consumers and businesses waiting out the shutdown.”
Homeowners who have been told they can take a break on their mortgage payments if they face financial hardship during the coronavirus crisis are worried about what happens once the so-called forbearance period ends. “Many borrowers say they are being told they will have to make lump-sum ‘balloon’ payments. The situation is causing extra anxiety for U.S. households dealing with job losses and the struggles of life under lockdown. If mortgage servicers follow through with demands for lump-sum payments, borrowers could be pushed into default, damaging their creditworthiness and compounding the financial pain inflicted by the downturn.”
“A closely watched gauge of stress in the eurozone's financial system has climbed to its highest level since 2012, a sign that the coronavirus crisis has pushed up borrowing costs for banks in the currency bloc,” the FT said. “Analysts said the rise in Euribor — a measure of the interest rates that euro area banks pay to borrow from one another — is a worrying sign of ‘fragmentation’ of the region’s money markets, with the European Central Bank’s efforts to hold borrowing costs at rock bottom failing to reach every corner of the financial system.”
Safe at home
American banks appear to be reducing their lending to European companies during the coronavirus pandemic, “fueling concerns that Wall Street may be quietly withdrawing to its home market in a repeat of the last financial crisis.”
“We are increasingly observing an ‘America first’ attitude among large U.S. banks,” said an adviser involved in negotiations between banks and German corporations. “Those are not just idiosyncratic cases: there is a clear pattern.”
“Often rowdy and confrontational, this year’s bank shareholder meetings have so far been brief and uneventful as the annual gatherings move online amid U.S. coronavirus lockdowns,” Reuters reports. “The shift is a welcome reprieve for the senior executives who field combative questioning or disruptive protests from shareholders and activists over business decisions. But the change worries advocacy groups and retail investors for whom the meetings offer a rare chance to engage with bank leadership on critical corporate governance issues such as pay, diversity and sustainability. While some outspoken investors recognize the virtual meetings are necessary to protect public health, they say the rules of engagement effectively muzzle them.”
“It’s the once-a-year opportunity to engage with directors who are overseeing management and... to do so in a public forum where those directors are held accountable. Interactive feedback with voice should be a bare minimum.” — Wells Fargo banking analyst Mike Mayo, who skipped this year’s online Citigroup annual meeting because the bank would only accept written questions.