Main Street program starts slowly; DOJ probing Wirecard for bank fraud

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Slow rollout

The Federal Reserve’s $600 billion Main Street Lending Program for medium-size businesses “hasn’t attracted much interest yet, but that is likely to change if the U.S. economy takes a turn for the worse amid rising coronavirus cases,” according to Eric Rosengren, the president of the Federal Reserve Bank of Boston, which runs the program. “The likelihood that we continue to have serious problems with the infections means that businesses are likely to be disrupted for a longer period of time,” he told the Wall Street Journal. “So there’s an insurance element against the pandemic, as well as meeting an immediate need of some borrowers.”

Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston.
Eric Rosengren, president and chief executive officer of the Federal Reserve Bank of Boston.

“Of the five largest U.S. banks by assets, only Bank of America has indicated that it plans to make Main Street loans available to new customers. Three others—Wells Fargo, Citigroup and U.S. Bancorp. —said they plan only to serve existing customers. JPMorgan Chase didn’t say whether it planned to lend to new customers through the program.”

“Only about 90 banks agreed to publicly say they are willing to lend to new customers and were listed” by the Boston Fed, the New York Times said. “Most states have only a handful of such lenders, with seven listed in California and nine in New York, based on the Boston Fed’s release.”

The program “has become a sort of litmus test for how effective the central bank’s multifaceted response to the recession can be,” the Washington Post said. “Thousands of banks are eligible to sign up and have been able to register since mid-June. Meanwhile, businesses eager for loans have said they’re hard-pressed to find banks that will issue them.”

Here come the cops

The U.S. Justice Department “is examining whether scandal-plagued German payment company Wirecard played a critical role in an alleged $100 million bank-fraud conspiracy connected to an online marijuana marketplace,” the Journal reported. “The Manhattan U.S. Attorney’s office and the New York field office of the Federal Bureau of Investigation are examining whether Wirecard played a role in the alleged conspiracy by serving as both a payment processor and an offshore merchant bank. The authorities are also considering the possible role of several former or current top Wirecard executives.”

“The attention from U.S. authorities adds to the myriad legal woes facing Wirecard. The company has rapidly unraveled following revelations last month that more than $2 billion it had claimed to have may never have existed.”

“The Wirecard scandal has put a spotlight on the effectiveness of company audits,” especially among fintech companies, whose “auditors are still figuring out how to assess their financial statements. Fintech companies digitally deliver financial services such as payments or loans, and derive much of their income from fees. Auditors may not fully grasp the emerging industry’s business models or how the companies account for complex transactions, experts say.”

Nevertheless, “a clutch of global investors is throwing its weight behind a financial-technology upstart that facilitates payments between companies and their suppliers, betting that it is well positioned amid the disruption resulting from the coronavirus pandemic. Taulia Inc. is raising $60 million from backers,” including JPMorgan Chase’s strategic investment unit.

“Just weeks before Wirecard collapsed, a tiny German bank made a big bet on Markus Braun,” the Financial Times reports. “With investors still reeling from the findings of a special audit into Wirecard’s accounting, Oldenburgische Landesbank (OLB) replaced Deutsche Bank as a key lender to Mr. Braun, the then chief executive of the payments company, its public face and biggest shareholder.”

Wall Street Journal

Welcome move

The Consumer Financial Protection Bureau’s decision Tuesday to kill proposed regulations that would make it harder for payday lenders to make loans “was welcomed by groups representing banks and credit unions, which have sought clear guidance from regulators on how to cater to lower-income consumers who don’t qualify for conventional credit cards or other lending products because they have impaired or no credit history.”

“The Community Financial Services Association of America, a trade group that represents small-dollar, short-term lenders, said the new rule will benefit millions of American consumers. The Consumer Bankers Association, which represents big banks including JPMorgan Chase and Bank of America, said the amended rule will help banks provide ‘much-needed small-dollar loans to consumers in need.’”

This move will right many of the wrongs of the Cordray-era rule,” D. Lynn DeVault, the chairman of the Community Financial Services Association of America, writes in American Banker.

Tangled web

The IPO paperwork for Quicken Loans’ owner Rocket Companies “reveals a series of commercial relationships that [founder Dan] Gilbert’s businesses have with one another,” the Journal reports. “The ties between Rocket Companies and Mr. Gilbert’s other businesses will remain tight following the IPO, according to the new securities filing. Jay Farner will continue to be the chief executive of Rocket Companies after the IPO. Mr. Farner will also continue to be CEO of Mr. Gilbert’s holding company, Rock Holdings Inc., that will control the majority of Rocket Companies’ shares.”

Financial Times

Numbers game

“Malaysia is determined to achieve a settlement with Goldman Sachs over its involvement with the 1MDB state investment fund despite having to deal with the economic fallout of coronavirus,” the country’s finance minister told the FT. “We continue to engage [Goldman] . . . It will stop when we get the right number,” Zafrul Aziz said.

“He did not specify a target but he said the sum would be between $2 billion and $7.5 billion, the amount his predecessor demanded in 2018. Mahathir Mohamad, the former prime minister, told the FT last year that Malaysia had already rejected an offer from Goldman of ‘less than $2 billion.’”

Quotable

“If my expectations are right, there are going to be more firms that start worrying about whether they have sufficient financing . . . so my expectation is that we will ramp up over time, and we will see more banks and more borrowers.” — Boston Fed president Eric Rosengren on his expectations for interest in the Fed’s Main Street Lending Program.

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Main Street Lending Program Small business lending Federal Reserve Bank of Boston Wirecard CFPB Quicken Loans
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