Wall Street Journal
Banks, including Credit Suisse, Jefferies and Wells Fargo, are losing their appetite for lending to companies seeking financing for debt-heavy buyouts. These firms have been rejecting these requests since about last summer. Earlier, banks would guarantee funding of these deals with hopes of handing it off to bond and loan investors; some have taken losses unloading debt at discounts, some hold the loans waiting for better prices. But now the banks are burdened with at least $1 billion in debt left on their books from such deals and retreating from adding to that total. That means private equity firms are having more difficulty closing deals and banks are cutting more finance bankers – although the trend is welcome news for large corporations with cash on hand (Sherwin-Williams and Valspar Corp., for example, announced a $9.3 billion all-cash merger over the weekend). Junk bond sales are down 70% this year.
Banks are watching the Supreme Court this week as it decides whether to hear a case that would determine if buyers of defaulted loans can charge the same interest rate as the loans’ issuing banks. Defaulted-loan buyer Midland Funding attempted to collect $500 in charged-off credit-card debt owed by New York resident Saliha Madden, which it purchased from a unit of Bank of America Corp. That would be a 27% interest rate; New York state law caps interest rates at 25%. A May 2015 ruling by the U.S. Court of Appeals for the Second Circuit rejected Midland’s attempt, saying that because it isn’t a national bank it can’t charge such high interest rates. Banking industry groups are now looking to see that ruling overturned, and even though it applies only in New York, Connecticut and Vermont, banks are concerned if Midland loses its appeal it could set a precedent.
Bank shareholders are campaigning for tougher bonus clawback schemes at JPMorgan, B of A and Citi that would hold senior bankers more responsible for future losses. Generally, bankers only lose their bonuses if executives act fraudulently or are found guilty of willful misconduct, although details of each bank’s arrangements vary. (Jamie Dimon, Brian Moynihan and Michael Corbat, chief executives of JPMorgan, Bank of America and Citigroup, respectively, took home a collective $60 million this year.) The banks claim their current schemes are already pretty tough, although critics have complained they’re ineffective and don’t do much to control excessive risk-taking, and B of A and Citi claim an overhaul would hurt their ability to attract and retain talent.
New York Times
JPMorgan Chase is the latest bank to retreat from the coal industry, saying it will no longer finance new coal-fired power plants in the United States or other wealthy nations; following similar announcements by Bank of America, Citigroup and Morgan Stanley. Coal drove Wall Street profits up for generations, but the sector has been declining for several years. Last week, Peabody Energy, the largest private-sector coal company, indicated it was considering filing for bankruptcy protection, which would make it the fourth large coal company to file for bankruptcy, the paper said. A Standard & Poor’s analyst said while there are always periods of boom and bust, this downward shift in coal is permanent. The industry is being squeezed by competition from other, less expensive energy sources and tighter regulations, making coal loans more risky, less profitable and therefore off limits to many banks.