Receiving Wide Coverage ...
Global Market Crisis: The massive stock market sell-off that began on Friday (the Dow Jones Industrial Average's worst Friday in more than five years) continued Monday morning, with global markets tanking on a wide range of concerns. Time will tell whether comments made by traders are overblown, but a money manager in Germany told Bloomberg, "Everyone seems to be selling off, and there's panic. There's no rational choice anymore, no rational reaction." A Belgian trader with BNP Paribas, on the other hand, was not ready to push the panic button.
"We see this as a very nasty correction, not the start of a new bear market," said Philippe Gijsel. The trigger, China's unforeseen devaluing of the yuan on Aug. 11, has prompted the erasure of at least $5 trillion in the value of global equities. At the top of many bankers' minds is how the Federal Reserve will react to the stock market's nosedive; many, of course, had expected the Fed to start raising interest rates next month, a move widely welcomed by bankers looking to widen their net interest margins. Now the timing of the Fed's next move has been called into serious question.
One of the first signs of how the Fed is leaning may come on Monday afternoon in Berkeley, Calif., where Atlanta Fed President Dennis Lockhart is scheduled to speak. Lockhart had said he was leaning toward a September rate increase, but if he gives any sign that he's backing off that timing, that could indicate a delay is likely, the Wall Street Journal said. Lawrence Summers, former Treasury Secretary, said in a Financial Times column that it would be a big mistake for the Fed to raise rates now, as it would threaten price stability, employment and financial stability. The Journal's "Heard on the Street" team noted this market nosedive is more difficult to explain than others, as a complex array of factors is causing the turmoil. Some have tried to blame the market mess on not just the Chinese devaluing their currency, but also on the alleged disproportionate effect that big companies like Apple have on the wider market. That's too simple an explanation, the columnist said.
Wall Street Journal
Besides Treasury notes, where can investors flee? Homebuilding companies may provide a safe haven. "The housing sector has been showing strength when the rest of the market appears to be breaking down," said a portfolio manager at Hodges Small Cap Fund. An index that tracks homebuilders has shown a sharp uptick of fund inflows at companies like D.R. Horton, PulteGroup and M.D.C. Holdings. Even stocks in companies that are only related to homebuilding have risen, including Home Depot. One reason is lenders have loosened standards, making it easier to get a mortgage.
Student loan delinquencies are on the rise. About 7 million Americans borrowers have not made a payment on their student loans in a year, a rise of about 6%, compared to a year earlier, now about 17% of all borrowers with federal loans are severely delinquent. Millions more are late with payments, though they haven't yet reached the delinquent category. Conversely, credit card and mortgage delinquency rates have fallen. A disproportionate share of those in default attended for-profit colleges. Navient, the Sallie Mae spinoff that services student loans on behalf of the federal government, said it has difficulty contacting borrowers who default. The Education Department isn't powerless to fight back; it can garnish wages, tax refunds and Social Security checks, and it also hires debt collection firms.
Financial Times
Regulators should heed Alan Greenspan's message that banks should raise more equity capital and Dodd-Frank should be shelved, Jonathan Ford writes in a column. "Fewer regulations and more capital would save everyone a lot of bother. The industry would get the simpler rule book it craves; taxpayers and shareholders would get safer banks," Ford said.
New York Times
The Times profiles Bank of Internet USA, the San Diego lender that specializes in making loans to wealthy folks who have erratic sources of income, spotty credit histories and have run afoul of the law. The company has performed well financially, but because of the obvious risks in its lending portfolio, many investors are wary and management has had to calm fears that it's not in good favor with regulators.
Washington Post
The paper has a long profile of how the Education Department has morphed into a bank since its mission changed and how the cabinet-level agency has caused many of the current problems with student loans. "Instead of fulfilling a presidential mission of remaking and simplifying a confusing and corrupt system that enriched financial firms at the expense of taxpayers and ultimately the nation's college students serious problems have emerged," according to the Post. Government-hired loan servicers, for example, have ignored borrowers' requests for help and sometimes have misled borrowers about their options for repayment plans.
Elsewhere ...
Crain's Cleveland Business: The paper takes a look at the gaudy growth rate of the $1 billion-asset Westfield Bank in Westfield Center, Ohio. The thrift, which is owned by Ohio Farmers Insurance, has grown to its current size in about 14 years and it plans to double to about $2 billion in assets by 2020. It focuses on commercial and industrial loans to family-owned business with between five and 100 employees. To fuel future growth, Westfield wants to expand retail banking in order to accelerate deposit gathering.
