PPP moves to stage two; HSBC chided for 'kowtowing' to Beijing

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PPP finds its footing

“Once beset by a flood of complaints, balky computer systems, changed rules and frantic calls to the Treasury Department, the federal government’s small-business Paycheck Protection Program is suddenly looking like a measured success, ” the Washington Post reports. Two months into the program, “the PPP has directed more than $530 billion to 4.5 million companies, and economists, business leaders, White House officials and lawmakers from both parties think it helped stabilize the economy.”

“The program is about to enter a new stage, as many of the companies that received loans will begin applying for loan forgiveness to determine whether they have to repay the money. The program will also face its first congressional hearing on Wednesday, when Sen. Marco Rubio, R-Florida, will call Treasury Secretary Steven Mnuchin and Small Business Association head Jovita Carranza to testify.”

“As most banks and credit unions shift focus from making PPP loans to having them forgiven, a few lenders continue aggressively pursuing new originations,” American Banker’s John Reosti reports.

“One thing the pandemic has revealed is that fintechs, largely online financial service companies once reserved for younger people with lower earnings and savings, have proven to be savvy and effective intermediaries in the age of the coronavirus,” the New York Times says. “When it came to offering the crucial financial support small business owners were seeking in the pandemic, some of these fintechs held their own or bested more established financial service firms that struggled to roll out promised programs. Through their technology, these companies can meet their clients’ financial needs online — the 21st century equivalent of the relationships brick and mortar banks once promoted.”

“Small businesses have been barred from using software robots” to apply for PPP loans, but “makers of the bots are leveraging the enormous task of processing those loans as a selling point to banks,” the Wall Street Journal reports. “Some of the nation’s largest makers of robotic software have found a ready pool of customers at banks and other lenders scrambling to process a crush of loan applications to the program.”

Meanwhile, another federal loan program to help small businesses, the Economic Injury Disaster Loan (EIDL), program, “is belatedly gaining momentum after three chaotic months during which bureaucratic delays and a lack of communication left millions of business owners wondering when help would arrive,” the Post reports.

No-win situation

Aviva Investors, one of “the largest European fund managers” and a top 20 shareholder in HSBC and Standard Chartered, “has criticized the London-based banks for supporting China’s plan to impose a new national security law on Hong Kong, calling on them to speak out if it results in abuse of democratic freedoms,” the Journal reported.

“We are uneasy at the decisions of HSBC and Standard Chartered to publicly support the proposed new national security law in Hong Kong without knowing the details of the law or how it will operate in practice,” David Cumming, Aviva’s chief investment officer for equities, said Tuesday.

At the same time, U.S. Secretary of State Mike Pompeo “chided” HSBC for “kowtowing” to China while getting little for its trouble, Reuters said.

“That show of fealty seems to have earned HSBC little respect in Beijing, which continues to use the bank’s business in China as political leverage against London,” he said. “The United States stands with our allies and partners against the Chinese Communist Party’s coercive bullying tactics.”

However, according to the Financial Times, HSBC had “absolutely no choice” but to support Beijing “given its heritage in Hong Kong and the size of the business there. The lender remains reliant on Hong Kong, where it was founded by British merchants in 1865. More than half of its group profits come from the semi-autonomous city state, with another 13% from mainland China. Furthermore, HSBC is set to become even more dependent on Asia as a widespread restructuring could see its lossmaking U.S. retail arm closed or sold and deeper cuts in Europe.”

The worst is over

Morgan Stanley CEO James Gorman said “the bank expects to set aside a smaller amount of money for potential loan losses in the current quarter, compared with the first quarter,” Reuters reports. “The worst is behind us,” he said, “attributing the improvement in part to the bank’s credit portfolio, which does not include a credit-card business or lending to small businesses - sectors badly hit by the COVID-19 pandemic.”

“Gorman also said the bank expects to cover its dividend ‘very easily’ this year, and that it would look at reinstituting buybacks in the next several months, once there is more clarity on the health of the economy. He added that a ‘vast majority’ of employees will continue to work in offices, and that the bank will not move staff out of big cities.”

Elsewhere

No more money, thanks

Goldman Sachs said its Marcus online bank will stop taking deposits from British customers on Wednesday “after deposits surged near to regulatory limits during the coronavirus lockdown,” Reuters reports. The digital bank, “which pays market-leading rates to savers starved of meaningful cash returns, has attracted about 21 billion pounds ($27 billion) from more than 500,000 savers since its launch in 2018.”

“However, British banking rules demanding ring-fencing of retail deposits totaling more than 25 billion pounds have prompted its executives to take steps to manage its growth. Ring-fencing would require Marcus in Britain to become a separate legal entity with its own board and limit how much capital it could share with the rest of Goldman’s businesses.”

Pricier cars, bigger loans

Average loan sizes and monthly payments on both new and used cars surged to record highs in the first quarter, according to data from Experian. The average new car loan amount hit a record high of $33,739, as did the average monthly payment of $569. The average used car loan rose to $20,723 while the average monthly payment hit $397.

“The larger loans and the higher monthly payments reflect a market where new vehicle prices have increased, especially for pickups and SUVs, which sell at higher price points.”

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Paycheck Protection Program HSBC Morgan Stanley Charles Goldman Fintech Auto lending
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