Smaller banks grab bigger PPP share; U.K. launches ‘bounce back’ program

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No problem program

More than 110,000 small businesses in the U.K. on Monday applied for low-cost government-guaranteed “bounce back” loans. “Banks providing the loans said they had approved the vast majority of applications and said the money would arrive in bank accounts as early as Tuesday,” the Financial Times reported. “Software systems held up despite some banks receiving an application every two seconds. ”

The program “offers loans of between £2,000 and £50,000. They carry interest of just 2.5% and applicants fill out only a short online application form. Companies of any size can borrow up to 25% of their annual turnover. The government will cover interest and fees for the first year, after which repayment begins. Should businesses default, the taxpayer would foot the bill.”

A man in a protective face mask walks past a shuttered store in the Brixton district of London on April 4, 2020
A man in a protective face mask walks past a shuttered store in the Brixton district of London on April 4, 2020

On Monday the Bank of England said banks can exclude the loans from leverage rules, “removing a possible disincentive for banks to lend,” Reuters reported. “Loans under the Bounce Back scheme pose less of a risk to banks than traditional business loans because they are backed by a state guarantee.”

French warning

BNP Paribas, France’s largest bank by assets, said its first quarter net profit fell 33% as revenue dipped by 2%. It “warned net profit for 2020 might fall by 15% to 20% as a result of the health crisis. It set aside €657 million to cover bad loans, raising its total provision to €1.43 billion.” Wall Street Journal, Financial Times

Wall Street Journal

Score one for Davids

“After years of watching big banks gobble up deposits using their slick digital apps and sprawling branch networks, community banks are flipping the script and demonstrating the value of ties to local businesses,” the Journal reports. “Banks with under $10 billion in assets approved about 60% of loans in the first round of the Paycheck Protection Program. The smallest banks performed even better: Those with $1 billion or less in assets account for just 6% of all U.S. banking assets, but they and other small specialty lenders approved nearly 20% of loan dollars.”

“While big banks favored certain customers, including big publicly traded ones, many community banks took all comers, hoping to sow loyalty and pick up some business. Large banks put off taking applications for days until they had an online portal up-and-running; community bankers worked out of home offices and lightly trafficked branches to process loans immediately.”

No soup for you

Student loan borrowers whose debt is held by banks, credit unions or other private entities are being left out of a government program that enables borrowers to suspend their payments for six months, interest free. Only loans held by the government are eligible for the payment hiatus.

“Many borrowers have been shocked to learn their loans aren’t covered,” the Journal said. “Most frustrating to them is they had no say in which federal program they used—that decision was made by their colleges and universities. Of the federal program’s 43 million borrowers, about 7 million have loans that are ineligible for relief. A vestige of a guaranteed-loan program that Congress ended in 2010, they owe $170 billion out of $1.5 trillion in all federal student debt.”

Financial Times

Direct voting

Eight big financial services companies, including JPMorgan Chase, HSBC and Deutsche Bank, are investing $20 million in Proxymity, “an online shareholder voting platform being spun out of Citigroup’s venture arm. Proxymity allows companies to issue digital voting cards and other information directly to their underlying investors, rather than through the network of custodians that typically relay paper voting cards and other missives to shareholders.”

Elsewhere

Pullback

“Loan officers at U.S. banks reported significantly tightening standards and terms on business loans in the first three months of the year as the coronavirus outbreak began to shutter large parts of the economy and millions became newly unemployed,” a Federal Reserve survey found. “Banks reported that the changes in standards and demand across loan categories reported for the first quarter occurred late in March as the economic outlook shifted when news emerged about the rapid global spread of COVID-19,” the Fed said in its quarterly survey.

Quotable

“[Our] bank personnel is so connected to those clients that it went bing, bing, bing. That’s where a lot of the bigger retail banks got jammed up.” — CEO Brian Johnson of Choice Bank in Minto, N.D., one of many small banks that outmuscled the biggest banks in making loans to small businesses under the Paycheck Protection Program.

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Paycheck Protection Program Small business lending Earnings Student loans
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