U.S. banks to support paying dividends; Wells limits jumbo refinances

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Dividend debate

While banks in the euro zone and the U.K. have been ordered or pressured to suspend dividend payments, “U.S. banks will likely be allowed to keep paying dividends to shareholders even as the coronavirus pandemic threatens to create a mountain of bad loans that could eventually weaken the lenders,” the Wall Street Journal says. “But Federal Reserve officials are unlikely” to order them to stop, “at least in the short term. They see key differences in how lenders distribute capital on the two continents, and they plan to conduct a more deliberate analysis of the U.S. banking system’s health.”

“America’s biggest banks will defend their plans to continue paying dividends in submissions to regulators on Monday, just days after Europe’s regulators urged lenders to abandon shareholder payouts while they dealt with the coronavirus pandemic,” the Financial Times reports. “The banks’ annual capital plans, due to be submitted to the Fed on Monday, are expected to include proposals to continue paying dividends, reinforcing comments from prominent bank chief executives in recent days. The bankers, including Goldman Sachs boss David Solomon, Morgan Stanley boss James Gorman and Citigroup chief Mike Corbat, argued that they had the means to continue paying dividends and that cutting them would be ‘destabilizing to investors.’”

Meanwhile “retail investors in Hong Kong have threatened legal action against HSBC and will attempt to force the bank to hold an extraordinary general meeting, after it was pressured by U.K. regulators to cancel its dividend due to the coronavirus crisis," the paper reports. "A third of London-headquartered HSBC’s shares are owned by retail investors in Hong Kong. Many rely on the bank’s dividends for income.”

Rough first day

“The federal government’s $350 billion small business loan program got off to a rocky start Friday, with some of the nation’s biggest lenders saying they weren’t yet able to process loan applications, discouraging business owners struggling to stay afloat,” the Journal reports.

“Business owners found that applying for the money was harder than they had anticipated,” the New York Times says. “Lenders had received guidance from the Treasury Department only the night before, just hours before they were to start making loans. On top of that, banks imposed their own rules on which businesses could and couldn’t borrow. And many lenders, including JPMorgan Chase, the nation’s largest, didn’t have their websites ready for borrowers until later Friday.”

“Bank of America was one of the few big banks that began taking applications Friday morning, earning the praise of President Trump,” the Washington Post notes. “But the Charlotte-based bank faced backlash from some customers for initially limiting its application pool to businesses with which it already had a lending relationship.”

“Citigroup, PNC, Wells Fargo, Capital One and Citizens Banks were not yet up and running,” the FT says, “even as Treasury secretary Steven Mnuchin said smaller, community banks were taking part.”

The SBA “doled out tens of millions of dollars in contracts in recent days — including $50 million for a contract linked to the firm of a friend and donor to President Trump — to help it deal with the deluge of loan applications from businesses ravaged by the coronavirus-triggered economic collapse,” the New York Times says.

Confusion was rampant among bankers, small-business owners and policymakers as some lenders plowed ahead on the Paycheck Protection Program’s official launch date, while others planned to wait until [this] week,” American Banker reports.

Found money

Global financial regulators “have freed up about $500 billion of capital for lenders around the world to help them absorb the impact of the Covid-19 pandemic,” the FT calculates. Most of the capital has come from “cutting extra capital buffers that were designed to strengthen lenders’ balance sheets after the 2008 crisis.”

On Friday, the Basel Committee said banks “do not need to stick to strict capital requirements for loans that carry government guarantees or allow payment holidays.” The committee, which sets standards for bank regulators, issued “technical clarifications” to lenders, “explaining that customers seeking temporary relief from loan repayments or state-supported credit facilities did not need to be treated as higher risk.”

Meanwhile, European “regulators and central bankers are asking themselves whether the measures they took in recent years to crisis-proof the banking system will be enough to prevent a credit crunch, bank failures and a financial meltdown with global ramifications,” the New York Times says.

Wall Street Journal

Shrinking jumbos

Wells Fargo “substantially curtailed” its jumbo mortgage loan program last week, “one of the most pronounced signs yet of how the recent market turmoil is cutting off access to some types of mortgages,” the paper says. Wells, the country’s largest mortgage lender, “will only refinance jumbo mortgages for customers who hold at least $250,000 in liquid assets with the bank, according to a bank spokesman. That means that a customer who already has a jumbo loan with Wells Fargo can’t refinance to take advantage of falling rates unless they keep money with the bank. The bank hasn’t changed policies for loans used to purchase properties.”

Wells Fargo

Both sides

JPMorgan Chase’s decision to keep its Manhattan trading floor open despite the coronavirus outbreak “has rattled rank-and-file employees, who said they feel the bank took a gamble with their health to protect a prized business,” the paper says.

A company spokesman said "more than 80% of the firm’s traders are working remotely and those in the office have been spaced more than 6 feet apart," the paper says.

Financial Times

Flying solo

Goldman Sachs said it will buy two Gulfstream corporate jets for the use of CEO David Solomon and other top bankers, after “a detailed analysis demonstrated conclusively that it would be more cost effective to own the aircraft directly.”

Reputation rehab

“The coronavirus crisis offers [banks] a chance of redemption” from the reputation they created after the 2008 financial crisis, an op-ed says. “Businesses do not have a future if they are universally despised, a message that will not be lost on the banks. Prior to this crisis they were, arguably, in the early stages of societal rehabilitation. To build on that, they now need to put public interest above self-interest. Without that, banking will remain a pariah industry; with it, banks can repair much of the reputational damage caused by the financial crisis.”

Banks seem to be doing their part, a separate op-ed states. “During the last financial crisis banks were the problem. This time round, as the coronavirus crisis unfolds, they look more like the solution to the problem. Rather than amplifying shocks to the system, as they did in 2007-08, the banks are now helping to absorb them.”

Quotable

“Our stress test can give us insight into where capital should be needed. My preference would be to wait for the stress tests, but different people can have different opinions about that.” — Cleveland Fed President Loretta Mester, commenting on whether the Fed should order U.S. banks to suspend dividend payments

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