Federal loan programs seek borrowers; ECB to encourage more bank mergers

Editor’s note: Morning Scan will not be published on Friday July 3, on Independence Day.

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To play or not to play

“More than two months after the announcement of the program, some bankers say they are always trying to decide whether to participateIn the Federal Reserve’s new $ 600 billion loan program. “The main concern: Companies in urgent need of liquidity are unlikely to be approved, while more creditworthy borrowers are likely to find similar or better terms themselves. They “also cite less than attractive terms, which changed several times before the official launch on June 15, and anemic interest among potential borrowers.”

Under this program, “commercial banks lend to businesses and then sell all but a small portion of each loan to the Federal Reserve. The Treasury Department is prepared to cover the Fed’s losses if the companies don’t pay back.

Meanwhile, the House Wednesday agreed to extend the paycheck protection program for small businesses for another five weeks, until August 8. The bill now goes to President Trump for his signature.

“The program closed Tuesday with more than $ 130 billion in unspent loans, after allocating $ 520 billion in loans to nearly five million businesses nationwide. The move came as Republicans and Democrats remained divided over additional federal assistance to be provided to businesses and individuals. “

To break up

SoftBank, which helped organize a $ 1 billion investment in Wirecard “months before the German payments company went bankrupt, is seeking to terminate a five-year partnership that its investment arm has formed with Wirecard in April 2019, ”the Wall Street Journal reported. “The partnership agreement provided for SoftBank to introduce Wirecard as a digital payments provider to other companies in SoftBank’s broad portfolio of technology companies. SoftBank has also agreed to help Wirecard grow in Japan and South Korea.

“The partnership was entered into at the same time as an investment vehicle managed by SoftBank agreed to invest 900 million euros ($ 1 billion) in Wirecard through a convertible bond. It was an unusual deal that SoftBank ended up not investing its own money in when it closed later that year.

“The head of the German financial watchdog denied that the regulator protected Wirecard instead of properly investigating, as MPs in Berlin grilled him over the agency’s role in one of the world’s worst scandals. company in the country, ”the Financial Times reported. Felix Hufeld, head of BaFin, told members of the Bundestag on Wednesday that the agency’s ability to act was limited because Wirecard was classified as a technology company rather than a financial services provider, and therefore was not not entirely the responsibility of BaFin The agency supervised only Wirecard Bank.

“Although he expressed his regret for what happened with Wirecard, he denied that BaFin could have done more than it didSaid a deputy.

Meanwhile, German prosecutors “said on Wednesday that they had raided five buildings as part of investigations into the company, three in Munich and two in Vienna where [former CEO Markus] Braun is from, ”the Journal said. The missing company is also under investigation in Singapore, Mauritius and the Philippines.

“The company’s market value slumped to less than 600 million euros ($ 673 million) from nearly 13 billion euros on June 17, the day before its first disclosure. [$2 billion in] money was missing in one of the biggest corporate scandals of recent years.

Financial Time

Matchmaker

The European Central Bank seeks “to persuade more lenders in the region to merge by clarifying its approach to takeovers in order to reassure managers that such transactions will be encouraged. In its latest effort, the ECB on Wednesday released a guide on how it would handle banking transactions in three key areas, which it says have all been seen in the past as hurdles for lenders considering a merger.

“The supervisor said he would recognize the accounting gain – known as negative goodwill, or ‘badwill’ – that can be generated when a bank buys a rival for less than the fair value of its assets less its assets. passive. The ECB has also said it will not automatically impose higher capital requirements on merging banks. Finally, the supervisor said he would allow merging banks to continue using their existing internal risk assessment models to calculate their capital requirements for a period of time.

New York Times

Traffic signs

“The minutes of the Federal Reserve’s June meeting show that officials remained seriously concerned [about the economy], even as the states have reopened. “

Scourge

Mehrsa Baradaran, author of “The Color of Money: Black Banks and the Racial Wealth Gap,” wrote an op-ed titled “What private equity reveals about the myth of free markets. “

“As inequality, unemployment and evictions rise, the Dow Jones rises alongside them – one line worsening suffering, the other worsening returns for investors,” writes Baradaran. “One reason is that an ideological coup has quietly transformed our society over the past 50 years, increasing the fortunes of the financial economy – and its agents like private equity firms – to the detriment of the real economy experienced by most Americans. “

Quotable

“It’s a bit of a Catch-22. We all have a hard time, to be honest, understanding who could be that kind of unicorn borrower. ” – Lauren Anderson, senior vice president of the Bank Policy Institute, on which companies will want to borrow from the Fed’s new Main Street loan program.

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About Christopher Easley

Christopher Easley

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