China’s big banks brace for lagging COVID-19 risks as bad loans rise By Reuters

© Reuters. A logo of the Agricultural Bank of China is seen at the SIBOS banking and financial conference in Toronto


BEIJING/SHANGHAI (Reuters) – Four of China’s five largest state-owned banks said they have increased their provisions against bad debt to brace for future losses due to the impact of the global coronavirus pandemic.

All five reported their biggest profit falls in at least a decade and an increase in soured loans when announcing their half-year results on Sunday and last week.

The results highlight the impact of the pandemic and the economic slowdown on Chinese banks that bucked the first-quarter global trend with higher profits and steady bad loans.

Agricultural Bank of China (OTC:) Ltd (SS:) (HK:) (AgBank) said “the lagging impact of the epidemic and the risk of uncertainty are expected to be further transmitted to the banking industry,” in its half-year results on Sunday.

China Construction Bank (OTC:) Corp (CCB) (SS:) (HK:), the country’s second-largest lender by assets, said it plans to assess credit risks and up provisions, just as Bank of China Ltd (SS:) (HK:) (BoC) said the same.

Even more directly, Bank of Communications Co Ltd (SS:) (HK:) said on Friday it had boosted “provisions to counter the future impact of the pandemic.”

As the pandemic batters economies globally, BoC, the most international of China’s large state banks, said it would keep guarding against global financial market risks in the second half.


Net interest margins (NIM) – a key gauge of bank profitability – fell at Industrial and Commercial Bank of China (ICBC) (HK:), (SS:), the world’s largest commercial lender by assets, BoCom, CCB and AgBank.

But at BoC, NIM improved slightly to 1.82% from 1.8% three months earlier.

AgBank’s fell to 2.14% at the end of June from 2.17% at the end of March, while at ICBC it narrowed to 1.98% at the end of the second quarter, from 2.2% at the end of the first.

Non-performing loan (NPL) ratios rose at the big five banks during the reporting period, with that of ICBC increasing to 1.5% by the end of June from 1.43% three months earlier, and that of CCB rising by 0.07 percentage points in second quarter to 1.49%.

Chinese commercial banks overall posted a 9.4% drop in first-half net profit to 1 trillion yuan, according to data from the China Banking and Insurance Regulatory Commission.

By the end of the June quarter, the average nonperforming loan ratio for commercial banks was at 1.94%, commission data showed, the highest since 2009.

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Americans’ household debt fell for the first time since 2014 — but that doesn’t mean people are paying off their loans

Total household debt fell on a quarterly basis for the first time since 2014, as Americans tightened their belts amid the coronavirus pandemic.

The Federal Reserve Bank of New York reported that total household debt fell by $34 billion, or 0.2%, in the second quarter. It was the largest decrease on record since the second quarter of 2013.

The drop in household debt doesn’t mean Americans are better off financially though. A separate survey from real-estate website Apartment List found that one in three people couldn’t pay their rent or mortgage in full this month.

Indeed, the downturn in debt is actually a reflection of people cutting their spending more than it is a sign that people are paying off loans. The main driver behind the decrease was a $76 billion decline in credit card balances, which represents the largest decline since at least 2000.

“As spending rebounds, so will outstanding debt figures,” said Greg McBride, chief financial analyst at Bankrate.

But some argued that growth in household debt may be stymied by lenders who are wary of taking on more risk amid a pandemic. “Growth in consumer credit is likely to remain subdued because lenders are tightening standards on new lending and some are cutting back on credit limits and closing accounts,” said Tendayi Kapfidze, chief economist at LendingTree
Many mortgage lenders, for instance, are requiring applicants to have higher credit scores to qualify for loans compared with before COVID-19.

Meanwhile, the wide-scale availability of forbearance on debts, ranging from mortgages to student loans, contributed to a decline in delinquency rates. Delinquencies for mortgages, auto loans and credit cards were all down. In the student loan sector, approximately 88% of borrowers had a scheduled payment of $0, the New York Fed found.

‘Lenders are tightening standards on new lending and some are cutting back on credit limits and closing accounts.’

— Tendayi Kapfidze, chief economist at LendingTree

“With forbearances having been rolled out nearly universally, not surprisingly, the repayment rates of student loans have declined sharply,” New York Fed researchers wrote in a blog post about the quarterly debt report.

It could be a long time before the economic downturn caused by the pandemic translates into upticks in loan defaults and foreclosures, experts say. In the case of mortgages, Americans can get up to 12 months’ worth of payment relief if they have a federally-backed loan, including those backed by Fannie Mae

and Freddie Mac

. As a result, pandemic-related defaults on home loans may not appear in earnest until the second half of 2021.

Americans who were laid off or furloughed may not be receiving boosted unemployment payments at the moment, which could make settling debts more challenging in the interim.

“If you’ve lost your income due to the pandemic, you may have to put other financial priorities first, like keeping a roof over your head and food on the table, said Sara Rathner, credit card expert at NerdWallet. “It’s OK to focus on that now and deal with debts later.”

Rathner’s advice: First, build a rainy-day fund to cover emergencies. Then, pay off debt by meeting all minimum payments and putting any extra money toward the loans with the highest interest rates.

“This can help you stay organized and motivated while ultimately saving you on interest,” she said.

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Quicken Loans is going public: 5 things to know about the mortgage lender

Rocket Companies
the parent company of mortgage lending giant Quicken Loans, has set the terms of its initial public offering.

The company announced Wednesday night that it plans to sell 100 million shares at $18 each — both below initial estimates. In July, the company said it planned to offer 150 million shares priced at $20 to $22 each. It plans to begin trading on the on the New York Stock Exchange under the ticker “RKT” starting Thursday.

Twenty banks are set to underwrite the IPO, led by Goldman Sachs

Proceeds from the IPO will be used to purchase businesses and Class D stock from Rocket Cos.’ existing holding company, Rock Holdings Inc., which is owned by the company’s founder and chairman Dan Gilbert.

Rocket’s IPO comes as the broader IPO market has kicked into high gear after a long dry spell as a result of the coronavirus pandemic. Recent offerings include Warner Music Group Corp.
which returned to public markets in June after nine years of being private, and online insurer Lemonade
which debuted last week.

Rocket is also going public as the mortgage industry has seen millions of homeowners request forbearance on their monthly loan payments amid record levels of unemployment.

The company’s leadership team mainly comprises executives from Quicken Loans. Jay Farner, who has served as CEO of Quicken Loans since 2017, will be the company’s CEO. Farner has been with Quicken for over two decades, and previously served as the lender’s president and chief marketing officer. Julie Booth, the company’s chief financial officer and treasurer, has been in this role at Quicken Loans since 2005.

The lender was originally founded in 1985 as Rock Financial. In 1998, Gilbert took Rock Financial public, but eight years later it was purchased by Intuit. At that time, the company’s name was switched to Quicken Loans. Then in 2002, Gilbert and other investors purchased Quicken Loans back from Intuit

Don’t miss:The mortgage industry is facing a crisis because of the coronavirus — and borrowers could fall through the cracks

Throughout its history, Quicken has been at the forefront of the digitization of the mortgage industry. In 2016, Quicken Loans debuted the Rocket Mortgage brand with the claim that the company’s digital mortgage process could connect consumers with a mortgage in as little as eight minutes.

Rocket Mortgage has increased its market share to 9.2% in the first quarter of 2020 from 1.3% in 2009. Rocket Mortgage’s primarily digital mortgage lending process has proven popular with millennials in particular, who represent the largest generation of home buyers in the country. Among the consumers who applied for a home loan using the company’s online platform or app, 75% were first-time homeowners or millennials, the company said.

In 2018, Quicken Loans became the largest mortgage lender by volume in the U.S. by supplanting Wells Fargo
in a demonstration of the growing dominance of non-bank lenders in the mortgage space.

Rocket Cos. also owns a range of companies across the financial services and real-estate ecosystems, include real-estate listing websites Rocket Homes, title insurance company Amrock and financial product search engine LowerMyBills.

Those other businesses could comprise a broader part of the company’s strategy moving forward. Earlier this year, the company’s CEO, Jay Farner, described to MarketWatch how Quicken Loans was aiming to develop new products and services designed to give homeowners a more comprehensive view into their assets.

“Your largest investment is your home, so why not more visibility into how that asset’s forming and more suggestions to improve that?” Farner said. “You’re going to see people bring more value to consumers that way. That’s what we’re focused on.”

According to its IPO prospectus, the company has seen its net revenue double over the past year. The company brought in nearly $1.4 billion in the first three months of 2020, as compared with $632 million during the same period last year. The company’s net income in the first quarter of 2020 was $97.7 million, after a net loss of $299 million a year ago.

Here are five things to know about Rocket ahead of its IPO:

The company’s profits depend largely on the direction of interest rates

Most of Rocket’s mortgage originations are refinances. Of the $39 billion in total originations in 2019, only 27% was for consumers buying a home. Consequently, refinancing represents a bigger part of Rocket’s business than the broader mortgage industry.

The drop in interest rates to historic lows in recent months has helped boost the company’s profits this year, as Rocket processed record numbers of loans. “If interest rates rise and the market shifts to purchase originations, our market share could be adversely affected if we are unable to increase our share of purchase originations,” the company said in the prospectus. A sustained low-rate environment could also prompt a decline in refinancing demand.

Shifting toward purchase loans isn’t foolproof either. As Rocket warns, higher interest rates make buying a home more expensive, which could also cause a drop in demand for those loans.

Fluctuations in rates also have an impact on the company’s servicing business and the value of its mortgage servicing rights. “Historically, the value of MSRs has increased when interest rates rise as higher interest rates lead to decreased prepayment rates, and has decreased when interest rates decline as lower interest rates lead to increased prepayment rates,” the company said. “As a result, decreases in interest rates could have a detrimental effect on our business.”

Read more:Mortgage rates keep falling to record lows — so is now a good time to refinance?

People who purchase shares in the public offering won’t have much say in the company

Rocket’s current parent, Rock Holdings Inc., and its owner Gilbert, will retain aggregate voting power equal to 79% in the public company thanks to its ownership of Class D shares, which are afforded 10 votes per share.

“Accordingly, RHI will control our business policies and affairs and can control any action requiring the general approval of our stockholders,” the company said. That includes the election of board members, the adoption of bylaws and the approval of any merger or sale of substantially all of our assets. Rock Holdings will maintain this control as long as it owns at least 10% of Rocket’s issued and outstanding common stock.

The “Quicken Loans” name has a complicated backstory

In recent years, the company has embraced the “Rocket Mortgage” brand in favor of Quicken Loans. As the company’s filing with the Securities and Exchange Commission notes, it does not own the rights to the Quicken Loans trademark. It licenses the name and trademark from Intuit.

Intuit owned a separate entity, called QuickenMortgage, when it purchased Rock Financial in 1999, which it combined with Rock Financial’s mortgage business to form Quicken Loans. Even after Gilbert repurchased the company, Intuit remained the owner of the brand.

Rocket has entered into an agreement to assume full ownership of the brand in 2022 “in exchange for certain agreements.” Until that deal closes, Intuit reserves the right to terminate the licensing agreement if Quicken Loans breaches its obligations or if there are “certain instances where wrongdoing or alleged wrongdoing by Quicken Loans or any controlling person could have a material adverse effect on Intuit,” the company said.

Also see: Black homeownership has declined since 2012 — here’s where Black households are most likely to be homeowners

Investors shouldn’t expect to receive a dividend

Rocket currently plans to retain all future earnings and doesn’t anticipate paying cash dividends “for the foreseeable future” following the IPO. That means shareholders will have to rely on stock gains for returns.

Any future plans to offer a dividend could be further complicated by the company’s structure. “As a holding company, our ability to pay dividends depends on our receipt of cash dividends from our subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their respective jurisdictions of organization,” the company noted.

The company’s fortunes could be hampered by the privatization of Fannie Mae and Freddie Mac

The vast majority of the mortgages Rocket originates are sold into the secondary market, and its loans are securitized by Fannie Mae
Freddie Mac

and Ginnie Mae.

The Trump administration has prioritized the reform and recapitalization of Fannie Mae and Freddie Mac, which have remained in conservatorship since the 2008 financial crisis. Lawmakers in Congress have also advanced their own proposals regarding Fannie and Freddie’s future.

Whatever happens with Fannie and Freddie could affect Rocket’s business. It could lead to higher fees charged by Fannie and Freddie or lower prices for the sale of the company’s loans, according to the regulatory filing.

The Renaissance IPO ETF

has gained 37% in the year-to-date, while the S&P

only risen 0.3%.

This story was updated on July 28, 2020.

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U.S. watchdog sees signs of ‘widespread’ potential fraud in small business disaster loans By Reuters

© Reuters.

By Chris Prentice

WASHINGTON (Reuters) – The internal watchdog at the U.S. government agency responsible for managing COVID-19 emergency loans and grants to small business owners and nonprofits said it has found “strong indicators of widespread potential fraud” in the disaster loan program.

The Office of the Inspector General at the U.S. Small Business Administration (SBA) said it has been “inundated” with contacts to investigative field offices, receiving complaints of more than 5,000 instances of suspected fraud from financial institutions receiving economic injury loan deposits through the Economic Injury Disaster Loan and Advance grant programs, according to a public memo on Tuesday.

The emergency loan program, which is separate from the Paycheck Protection Program also administered by the SBA, is designed to provide economic relief to businesses experiencing a hit to revenues. The larger and more high-profile $660-billion PPP has struggled with technology and paperwork issues that led some businesses to miss out while some affluent firms got funds

SBA inspectors have launched numerous investigations into reports of suspected fraud in the disaster loan program, the memo from SBA Inspector General Hannibal “Mike” Ware to SBA Administrator Jovita Carranza said.

Nine financial institutions have reported a total of $187.3 million in suspected fraudulent transactions. The suspicious activity included use of stolen identities, attempts to transfer funds into foreign accounts or investment accounts, and deposits into personal accounts with no evidence of business activity, the memo said.

OIG’s review also found indications of internal control deficiencies. SBA approved more than $250 million in COVID-19 economic injury loans and grants to potentially ineligible businesses as of June 19 and had made duplicate loans to nearly 300 business, the memo said.

SBA management has taken steps to address the concerns, the memo said.

An agency spokesperson said in an emailed statement the SBA initiated safeguards that prevented processing thousands of invalid applications, “balancing the Agency’s fiduciary responsibilities against the urgent need to provide the small business sector with more than $184 billion it needed to weather the precipitous challenges created by this pandemic.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

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Morgan Stanley will be first U.S. bank to disclose how much its loans and investments contribute to greenhouse-gas emissions

Morgan Stanley will start measuring and disclosing lending portfolio greenhouse gas emissions and back the push toward universal climate-risk accounting — the first U.S. bank to take such actions.

The Partnership for Carbon Accounting Financials (PCAF) confirmed on Monday that Morgan Stanley

has joined in its efforts toward a unified measuring financed emissions. In addition, Morgan Stanley will help PCAF develop the global accounting standard that can be used by all financial institutions to measure and reduce their climate impact.

Launched globally last year, PCAF is a collaboration to standardize carbon accounting for the financial sector, enabling a harmonized approach to the assessment and disclosure of greenhouse gas emissions financed by loans and investments.

It has had mostly European members, drawing the criticism from some climate groups that the U.S. lags in these efforts.

“We are pleased that U.S. banks are finally stepping up to the challenge of measuring and reducing climate impacts as European peers already have. Morgan Stanley’s commitment shows that digging in and taking responsibility for its climate contribution is good business. We expect other U.S. banks to take note,” said Lila Holzman, energy program manager at As You Sow, a sustainable-investing advocate.

Morgan Stanley joins PCAF’s 66 formal members, which include financial institutions from around the world and represent more than $5.3 trillion in assets.

Read:For first time ever, majority of shareholders push oil giant Chevron to align with Paris climate pact

The measurement of financed emissions, defined by the Greenhouse Gas Protocol as Scope 3 – category 15 emissions, provides important data that financial institutions can use to assess risk, manage impact, meet the disclosure expectations of important stakeholders, and assess progress and pathways to global climate goals. Morgan Stanley also commits to start measuring and disclosing lending portfolio greenhouse gas emissions.

Climate groups have been welcoming bank policy changes but warn that the goals from the finance sector aren’t enough to limit climate change to 1.5 degrees Celsius, the target laid out in the voluntary Paris pact. The oil industry and its financial and political backers are pushing for a mix of energy sources as the U.S. embraces energy independence, including relatively low-cost natural gas, along with renewable options.

“As we work towards COP26, and a critical year ahead in aligning the finance sector with the goals of the Paris Climate Agreement, we believe that PCAF and member financial institutions will play an important leadership role in that work,” said Giel Linthorst, executive director of the PCAF secretariat.

Read:Here’s why carbon emissions at utilities can fall even during a powerful economy

JPMorgan Chase & Co.

, which is considered to be the largest lender to the oil patch, earlier this year said it will end or phase out loans to some fossil-fuel interests, namely Arctic drilling and coal mining.

Morgan Stanley shares are up roughly 1.5% in the year to date, while JPM shares are down 30% in the year to date. The Dow Jones Industrial Average

is down 6.5% over the same span.

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