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'I am hoping that civility, humanity, empathy and the goal of improving America will break through. We have the resources to emerge from this crisis as a stronger country,' writes Jamie Dimon in his annual letter.
(Bloomberg) -- Half a million of Bank of America Corp.’s 66 million customers have deferred loan payments because of financial fallout from the coronavirus.“The idea is to defer the payment, defer the impact,” Chief Executive Officer Brian Moynihan said in an interview Friday on CNBC. “We’re working with our customers who need help, who are losing their jobs. We have to preserve their ability to have cash flow.”The lender is also dealing with a deluge of requests for funds from the government’s small-business relief program. By Friday evening, it had received 85,000 applications requesting $22 billion.The Charlotte, North Carolina-based lender earlier said it was prioritizing 1 million of its existing small-business borrowers because they had already been vetted and could receive funds most quickly, Moynihan said.That approach sparked criticism, including from Senator Marco Rubio, a Republican from Florida, who tweeted that the policy isn’t from the government but rather from Bank of America. “They should drop it,” he said.The bank later said it would broaden its lending soon.“In this first initial launch, we have focused on our full-relationship clients” comprised of current borrowers, Dean Athanasia, president of the bank’s consumer and small-business division, said in a memo to staff. “We are also highly focused on responding to the needs of our core small-business customers who do not currently have any borrowing relationship. We will expand our process soon and, in the meantime, are addressing these through an escalation process.”President Donald Trump, meanwhile, tweeted Friday that a “great job” is being done by Bank of America and many community banks. “Small businesses appreciate your work!”Some banks, including Wells Fargo & Co., said they weren’t ready as lenders across the country grappled with a lack of detailed guidelines from the government. JPMorgan Chase & Co. started taking applications Friday afternoon after warning clients Thursday night it was still awaiting guidance and may not be ready the following day.Separately, Moynihan said in the CNBC interview that only 5% of Bank of America’s trading employees are working from the company’s offices.(Updates with loan application volume in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Amid reports of problems with early rollout of the ‘Paycheck Protection Program,’ one of the key negotiators of the deal acknowledged “there will be some glitches.”
Banks were supposed to start processing loan applications on Thursday at midnight from small businesses under the $349 billion Paycheck Protection Program, but they weren't prepared for the onslaught.
(Bloomberg) -- U.S. employment plummeted last month by a degree not seen since the last recession, in just an early glimpse of the devastation from the coronavirus pandemic.Payrolls fell 701,000 from the prior month -- compared with the median forecast of economists for a 100,000 decline -- according to Labor Department data Friday that mainly covered the early part of March, before government-mandated shutdowns forced firms to lay off millions more workers. This was the first decline in monthly payrolls since 2010.The jobless rate jumped to 4.4% -- the highest since 2017 -- from a half-century low of 3.5%, and is expected to surge in the coming months. Bloomberg Economics sees the rate rising to 15% soon, while Federal Reserve Bank of St. Louis President James Bullard said it may hit 30% this quarter.Click here for a transcript of Bloomberg’s TOPLive blog on the jobs report.The numbers are already outdated. Because the reference period for the jobs report is based on the 12th of the month, it didn’t capture the vast majority of the nearly 10 million people who have filed for unemployment benefits in the last two weeks alone.Such projections are a dramatic shift from just a month ago, when job gains topped 200,000 and employers were having so much difficulty finding qualified workers that they were hiring previously marginalized populations such as people with criminal records. President Donald Trump has frequently touted strong employment figures as he runs for re-election this year.But in the last few weeks, the disease known as Covid-19 has rapidly spread across the U.S., killing thousands and leading an increasing number of states to encourage or order their citizens to stay home.“The abruptness with which the economy has taken this step down is so striking,” FS Investments Inc. Chief U.S. Economist Lara Rhame said on Bloomberg Television. “It’s like a hurricane but hitting the entire country at the exact same time.”What Bloomberg’s Economists Say“Workers who were paid for just a few hours during the early part of the month were still counted as a nonfarm payroll, so the March data are only an early snapshot illustrating the start of unprecedented job losses -- in terms of both speed and magnitude -- in the economy. April job losses will be at least 30 times larger, in the vicinity of 20 million. Unemployment will soar toward 15% next month.”\-- Carl Riccadonna, Yelena Shulyatyeva and Andrew HusbyClick here for the full note.Treasury yields and U.S. stocks were lower Friday following the report. The Bloomberg dollar index held gains.Congress and the Trump administration are trying to help individuals and small businesses rocked by the economic shutdown, with a loan program for small firms getting off the the ground Friday and direct checks en route to many households in coming weeks.But the program that provides up to $350 billion in aid to small businesses, aimed at preventing further layoffs, has been mired with website glitches and a lack of communication with lenders. Additionally, some of the $1,200 checks meant to soften the economic toll on Americans may not arrive until September.Employment in leisure and hospitality was hit particularly hard, falling by 459,000 in March, nearly wiping out two years of job gains. The losses were mainly in food services and drinking places. Private payrolls overall dropped by 713,000.Average hourly earnings rose 0.4% from the prior month and were up 3.1% from a year earlier, both above estimates -- and potentially due to the removal of low-wage workers from the ranks of the employed.The Bureau of Labor Statistics said the unemployment rate would have been almost 1 percentage point higher if workers who were recorded as employed but absent from work due to “other reasons,” were classified as unemployed on temporary layoff. The BLS said that this discrepancy might result from respondents misunderstanding a survey question.“The jobs report was extremely weak, sending an ominous signal of what is to come,” said Michelle Meyer, head of U.S. economics at Bank of America Corp. “Not only were the numbers terrible but the BLS noted that they could have been worse.”In addition, the figures may be less reliable than usual because survey response rates were significantly below typical levels from both households and businesses.The Labor Department said in a special note that “It is important to keep in mind that the March survey reference periods for both surveys predated many coronavirus-related business and school closures in the second half of the month.”A separate report Friday from the Institute for Supply Management showed measures of business activity and employment at U.S. services firms contracted in March, an abrupt reversal from solid growth the previous month.Other DetailsThe average work week fell to 34.2 hours, the lowest since 2011, in a sign companies began pulling back before laying off workers. Temporary workers fell by 49,500, the largest decline since 2009; retail jobs fell by 46,200.The initial wave of layoffs hit Hispanic and Asian Americans harder, with their unemployment rates each jumping 1.6 percentage points to 6% and 4.1%, respectively. The white jobless rate rose 0.9 point to 4%, and it was up 0.9 point to 6.7% for black Americans.Government jobs rose by 12,000, with a 17,000 rise in temporary jobs tied to the decennial census count.The number of people classified as unemployed on temporary layoff totaled 1.85 million, up from 801,000 in February, for the biggest one-month increase in records going back to the 1960s.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- If the past two days of trading in U.S. Treasuries are any guide, yield-curve control might have already reached the world’s biggest bond market.On Thursday, Labor Department data showed a record 6.65 million people filed jobless claims in the week ended March 28, blowing past estimates for 3.76 million. When added to the previous week’s tally, it showed almost 10 million Americans were out of work because of the coronavirus pandemic. And yet, 10-year Treasuries took those figures in stride. The borrowing benchmark fluctuated by less than 7 basis points, the tightest range since Feb. 19, the same day the S&P 500 Index hit a record high. It closed 1 basis point higher than where it started the day, at 0.597%.On Friday, Labor Department data showed U.S. payrolls fell 701,000 in March compared with February, the first decline since 2010 and far exceeding the median forecast for a 100,000 drop. The jobless rate rose to 4.4%, the highest since 2017, and strategists are already expecting the April report to show nothing short of a crash, with 20 million jobs lost and an unemployment rate of 15%. Again, 10-year Treasuries barely budged at about 0.59%.From an economic state-of-play perspective, Friday’s jobs report was always going to be stale. It only captured payrolls from the week that included March 12 — when many people were still reporting to work as usual. Bond traders are paid to look ahead, and no employment figures right now will help in that effort. They have the same question as the rest of America: “Is the worst over yet?”Until they get an answer, the best way forward seems to be counting on the Federal Reserve to take whatever actions are necessary to keep the $17 trillion Treasuries market in order. Effectively, bond traders seem to be entering a period of unofficial “yield-curve control” as long as the world’s largest economy deliberately grinds to a standstill.The increase in the Fed’s balance sheet since the job report’s reference date has been nothing short of extraordinary. The central bank gobbled up $1.5 trillion of assets in the past three weeks, far and away the steepest climb on record. It has started to scale back only slightly, while also introducing a temporary repurchase agreement facility that lets other central banks swap Treasuries for dollars. That should stem forced sales by so-called foreign official holders.It seems reasonable to expect the Fed to continue outright purchases for the foreseeable future, given that the Treasury will ramp up issuance to cover the $2 trillion coronavirus relief package. Taking cues from the central bank is at least a more reliable strategy than trying to read between the lines of horrid jobs data. Wage growth, once the most important figure in the monthly release, is now meaningless. Average hourly earnings actually beat expectations in March by rising 3.1%, likely because a large group of lower-paid workers lost their jobs.I have called yield-curve control, an idea championed last year by Fed Governor Lael Brainard, a bond trader’s nightmare. That’s probably still true, though the wild price swings of March were arguably even more frightening. To be clear, the central bank has not officially set any sort of target. But it has provided clear forward guidance: the Fed will buy “in the amounts needed to support the smooth functioning of markets for Treasury securities and agency MBS.”With so much still unknown about how long it will take the U.S. to slow the pace of the coronavirus outbreak and what the ultimate economic damage will look like, it makes sense that traders would find comfort in a range. While Bank of America Corp. technical strategists said this week that 10-year yields could hit zero in the next three months, somewhere around the current 0.6% feels about right, given what’s known about the labor market and nationwide shutdowns so far, as well as what’s contained in the relief package.Treasuries have little data to trade on except glimmers of hope that the global economy will get to the other side of this crisis sooner rather than later. That’s not a backdrop for decisive trades. It’s not quite yield-curve control, but it’s close.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Bank of America Corp. is preparing for a flood of applications from U.S. small businesses seeking government relief to weather the coronavirus outbreak.“We know for these businesses speed is of the essence,” the bank said in a statement. “We can move fastest with our nearly 1 million small-business borrowing clients. That is our near-term priority. As the administration has made clear, going to your current lending bank is the fastest route.”The Charlotte, North Carolina-based company had staff working overnight Thursday to prepare for expected high volumes of applications Friday. The initiative is part of the $2.2 trillion government stimulus package and is aimed at helping small businesses survive the devastating impact of the pandemic.“We’re setting up shop and activating thousands of people to be able to take the applications,” Chief Executive Officer Brian Moynihan said in an interview Wednesday on Bloomberg Television. The bank has been heavily involved in talks with the White House and Treasury on the program, he said.On Thursday, the Small Business Administration bumped up to 1% the interest rate lenders may charge small businesses after banks complained that the previous approved rate of 0.5% was below even their own cost of funds.U.S. Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza released additional guidelines for the program just a few hours before it’s expected to become widely available Friday.“This is a very important program,” Mnuchin said in a news conference Thursday. “Please bring your workers back to work if you’ve let them go.”(Updates with Mnuchin’s comment in last paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Market condition: severe. That’s Bank of America Corp.’s new assessment of a corner of the U.S. mortgage industry facing a deluge of applications from homeowners looking to shore up their finances.The coronavirus pandemic, which is prompting nervous Americans to tap into record amounts of home equity as a buffer against an economy tipping into recession, has also led Bank of America to aggressively tighten its standards for home equity lines of credit, or Helocs. Wells Fargo & Co. has taken similar actions, and JPMorgan & Co. may change its policies too.Homeowners looking for ways to build up a cash cushion while capitalizing on interest-rate cuts by the Federal Reserve can do so through Helocs -- open-ended credit lines that use properties as collateral -- or through cash-out refinancings. But banks are getting choosier about underwriting Helocs, with the aim of ensuring that customers will actually use the loans rather than hoarding the money for a rainy day.Applications for home equity loans and lines of credit jumped as much as 33% from a year earlier in recent weeks, before stay-at-home orders cut application volumes, according to data from Informa Financial Intelligence. At Nations Lending Corp., which originated some $2 billion of mortgages last year, applications for cash-out refinancings have doubled, a spokesman said.The surge in applications comes as economists warn that the U.S. economy will contract as a result of government-imposed shutdowns to stem the spread of the deadly coronavirus, putting millions of people out of work and erasing trillions of dollars of wealth.‘Fear Is Building’“If you’re a homeowner, you’ve always been told that one of the easiest ways to access cash in a pinch is to tap the equity in your home,” Nations Lending Chief Executive Officer Jeremy Sopko said in an email. “In a normal environment, this is absolutely true. But this is no normal environment. And so fear is building.”But at big banks, the worsening economy is leading them to restrict who they’ll lend money to, one illustration of how banks are working to bolster their balance sheets ahead of the coming downturn.Bank of America significantly tightened its standards for loans to homeowners wanting to borrow against their equity, ratcheting up an internal gauge that measures market conditions from the company’s lowest level to its highest, “severe,” according to records reviewed by Bloomberg. The minimal credit score it’ll accept from borrowers is now 720, up from 660.JPMorgan, meanwhile, may boost its minimum credit score for new Helocs to 720 as well, up from 680, and is also considering other changes, such as limiting approvals to customers who already have a mortgage or checking account with the bank, said a person with knowledge of the matter. The bank’s goal is to slash application volume by as much as 75%.Stingier ValuationsWells Fargo cut the maximum amount homeowners can borrow and reduced how much the bank will lend relative to a property’s value, according to a person with knowledge of the changes. The bank is applying stingier valuations to homes due to a lack of inspections and appraisals resulting from the pandemic.Representatives for Bank of America and JPMorgan declined to comment. A Wells Fargo spokesperson said the bank is “focused on continuing to support our customers and meet their needs, while appropriately managing risks in the current environment.”The banks’ move to limit loan approvals for homeowners stands in contrast to their lending to businesses, which increased almost 13% last quarter, according to figures from the Bank Policy Institute, a trade association representing large financial firms.Piggy BanksHelocs function like credit cards, with lenders setting a maximum amount homeowners can borrow at any one time. Their use exploded in the years leading up to the housing crash more than a decade ago, as surging property values prompted homeowners to use their dwellings as piggy banks. Heloc borrowing dropped off after the housing bubble burst and scarred homeowners sought to reduce their debt.The property recovery since then has inflated homeowners’ net worth, leading to a record $6.2 trillion of housing equity that U.S. homeowners could borrow against as of December, the highest ever year-end total, according to analytics firm Black Knight Inc.The average homeowner has about $119,000 in equity to use as collateral, Black Knight figures show. For residences with a mortgage, homeowners collectively owe the equivalent of 52% of their homes’ value, making their properties prime targets for taking out loans against.“The uncertainty around the depth and length of the economic contraction caused by the coronavirus is prompting people to act,” Tendayi Kapfidze, chief economist at online marketplace LendingTree Inc., said in an email. “Having a line of credit available can be a buffer against loss of income or employment, an insurance of sorts.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Oil tanks at one of the world’s largest storage hubs on Africa’s southern tip are filling up fast, said people familiar with the matter, depriving many traders of vital capacity just as the market is hit by a historic flood of crude.The 45 million-barrel Saldanha Bay oil storage terminal, the largest in the southern hemisphere, has been a vital outlet for surplus crude in past slumps, such as the great recession of 2008 to 2009. This time around, as the combination of the coronavirus pandemic and Saudi Arabia’s price war with Russia creates a record-breaking oversupply, its role may be more limited.The facility is close to full, said four people with knowledge of the site’s operations. Several other people said all of the capacity there had been leased to trading houses, but space remained in some of their tanks and they expected additional crude deliveries.A spokesman for South Africa’s Central Energy Fund, which manages the country’s energy assets, declined to comment. Saudi Arabia is only a couple of days into a record supply surge above 12 million barrels a day, but the oil market has already been contending with a vast surplus for weeks. International lockdowns aimed at slowing the spread of the coronavirus are emptying roads, shutting businesses and factories, and keeping billions of people at home.Oil has slumped 60% this year as about a quarter of global demand was wiped out. The market structure is deep into contango -- when future prices are higher than near-term contracts -- making it profitable to store the commodity for any trader with access to tanks.Multiple analysts have predicted that, based on current supply, demand and inventory levels, the world is just weeks from running out of places to store the glut.Saldanha’s six tanks -- completed in the 1980s during the apartheid era to ensure oil supplies for the then politically isolated country -- are generally leased out to trading companies. A joint venture of Hamburg-based Oiltanking GmbH and local company MOGS Oil & Gas Services, has been building over 13 million barrels of additional storage with smaller tanks that allow more flexible blending options.(Updates with differing views on status of tanks in third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- A headline from three days ago read “Banks Stuck With $23 Billion of Loans for T-Mobile’s Sprint Deal.” A group of 16 banks would have to provide money to T-Mobile US Inc. to close its planned acquisition of Sprint Corp. because they couldn’t sell debt to third-party investors. T-Mobile would refinance the bridge loan in the bond market as soon as financing conditions improved.Well, that was quick.The mobile carrier plans to tap the corporate-bond market Thursday with a deal of about $10 billion, with proceeds helping repay that $19 billion bridge credit agreement (it signed a new $4 billion term loan on Wednesday as well). Even though it’s one of the biggest debt sales of the year, financial markets still remain highly volatile and T-Mobile’s credit rating was cut this week deeper into speculative grade, the company received more than $30 billion of orders from investors, Bloomberg News’s Molly Smith reported.That’s impressive, considering that the initial pricing levels for this investment-grade offering were already favorable for the company. T-Mobile’s 10-year bonds are expected to yield around 375 basis points more than benchmark Treasuries, Bloomberg News reported, citing a person familiar with the matter. By comparison, a Bloomberg Barclays index of triple-B corporate bonds with an average maturity of 11.75 years has a spread of 359 basis points, near the lowest since March 18. That’s close enough — and it’s likely that T-Mobile’s gap will narrow with such a large order book.It’s even more interesting to compare this new deal, with the lowest investment grades of Baa3 by Moody’s Investors Service and BBB- by S&P Global Ratings, and T-Mobile’s last offering in January 2018, which is speculative grade. The company priced 10-year bonds at the time at a spread of 209 basis points more than Treasuries, to yield 4.75%. T-Mobile’s spreads are now much wider, even though this new debt is “senior-secured,” but 10-year U.S. yields are more than 200 basis points lower than they were 26 months ago. That means the all-in 10-year yield for T-Mobile will probably be about 4.35% — a good deal lower than the previous rate.This is important context to remember for both companies and bond buyers. The rapid price swings across markets in the past month and the focus on yield spreads have somewhat masked the fact that whenever the outlook starts to stabilize, borrowing costs will once again be as low as ever for creditworthy corporations. The benchmark 10-year yield is a mere 0.6%, near the all-time low closing level of 0.54% set on March 9. Bank of America Corp. technical strategists said in a report Thursday that the benchmark could reach 0% this quarter and potentially even turn negative if governments struggle to contain the coronavirus outbreak.With so much uncertainty, it’s understandable that T-Mobile seized on this window to get on with its plans. It formally completed its merger with Sprint on Wednesday morning. Mike Sievert, who was named chief executive officer, told Bloomberg TV on Wednesday that the timing of the bond sale relative to the bridge loan was “coincidental.” The fact that the group of banks was ready to help get the acquisition over the finish line was the most prudent first step, he said. Then the company deemed the market had thawed enough to borrow.“We’ve been watching the markets over the past few days and seeing an improving condition for us to go to the market with this investment-grade offer. Today looked like the right day,” Sievert said. “The last couple of days, obviously we were in the process of taking down the bridge and we had the merger news that made the last couple of days the wrong time to be in the market.”Obviously, T-Mobile would have had a better borrowing backdrop a few months ago. But large companies are rarely in position to perfectly time the market. In most cases, good reception is enough. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Bank of America said it has agreed to allow 50,000 mortgage customers to defer payments for three months because they’ve lost income as a result of the pandemic.The borrowers have all kinds of home loans, including some that are not federally backed, said Bill Halldin, a spokesman for Bank of America.To qualify for the government forbearance program, passed last week by Congress as part of the stimulus package, homeowners must contact their lenders and request help. It’s only for people who have a hardship because of the coronavirus, though it doesn’t require them to present proof.The new legislation allows borrowers with federally backed mortgages to stop making payments for as many as 180 days, with the possibility of extending that period. But it’s not supposed to be a payment holiday. They’ll have to make it up, interest and all.Servicers have reported a surge in calls though some lenders like Bank of America are allowing borrowers to apply for forbearance online.(Updates with details of new forbearance rules in the fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Indonesia slashed its growth forecast by more than half as the coronavirus pandemic takes a toll on Southeast Asia’s biggest economy, prompting the government to adopt a series of emergency measures.The economy is now projected to grow 2.3% this year, compared to an initial estimate of 5.3%, Finance Minister Sri Mulyani Indrawati said in Jakarta Wednesday. Under a worst-case scenario, the economy could contract 0.4%, she said.Indonesia is scrapping fiscal limits as it ramps up its response to the virus outbreak. President Joko Widodo on Tuesday took a number of emergency measures, including cutting corporate taxes, temporarily removing the budget-deficit cap and allocating 405 trillion rupiah ($24.8 billion) to fight the pandemic.The new growth forecast is part of sweeping revisions to previous budget estimates announced by the finance minister Wednesday:Fiscal deficit to widen to at least 5.07% of GDP in 2020 from original target of 1.76%Debt-to-GDP ratio to remain at about 60%Revenue to decline by 10%Annual inflation projected in range of 3.9%-5.1% compared to a previous estimate of 3.1%The rupiah, already down almost 13% in the past month, may tumble to as low as 17,500 per U.S. dollar. Under the worst-case scenario, the currency may plunge to 20,000Indonesia Scraps Deficit Ceiling as It Ramps Up Virus ResponseIndrawati said the spread of the novel coronavirus had created a humanitarian and financial crisis that has lead to high volatility and global panic. “We must improve our response,” she said, adding that authorities think the outbreak in Indonesia may peak as early as this month.Like many other countries, Indonesia is confronting a crisis on two fronts, with a spike in Covid-19 virus cases stretching the health system to near-breaking point and the economy rapidly deteriorating.The budget deficit cap of 3% of GDP, introduced in 2003 in the wake of the Asian financial crisis, will be removed immediately, allowing the government to significantly ramp up its stimulus. The government will revert to the 3% cap in 2023.“Getting the outbreak under control should be the first priority, as successful containment is key for any economic recovery,” said Mohamed Faiz Nagutha, an economist with Bank of America Securities in Singapore. “More support is likely still needed given the downside risks to growth, but the government now at least has the option of doing more.” Job LossesThere are worries of widespread job losses in a nation where about 70 million of its 270 million population work in informal employment. Tuesday’s steps follow two previous stimulus packages announced since late February.A decree signed by the president Tuesday also paved the way for the central bank to participate in the auction of sovereign bonds to help the government meet its larger budget financing needs. Bank Indonesia may directly buy the notes to ensure there’s no abnormal spike in yields and only if the market fails to absorb additional supply, Governor Perry Warjiyo said Wednesday. The central bank may be asked to buy the securities as a last option, Indrawati said.The yield on 10-year rupiah sovereign bonds rose 3 basis points on Wednesday to 7.93%, after rallying 96 basis points in March, the biggest monthly gain since 2013. (Updates with comment from economist in eighth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
One year ago, Bank of America announced it would raise its U.S. minimum hourly wage to $20 over a two-year period. The first increment to $17 was made in May 2019; six months later, the company announced it would accelerate the move to $20 by a year; and in March this year, Bank of America made this change.
(Bloomberg Opinion) -- “Investing in distressed debt is a struggle today. … The economy is too good, the capital markets are too generous. It’s hard for a company to get into trouble.”Howard Marks, the co-founder of Oaktree Capital Group and a legendary distressed-debt buyer, said this in mid-September. He was very much speaking to the widespread frustration among his peers in the industry at the time. The Federal Reserve had swooped in and starting cutting interest rates to offset any damage from the U.S.-China trade war. Stocks shrugged off a brief decline in August. The yield pickup on speculative-grade corporate bonds had again retreated toward post-2008 lows. Indeed, distress was virtually nowhere to be found.It’s remarkable to consider just how much has changed. Junk-bond spreads have more than tripled since Marks’s interview, hitting as high as 1,100 basis points last week compared with about 350 basis points in September. The amount of debt trading at a distressed level reached almost $1 trillion. Suddenly, the economy is not “too good” but rather headed into a short recession at best and a depression at worst. Capital markets have been frozen for weeks for all but the highest-quality companies. Credit-rating firms are contemplating default scenarios more severe than the last downturn.Given this shift, it comes as little surprise that hedge funds are making headlines daily with plans to capitalize on this rapid shift in the outlook, contending the market presents a once-in-a-lifetime opportunity. Just to name a few in the past week (credit to Bloomberg’s Katherine Doherty for the reporting):Highbridge Capital Management is preparing to launch two credit-dislocation funds totaling $2.5 billion, expecting to complete fundraising in mid-April. Knighthead Capital Management wants up to $450 million in additional cash for its distressed-debt fund. Silverback Asset Management is preparing to start a $200 million credit fund, aiming to wrap up fundraising sometime in April.Make no mistake, it’s still relatively early days in the coronavirus outbreak, particularly in the U.S. The lasting damage to the world’s largest economy remains very much a guessing game at this point. And yet, despite all of that, it’s starting to feel as if even waiting a few weeks to round up cash might cause some opportunistic funds to miss out on the biggest bargains.For one, the ICE Bank of America Merrill Lynch distressed-debt index gained for four consecutive days through the end of last week, the longest rally since the start of the year. It’s still down more than 40% in just three months, so the market is hardly back to the halcyon days of the recent past, but the semblance of a floor provides at least some optimism that the precipitous drops are winding down. High-yield spreads broadly have tightened to 921 basis points from the aforementioned 1,100.The steep March sell-off has been enough to excite some large traditional fixed-income managers. Ashish Shah, co-chief investment officer of fixed income at Goldman Sachs Asset Management, told Bloomberg’s Gowri Gurumurthy that speculative-grade bonds will gain 20% in 2020 and potentially 30% in the next 18 months. Scott Roberts at Invesco Ltd. declared the chance to scoop up cheap debt will be “gone way before the fear subsides.”Meanwhile, distressed-debt funds have been sitting on cash for years waiting for a moment like this. Preqin collects data on this so-called dry powder, and when I checked in on Monday, the firm estimated that the funds had $63.6 billion to invest as of this month. That might not be enough to buy all debt now trading at a distressed level — but it’s certainly enough to pick through the wreckage for companies with the best chance of survival.Centerbridge Partners LP, for instance, last week activated $3 billion of capital it raised way back in 2016, while Sixth Street Partners plans to activate a $3.1 billion contingency fund raised mostly in 2018, Bloomberg’s Gillian Tan reported. Centerbridge’s cash reserve is tied to two funds focused on opportunistic investments in senior loans and high-yield bonds. Sixth Street will have more than $10 billion of dry powder to invest once the TAO Contingent Fund is activated on Wednesday.Then there’s Marathon Asset Management, which managed to draw $500 million into its opportunistic and distressed credit funds in just a week, Bloomberg’s Eliza Ronalds-Hannon reported on Monday. Bruce Richards, co-founder and chief investment officer of the firm, called this the “greatest dislocation in credit we’ve seen since 2008” and said last week that he was first looking for bonds with coupons between 5% to 7% that were trading at full value earlier this year but have since fallen to about 70 cents. That might sound picky, but with money to invest right now, Richards can afford to be selective.“Historically speaking, when you get to these spread levels, it’s never been a bad place to enter and in a two-year window of time it’s a good buying opportunity,” Jim Schaeffer, global head of leveraged finance at Aegon Asset Management, which manages $390 billion of assets, told me in an interview. And firms that can call capital on funds have “got to start calling them now — if not now, when? What are you waiting for?”It still feels like a tough market for risky credit, but the tide may be turning. Notably, Yum! Brands Inc. brought the first U.S. high-yield offering since March 4 and the deal was upsized to $600 million from $500 million after receiving $3 billion of orders. Yum is far from a distressed company, of course, with double-B credit ratings from Moody’s Investors Service and S&P Global Ratings. But last week, bonds in that rating tier yielded on average 865 basis points more than U.S. Treasuries, compared with 162 basis points in December. That’s not quite distressed, but it’s certainly dislocated.By no means does one deal indicate that credit has bounced back from rock-bottom. But it’s another box checked on the road to recovery, along with tightening spreads in the secondary market and big-name investors getting more vocal about wading back into risky assets (which could be a tell that they’ve already placed their bets).If we’ve learned one thing about financial markets in the age of coronavirus, it’s that they can move at breakneck speed and that those with cash on hand at a moment’s notice are in the driver’s seat. Investors looking to seize on the distressed-debt opportunities of today may want to turbocharge their fundraising efforts accordingly.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
As the federal government continues to finalize the details and protocols of implementing the recently passed Coronavirus Aid Relief and Economic Security (CARES) Act, Bank of America today announced that it will provide up to $250 million in capital to community development financial institutions (CDFIs) by funding loans through the newly established Paycheck Protection Program. In addition, Bank of America will provide up to $10 million in philanthropic grants to help fund the operations of CDFIs.
(Bloomberg Opinion) -- The rat-a-tat of banks in the U.S. and Europe pledging not to cut jobs in the midst of the coronavirus pandemic will be a relief to those inside and outside the industry as the world economy crumbles. For many bankers, though, the respite will be no more than temporary.As governments race to prop up companies and individuals with financial aid, lenders are critical to the transmission of these policies. It will be up to them to delay mortgage and loan payments and hand out state-backed loans to millions of customers. That will determine the extent to which economies can mitigate the slump as businesses battle to survive through the lockdowns. Bank of America Corp. — at one point the target of social media ire over its customer payment terms — has moved thousands of employees to its consumer and small business units to deal with the crisis, including bringing in temporary external hires.Unlike the crisis of 2008, the stresses on markets and the economy are not of banks’ making but they could be as severe. Policymakers have rushed through stimulus and eased lenders’ capital requirements to soften the blow. As they grapple with the operational challenge of fielding a volume of customer calls running as high as 10 times normal levels, now is not the time for layoffs. As regulators have said, buybacks and dividends must go first.Yet the pressure on bank jobs and other costs won’t go away in the medium term. Even the better-placed lenders, which have prospered from the recent spike in market trading activity, will be affected by the economic carnage of the next few months. Deutsche Bank AG, which has paused staff cuts in the middle of its biggest restructuring in decades, on March 18 said the positive business momentum in the fourth quarter of 2019 — in which trading was prominent — carried over into start of 2020. Two days later, it warned it “may be materially adversely affected by a protracted downturn.”From their markets businesses to lending and commissions from investment products, analysts expect all banks to suffer a drop in revenue and an inevitable build-up of bad loans that will erode profit. Record low interest rates will keep squeezing loan margins and appetite for new investments will almost certainly remain subdued for some time.Some analysts are starting to try to asses the financial hit. A Berenberg study of 38 European and U.S. banks estimates an overall revenue decline of 8.5% in 2020 and earnings 30% below what was expected for 2020. There’s only so much policymakers can do to shield financial firms.Europe’s banks, which were struggling to generate sustainable profit even before the latest crisis, will feel most acutely the pressure to shore up capital. This will create the conditions for more mergers.The cost-to-income ratio at the region’s top banks averaged 66.9% in 2019, the highest level since the financial crisis. Return on equity, a measure of profitability, dropped to 8.7%, the lowest in three years, Bloomberg Intelligence data show. Moody’s has downgraded the credit outlook for banks across France, Italy, Spain, Denmark, the Netherlands and Belgium to negative because the operating environment will “deteriorate significantly.” The ratings company already had negative outlooks for British and German banks.As well as the relentless squeeze on profit and costs, there’s another key factor that doesn’t bode well for bank jobs once the current environment ends: the sudden shift to digital banking during the pandemic. Banks are operating with only a fraction of their branches open, leading to a surge in online traffic that might well stick after the Covid-19 outbreak abates. One big U.K. bank saw demand for its online app more than triple to 5,000 daily downloads last week. In the U.S., Italy, France and Germany bank branches on average provide services to fewer than 3,500 inhabitants. In the Netherlands, where the banks are further along in introducing technological changes, the figure is closer to 11,000. This may well be a turning point in the desirability of local brick and mortar banks.The acceleration toward digital banking after the coronavirus “will probably be very fast,” UniCredit SpA Chief Executive Officer Jean Pierre Mustier told Bloomberg Television on Monday. Smaller banks in particular will have to adapt quickly. As economies implode under lockdowns affecting more than one-third of the world’s population, banks are in demand like never before. That won’t last.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Two weeks after investors dumped everything they could to hoard U.S. dollars, some are now starting to sell.Intercontinental Exchange Inc.’s U.S. Dollar Index sank 4.4% this week, the biggest weekly drop since 1985. Traders point to a confluence of reasons, ranging from less stress in funding markets, the repatriation of funds as the quarter ends and the worsening coronavirus outbreak in the U.S.“The sell-off in the U.S. dollar is a reaction to the liquidity measures announced by the Federal Reserve and other central banks,” said Jane Foley, a currency strategist at Rabobank. “Fear may have subsided for now.”A separate gauge of the greenback, the Bloomberg Dollar Spot Index, fell 4.1% on the week, the largest weekly loss since its inception in 2005. It had surged 8.3% over the previous two weeks. The greenback slumped against most of 16 major peers this week, weakening more than 7% against the Norwegian krone and the British pound.The decline comes after the Federal Reserve expanded currency swap lines with central banks, ramped up cash offered to the repurchase-agreement markets and introduced a series of tools to unfreeze credit markets. Stress in cross-currency basis markets, a key funding channel, has eased.Funding Markets See Glimmer of Light With Dollar Stress EasingThe three-month dollar-yen basis is now back to levels seen in early March, while the euro equivalent has swung into positive territory. In foreign-exchange swap markets, the costs to borrow dollars is back to about 1.86% after it printed at more than 2.5% last week.“It’s 100% a dollar-funding story -- the mean reversion of the dollar liquidity crunch is prompting all other FX to rally against the dollar,” said Margaret Yang, a strategist at CMC Markets Singapore Pte.Asia GainsThe dollar weakened as much as 1.7% against the yen Friday amid broad greenback losses and in part by repatriation flows ahead of the nation’s fiscal year-end on March 31, according to Takuya Kanda, general manager at Gaitame.com Research Institute in Tokyo.Other currencies in Asia bounced off multi-year lows. The Australian dollar had dropped to the weakest since 2002 last week and has rebounded.Traders also pointed to the rising virus count in the U.S. and a jump in jobless claims to 3.28 million last week as sapping the greenback. Forecasters expect data next week to show the U.S. unemployment rate climbed.To be sure, the dollar weakness may be temporary.As the new quarter starts Wednesday, repatriation funds will slow and the haven bid from a worsening global pandemic may fuel a resurgence in demand.And while risk appetite returned to markets this week to spur a rebound in equities, Nomura’s Jordan Rochester says that sentiment may ebb next week and the dollar is likely to “regain some ground.”In equities, “it’s natural to see a rebound, but bear markets are marathons not sprints, so it’s not clear to us that the positive momentum can be sustained, especially with the potential for more lay-offs, credit downgrades and potential for defaults.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- For 93 uncomfortable minutes, Bank of America Corp. rushed to escape infamy this week, before it was saved by the grace of James Corden, the affable talk show host known for crooning in cars with stars.The drama began when California Governor Gavin Newsom called out the bank for not offering 90-day grace periods to mortgage borrowers affected by the coronavirus, despite such pledges by rivals including JPMorgan Chase & Co. and Wells Fargo & Co. A journalist tweeted the lashing, and then Corden reposted it to his 10.7 million followers. The bank raced to correct what it called the governor’s mistake.Just over an hour later, the firm promised Corden it would defer payments on home loans for as long as the crisis requires. He relented, putting the internet’s fury to rest:Across the nation, bankers are on edge. Publicly, they’re emphasizing that unlike the last downturn in 2008 they aren’t the cause of this collapse and they intend to help America get through it. Privately, they worry they’re destined to get cast as villains.Once the government enacts its $2 trillion rescue package, banks are going to be the last resort for millions of consumers and businesses needing additional support to weather months of hardship. The nation’s eight banking titans have enough excess capital to ramp up lending by $1.6 trillion, but even that probably isn’t enough to meet everyone’s needs.That means bankers will often decide which borrowers get relief from existing loans or access to more credit -- make-or-break moments for people and businesses trying to avoid default and insolvency.One of the industry’s most senior leaders put it this way: The country’s banks are strong and ready to support the economy -- but they can’t afford to lend irresponsibly to clients who can’t repay. That limits the ability of banks to lend to others.“The best credits are made in the worst of times,” said Julie Solar, a senior analyst who tracks North American financial institutions at Fitch Ratings. As the virus’s toll on the economy worsens, lenders will eventually be forced to pick winners and losers, she said. “Those borrowers who are higher investment grade are going to fare better.”‘Fine Line’There are also ethical questions: Banks must walk a “fine line” to prevent desperate clients from overburdening themselves with debts they can’t repay, Citigroup Inc. Chief Executive Officer Michael Corbat told the Financial Times this week. That’s “the last thing that we all want to see.”Bank of America’s quick move to head off a Twitter backlash shows how worried banks are about keeping public criticism at bay. The lender followed up with a statement saying Newsom was mistaken and that it plans to defer payments on a monthly basis until the end of the crisis.Banks have many other lending decisions ahead. It’s not hard to imagine people and employers facing rejection will feel they could’ve made it through if their bankers just gave them a chance. Such accusations have deep roots in American history, notably the Great Depression.Desperation is rapidly mounting.Companies hit first by the sudden halt to global travel -- such as airlines, hotels, cruise-ship operators, casinos and oil producers -- have been drawing down billions of dollars from existing credit lines for weeks. Their pain soon spread to restaurants, retailers and legions of small businesses as a growing number mayors and governors told residents to stay home.On Thursday, the U.S. reported an unprecedented surge in the number of people seeking jobless benefits, with 3.28 million filing claims in just one week.Behind the scenes, senior bankers said they are rapidly reevaluating their loan portfolios to gauge how the virus and social distancing measures are likely to affect corporate customers, trying to figure out which are most or least resilient.Banks have been honoring credit lines they offered corporate clients in the halcyon years before the pandemic. One looming question is whether lenders might invoke the so-called MAC, or “materially adverse change” clauses, to stop drawdowns. One concern is that some businesses with little to no chance of making it through will siphon off billions in loans that could go toward supporting others.Citing those clauses risks sending shock waves across the industry, potentially prompting stronger companies to draw down their lines preemptively. Still, one high-level banker said he’s expecting to see a few denials this year.Banks are trying to maintain goodwill in Washington, working in close coordination with regulators on measures to shore up the financial system. Earlier this month, a delegation of CEOs from firms including Goldman Sachs Group Inc., Wells Fargo, Citigroup and Bank of America visited the White House to offer reassurances that they can weather the turmoil and help others.In the days since, national and regional lenders have rolled out a series of good deeds. They pledged more than $200 million to charities and relief efforts. Some offered branch workers extra pay. Several suspended long-planned layoffs to give workers certainty.While the stimulus bill passed by the Senate this week includes clauses offering some borrowers forbearance, consumer advocates have been urging banks to go further on their own.Lawmakers are ratcheting up pressure on lenders to help constituents in other ways. Last week, Senators Elizabeth Warren and Ed Markey pushed banks and credit unions in their home state of Massachusetts to suspend a variety of fees -- such as charges for late payments, overdrafts and using ATMS -- that generate billions of dollars in annual revenue nationally.To conserve funds for lending, the country’s largest banks vowed to stop buying back their own shares through at least the middle of the year. The move comes at a cost for investors, some of whom would have preferred firms snap up shares at depressed prices, blunting this year’s 40% plunge in the KBW Bank Index.“The biggest difference between now and 2008 is that the banks are a source of strength rather than the source of the problem,” said Tom Naratil, co-head of UBS Group AG’s wealth management unit. “This is the time for banks, obviously prudently, to make sure that we are extending credit to our clients.”(Updates with additional reference to bank’s response and extent of rout in bank stocks from second paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.