Greetings,
This week, the economic picture continues to improve, with the job market looking more robust than traditional indicators may suggest. Inflation remains a concern. The OCC declined to revisit its “Valid When Made” rule. The SPAC market faces headwinds, but fundraising activity remains robust.
New here? Subscribe here to get our newsletter each Sunday.
April Consumer Spending Up; Jobs Market Tighter than It Looks
The Bureau of Economic Analysis’ April report showed a nominal increase in personal consumption expenditure of $80.3Bn (0.5%) vs. March. Inflation-adjusted PCE actually dropped by 0.1%, reflecting continued price increases.
Personal income spiked in March, when the bulk of consumers received the latest round of economic impact payments. Fewer stimulus checks landed in April, causing personal income to drop by $3.2Tn (-14.6%) month over month. However, consumers’ balance sheets continued to strengthen, as they socked away 14.9% of disposable income in April.
Unemployment numbers remain elevated, but initial unemployment claims continued to drop last week to the lowest level since the pandemic began. We found St. Louis Fed President Bullard’s assessment of the job market to be particularly interesting. He claims it’s currently tighter than headline unemployment numbers suggest. Bullard is starting to advocate looking at alternate employment measures, like the unemployment-to-job ratio. This measure was at a low of 0.8 in February 2020, rose as high as 5 during initial lockdowns, but was down to 1.2 by March 2021.
Rising labor and input prices and supply chain disruptions continue to drive inflation concerns. We’re aligned with the Fed outlook that these forces are likely transitory. If the Fed’s consensus view shifts that employment is in good shape, it may taper asset purchases or increase rates sooner than later.
OCC Declines to Review “Valid When Made” Rule
Acting Comptroller Michael Hsu indicated the OCC has no plans to revisit the Trump-era “Valid When Made” rule. The rule, together with the soon-to-be nullified “true lender” rule, were formulated to address legal uncertainty in the secondary loan market stemming from the 2015 Madden v. Midland Funding decision.
We welcome this as good news for fintech-bank partnerships and consumers seeking to access affordable credit.
Is the SPAC Window Closing…?
Recent weeks have seen heightened SEC scrutiny of SPAC investor protections and accounting changes that make the structure less attractive. Now the recent Archegos collapse is adding to the pressure. Banks have tightened credit they are willing to extend to hedge funds and family offices — key investors in SPAC deals.
However, SPACs still have plenty of dry powder, having raised over $105Bn this year alone. The hunt is on to find suitable candidates to merge with. Most SPACs face a two-year deadline to reach a deal, or they face returning the capital to investors.
It’s not all bad news in SPAC world. SoFi, which announced its SPAC deal this January, completed its merger and began trading on NASDAQ this week. Its share price rose 7% in its first day of trading — congrats to CEO Anthony Noto and the entire SoFi team!
Pinwheel Scores $20MM for Payroll APIs
Payroll API startup Pinwheel has raised $20MM led by Coatue to continue growing its platform. Payroll connectivity enables functionality like direct deposit switching, income verification, and paycheck-linked lending.
New sources of data, like payroll, aren’t exclusive to the neobanks Pinwheel is targeting. Last month, a consortium of major banks announced an initiative to share bank account data to underwrite credit cards for customers who otherwise would be unlikely to qualify.
Additional data sources, when used with appropriate consumer protections, are a win/win for consumers and lenders alike.
Marqeta Revenue Doubles, Aims for $12Bn Valuation
More details emerged on Marqeta’s planned IPO this week. The payment card issuing startup more than doubled its revenue to $290.3Mn in 2020, propelled by COVID-driven consumer preferences for online shopping and food and grocery delivery.
Marqeta plans to sell about 45.4Mn shares at a price of $20-$24, valuing the company at as much as $12Bn. We read this as another investor vote of confidence in the business models and growth potential of fintech infrastructure companies.
Bank Stocks Jump on Interest Rate Hopes
With inflationary pressures continuing, bank stocks are showing big gains. Investors have put over $30Bn into bank shares on the premise that interest rates will rise sooner rather than later to curb price increases.
For non-financial companies, rate hikes mean an increased cost of borrowing. For lenders, it makes lending more profitable. With household and business balance sheets in good shape, lending is poised to increase with the economic recovery — powering share price increases. S&P Global’s index of small-cap banks was up 32% this year through May, and the large-cap bank index was up 36%.
The fundamentals of this cycle couldn’t be more different than the 2008 Global Financial Crisis. With stronger balance sheets and supported by strong monetary and fiscal policy, the financial
sector is poised to help drive and benefit from a robust recovery.
Keep on top of how the evolving economic and interest rate climate is impacting portfolios’ performance and valuation with PeerIQ’s best-in-class loans analytics platform for originators and buyers. Reach out to sales@peeriq.com to learn more about what we’re building.
Sector Update
In the News:
Overdraft Fees Fell in the Covid-19 Economy (WSJ, 05/30/2021) Aided by government stimulus and bank waivers, consumers faced substantially fewer overdraft charges.
Retailers Wrestle With Inflation And Inventory Challenges (PYMNTS, 06/01/2021) Treat yo’ self — the end of COVID and supply chain issues create worries over inflation and inventory.
Circle Completes $440 Million Financing to Drive Growth and Market Expansion (PR Newswire, 05/28/2021) The rise of USDC, with over $22Bn in circulation, drives growth and funding round.
Fintech Unicorn Stash Is Weighing Options for Going Public (Bloomberg, 05/27/2021) Goldman advises Stash on going public options, including merging with a SPAC or IPO.
MotoRefi Secures $45M Funding Round Led by Goldman Sachs (finLedger, 05/28/2021) New funding, new look: the company recently partnered with SoFi, hired new senior executives, and unveiled a new headquarters in Arlington, Virginia.
Truebill Puts $45M Series D To Work Helping People Take Control Of Personal Finances (Crunchbase, 06/01/2021) The platform that gives consumers insight into their financial health reaches a $500MM valuation with the latest funding round.
In The War Between Square, PayPal And Shopify, Banks Are Collateral Damage (Forbes, 06/01/2021) Banks must adapt to survive the rise of the merchant platform ecosystem.
Sezzle, Target Sign 3-Year Contract For Retailer’s Use Of BNPL Product (PYMNTS, 06/02/2021) Target to use Sezzle’s interest-free installment product to increase its consumer’s purchasing power.
BNPL Fintech Affirm Reveals Consumer Behavior, Shopping Trends, and Preferences for Pay Over Time Options (Crowdfund Insider, 06/02/2021) Consumers surveyed used BNPL to avoid negative impact to their cash flow, and without BNPL, one third would delay or not purchase items.
Lighter Fare:
How to Watch Next Week’s Rare “Ring of Fire” Solar Eclipse (CBS, 06/01/2021) Rise and shine — wake up early (5:42am) Thursday morning to catch a glimpse of this rare solar eclipse.