Another extraordinary week in markets, the economy, and the FinTech sector.
This week, we analyze the recent jobless claim data, a summary of the policy response, and best practices for investors monitoring their lending portfolio. Let’s dig in.
A Eulogy for the Great Recovery
We would expect the NBER to mark the beginning of the recession sometime this past March.
The abrupt halt in economic activity brings to an end a record 113 straight months of continuous job growth.
A startling 3.28 MM filed for U.S. jobless benefits – nearly five times the previous record high and comparable to the entire population of Utah. State unemployment sites choked at the velocity of applications and we expect continued job losses in the weeks ahead.
During this period the workforce expanded by 22 million – including low-wage hourly laborers, disabled people, minorities, former inmates and others – found work.
The unemployment rate, which was 3.5% in February, had been at levels not seen since man flew to the moon.
Source: S&P Global Ratings, PeerIQ
Summary of CoronaVirus Relief Bill
The Coronavirus Relief Bill, the largest economic relief package in history and on the highest end of expectations ($2 Tn), was signed into law this Friday.
The bill extends relief to broad swathes of the economy individuals (~$560 Bn), small business ($377 Bn), state & local governments ($339 Bn), public health institutions ($153.5), and large corporates ($500 Bn).
Individuals earning less than $75,000 can expect a one-time cash payment of $1,200. Married couples would each receive a check and families would get $500 per child. This bill creates a new temporary Pandemic Unemployment Assistance Program through the end of this year to help 1099 incomes, which typically do not qualify for unemployment (e.g., contractors, freelancers, self-employed).
The bill offers $350 Bn in forgivable loans via the SBA program. A small business can apply for up to 2.5x their average trailing 12 months payroll. Any portion of the loan used to maintain payroll, keep workers on the books or pay for rent, mortgage, and existing debt could be forgiven, provided that workers stay employed through the end of June.
We recommend this summary of the CoronaVirus Relief Bill to see what stimulus measures may soften your consumer and small business credit exposure.
Investors – What Data to Ask From Your Lender?
One of the most frequently asked questions we are asked by our data & analytics customers is what fields to focus on to model risk. Our response, servicer reports – metrics that indicate the proactive servicing and appropriate response (e.g., loan modification policies, etc.) Is servicing at risk due to social distancing measures? Has the lender performed “hot swaps” with backup servicers to test for readiness?
|Loan modification (True/False)||
|1099 vs. W-2 Unemployment||
|Is Loan on Autopay via ACH (True/False)?||
|Was Loan distributed via direct ACH? (True/False)||
|Indicator for Paystub, Tax, or income verification||
|Geographic Indicator (Zip)||
On the regulatory front, bank regulators are considering relaxing crisis-era regulation to let banks get back to lending.
Capital buffers at the largest U.S. banks would enable banks to boost lending by $1.6 trillion. By deploying their excess capital, the eight largest lenders alone could expand their balance sheets by $1 trillion.
Of course, there are very good reasons why banks do not make these loans today, and regulatory pressure may pose the risk of stuffing the banks with bad loans.
How is the FinTech Sector Helping?
FinTech’s are in a unique position to lend against underserved sectors of the economy including the underbanked. Consumers that are living paycheck to paycheck turn to FinTechs for assistance during the Coronavirus pandemic.
Consumers are taking advantage of the early wage access programs offered by fintechs like PayActiv, DailyPay and Branch. Some of these providers are making their service free.
Dozens of FinTech firms such as Roostify and StreetShares, are offering free technology to banks during the Coronavirus Crisis. (Send a note if you’d like your FinTech included on this list.)
OnDeck, and 21 other FinTech companies, sent a letter to Congress indicating that they stand ready to assist in deploying the financing via their proven transparent networks. Key excerpt: “The private sector is ready to help including with data, expertise, and engineering resources. We seek no gain from this crisis. Our only aim is to protect the millions of small businesses that we are proud to call our customers.”
Regulators Encouraging Digital Banking – “FedAccounts”
Senator Sherrod Brown, a top Democrat on the Senate Banking Committee, is proposing a “FedAccount” digital wallet that would allow consumers to receive money quickly and inexpensively: “My legislation would allow every American to set up a free bank account, so they don’t have to rely on expensive check cashers to access their hard-earned money.”
Account holders would receive debit cards, online account access, automatic bill-pay, mobile banking, and ATM access.
Each post office or bank with less than $10 billion of assets would be reimbursed each quarter by their regional Federal Reserve bank for the actual and reasonable operational costs incurred in offering the pass-through digital dollar wallets.
Finally, in financing and M&A news, deals are picking up again. Brex, the $2.6 billion credit card startup, acquired 3 startups amidst uncertainty.
- Senate Approves Roughly $2 Trillion in Coronavirus Relief (WSJ, 03/26/2020) Largest economic relief package in U.S. history gets approved by the senate.
- Record 3.28 Million File for U.S. Jobless Benefits (WSJ, 03/26/2020) The number of people filing for unemployment was nearly five times the previous record high.
- U.S. Jobless Rate May Soar to 30%, Fed’s Bullard Says (Bloomberg, 03/22/2020) President of Fed Bank of Saint Louis, James Bullard, believes that the U.S. unemployment rate may increase to 30%.
- We’re Looking at a System-Wide Margin Call (Bloomberg, 03/23/2020) From risk parity strategies to statistical arbitrages, COVID-19 is unraveling the most sophisticated of trades.
- Venture capital-backed start-ups fear they won’t get relief from small business stimulus (CNBC, 03/27/2020) Startups and investors fear that the “affiliation” rule might prevent them from getting help from the stimulus package.
- Consumers Seek Early Access to Wages to Soften Coronavirus Hit (American Banker, 03/20/2020) Consumers that are living paycheck to paycheck turn to FinTechs for assistance during the Coronavirus pandemic.
- Sen. Brown Proposes Digital Account for Unbanked Households (American Banker, 03/24/2020) Senator Sherrod Brown wants banks to offer free digital accounts to consumers that do not have bank accounts, so they can easily access their Coronavirus relief funds.
- Why Congress Considered a Digital Dollar in its Coronavirus Response (American Banker, 03/24/2020) The Coronavirus stimulus package brought back conversations for the U.S. government to offer a digital dollar.
- A List Of Fintech Firms Providing Free Technology During The Coronavirus Crisis (Forbes, 03/23/2020) A list of FinTech companies that want to help banks help their customers during these trying times.
- Fintech Firms Lobby For Role In Sending Relief Funds To Small Businesses, Saying Government Can’t Move Quickly Enough (Forbes, 03/22/2020) FinTech companies want to help the Government with disbursing small business loans for relief.
- Top U.S. Banks Can Lend $1.6 Trillion Using Excess Capital (1) (Bloomberg, 03/23/2020) Big banks have enough capital to increase their lending capacity as customers come calling to cope with economic disruption.
- Letter to Congress – OnDeck (OnDeck, 03/24/2020) FinTech lender, OnDeck Capital, reached out to congress and stated that they are willing to help them deploy financing to small businesses that need relief.
- Non-bank Lenders will Bear Brunt of Credit Crisis (Financial Times, 03/24/2020) Financial risk has been pushed away from banks.
- Hedging Stock Market Risk With Bitcoin. Hint: Guy on the left is BitCoin.
Hedging stock market risk with bitcoin pic.twitter.com/hHjTuOsfeO
— Downtown Josh Brown (@ReformedBroker) March 24, 2020