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Retail Sales & E-Commerce; Payment Priority Surprise; Banks Shifting to Digital

By Tito Donis

May 17, 2020

Greetings, This week, we look at the rising tide of initial unemployment filings and its follow-on impact to retail sales, data on forbearance to charge-offs or cures, an appeal by MLA’s Nat Hoopes to include unsecured personal loans in the Fed’s TALF program. Let’s get to it. U.S. Unemployment Continues to March Upwards Thursday’s announcement that an additional three million people filed for unemployment last week is just the latest datapoint in an unprecedented spike in joblessness. The news brings the overall number of unemployment filings since the beginning of the COVID-19 crisis to more than 36MM people. Analysts at Goldman Sachs raised their forecast to a 25% unemployment rate. They caution that unemployment was likely to remain at elevated levels - and only fall to 10% by year-end. For those tracking the policy side of things, we recommend this piece in the WaPo: “We Could Stop the Pandemic by July 4 if the Government Took These Steps.” The op-ed is an original approach that breaks the false trade between saving lives and the economy. (It’s also co-written by Ram’s sister, Puja Ahluwalia, and economist, Alex Tabarrok - we approve!) Record Drop in Retail Sales, but Surge in E-Commerce April retail sales fell by ~$80Bn, equivalent to a record 16.4% month-on-month drop (seasonally adjusted). It’s the worst retail sales report ever. (Ever is a long time!) Annual sales fell 21.6% YOY, with in-store clothing and clothing accessories sales down a whopping 89.3% since April 2019. And yet, there were some silver linings for the ecommerce sector: non-store retail sales were in fact up by 21.6% YOY. Double-clicking on the ecommerce bright spot: Bank of America analysts estimate that the sector has more than doubled YOY, estimating that the sector represents $1.3Tn of economic activity annually. The takeaway? It’s a landgrab opportunity for the online POS lending sector. Here’s Affirm’s Max Levchin on CNBC this past week discussing the surge in online POS.  Payment Priority in a Post-COVID-19 World The WSJ recently shared the results of a survey measuring willingness to pay. In each of the past few recessions, there’s been a “surprise” to the traditional way of looking at payment priority. We’ve been arguing over the past few years that cell phone payments are on the top of the consumer liability stack. That seems to be holding up so far. The big change this time is the shift in willingness to pay or defer payments on rent.

Source: WSJ, The Daily Shot, PeerIQ

What is the Forbearance to Cure Roll-Rate? (And Forbearance to Charge-Off?) The most often asked question we get asked today is, “will these deferments turn into defaults?” Two data points. Both of these comps are imperfect, but better than nothing. Elevate We dug into the Elevate’s (ELVT) earnings this past week. Elevate is a non-prime, small dollar lender displacing the payday lending space. (Email us for the Elevate earnings takeaways - not enough space in this newsletter!) Agency Mortgages Ocwen, a large mortgage servicer, published the % of mortgage borrowers making payments while in forbearance. As of 4/30: Readers - What do you think is going to happen? We’d love to hear your thoughts and include the results of our entirely unscientific poll in next week’s newsletter. Loans in Hardship Programs Rising, but Flattening Here at PeerIQ, we’ve been tracking the rate of loans that are in hardship programs on our platform. The PeerIQ analytics platform is summarizing exposures.

Source: PeerIQ Data & Analytics Platform

Looking at U.S. consumer loans specifically, after a spike in the first couple weeks of April, loans enrolled in hardship programs continue to stabilize around 14%. Reach out to your client representative at PeerIQ if you’d like to incorporate this analysis into your workflows. Expand TALF to Include Consumer Loans? Over at American Banker, friend-of-the-firm, Nat Hoopes makes a case for including investment grade unsecured personal loans in the Fed’s Term Asset-Backed Securities Loan Facility (TALF) program. Regular readers will know that we support this approach; in fact, our own Ram Ahluwalia made a similar case in a podcast with Peter Renton just a few weeks ago. PNC Boosts Warchest, Eyes M&A A number of public companies have not been shy about disclosing their interest in acquisitions. The regional banks are a sector to watch - notably PNC, whose sale of their BlackRock stake adds an ~$14Bn boost to their warchest. Several regional banks are eyeing FinTechs as a way to get an “out of the box digital strategy.” Similarly, an article in American Banker discusses how banks including U.S. Bancorp, Wells Fargo, WSFS, and other banks are accelerating their digital efforts. Forbes has a write-up on potential FinTech acquisition deals worth taking a look at. Industry News: Lighter Fare: