'Capital holiday' expiration looms; retail stock traders target Rocket Cos.

Wall Street Journal

Holiday deadline looms

The recent drop in Treasury bond prices might get even worse if a “capital holiday” that incentivizes banks to hold government bonds isn’t extended before it expires at the end of the month. “Some investors say banks selling Treasurys would stand to push yields higher still.”

“A special exemption allowing banks to hold less capital compared with the size of their balance sheets is due to expire March 31. The exemption enables large banks to exclude their holdings of Treasurys and central bank reserves when working out how much capital they need to meet a standard known as the Supplementary Leverage Ratio. The banks will need more capital to hit the same ratio levels if the exemption is allowed to expire, which often means selling Treasurys.”

Cash available

The Small Business Administration on Wednesday “released new guidance on changes to the Paycheck Protection Program” to make it “more attractive to the smallest firms” as loan requests “are running well below last year’s heady pace.” As of February 28 the SBA had approved 2.2 million PPP loans totaling about $156 billion, “just over half the funds available during the newest round.”

Lenders want Congress to extend the PPP’s expiration date past March 31, “citing rules that have yet to be issued and the need for legislative fixes,” American Banker reports.

What goes up …

Individual investors looking to squeeze short sellers have picked a new target: Rocket Cos., parent of Quicken Loans, the country’s largest mortgage lender. “Nearly 377 million shares traded hands on Tuesday alone, more than a 10-fold increase from the previous day. After surging 71% on Tuesday, the stock lost some steam on Wednesday, falling 33%, or $13.59, to $28.01. Trading of Rocket shares was halted several times this week because of its volatility.”

“Like GameStop, Rocket is heavily shorted. Individual investors on WallStreetBets, the Reddit community that gave birth to GameStop’s rise, have been encouraging each other to buy the stock in recent days and sharing evidence of their own massive gains. They have relished in the company’s name, Rocket, an apt one for their goal of higher prices.”

Under review

Cryptocurrency exchange Coinbase, which last week filed to go public with the Securities and Exchange Commission, “said its services may have been used by individuals, entities or jurisdictions subject to U.S. sanctions regulations and has disclosed the activity to a federal agency.” In its prospectus, Coinbase “said it hasn’t faced monetary penalties or other enforcement actions related to the disclosures or subpoenas, but that some of its disclosures are still under review by the U.S. Treasury Department’s Office of Foreign Assets Control, or OFAC, which enforces U.S. sanctions.”

Financial Times

Only 5% down

“The U.K.’s five largest banks have agreed to support a new government scheme that aims to help first-time home buyers by offering mortgages to those with small” down payments. “Lloyds, NatWest, Santander, HSBC and Barclays will from next month lend up to 95% of a property’s value. Banks scaled back low-deposit lending when the coronavirus hit; Barclays is the only big bank that currently lends to borrowers with 5% down.”

“The government will encourage lending under the low-deposit scheme by offering a guarantee that will partially protect banks from potential losses.”

With us or against us?

Fintechs in the U.K. are warning that proposed tighter capital rules “will make it harder for start-ups to get off the ground and threaten the sustainability of smaller companies.”

“A government-backed review last week said fintech was ‘strategically important for the U.K.’s economic growth,’ calling for a number of measures to make it easier for start-ups to expand. At the same time, however, the Financial Conduct Authority is planning to enforce new rules to protect consumers that experts say will drive up costs in an already low-margin sector, highlighting a key tension in fintech regulation. Under new rules due to become permanent this year, they will be held to stricter risk-management standards including, like banks, having detailed wind-down plans.”

Elsewhere

Freeze, please

Citigroup has asked a federal court judge “to extend a freeze on about $504 million that it mistakenly sent a group of Revlon lenders while it appeals his decision that they can keep the money,” Reuters reported. “In a Tuesday night filing, Citigroup asked U.S. District Judge Jesse Furman to convert his temporary freeze over the funds into a longer-lasting injunction.”

“While about $390 million has been repaid, Furman ruled on February 16 that the 10 lenders need not repay the remainder. Citigroup said giving the 10 lenders freedom to distribute the funds to their investors would make it ‘very difficult, if not impossible’ to recoup the money even if it won its appeal.” The lenders are due to respond on March 12.

Quotable

“The $RKT is fueled and ready for liftoff.” — An individual trader touting the benefit of buying shares in Quicken Loans parent Rocket Cos., a heavily shorted stock.