Credit scores rise despite COVID; Fed officials call for greater regulation

Wall Street Journal

Good news, bad news

Despite millions of lost jobs and skipped debt payments, Americans’ credit scores are rising. “The average FICO credit score stood at 711 in July, up from 708 in April and 706 a year earlier, according to Fair Isaac, the score’s creator. The increase is largely thanks to the unprecedented financial assistance the government and lenders rolled out to consumers after the pandemic took hold. Widespread payment holidays on mortgages, auto loans and student loans freed up funds and kept credit reports clean.”

While that “is undoubtedly good news” for consumers, “for lenders, the rise in credit scores is yet another confounding factor that is making it difficult to assess risk.”

Trouble ahead?

“Signs of pressure on New York City’s commercial properties are fueling investor bets that trouble in the nation’s largest real-estate market could spread pain nationwide. Prices for debt backed by hotels and shops have fallen, new loans have slowed and lenders are more cautious, leaving bankers and the real-estate industry bracing for a hard hit.”

“Collapsing prices for loans backed by top-tier properties in the Big Apple, which many consider a bellwether for urban markets nationwide, signals there may be more trouble ahead for the more-than half-trillion-dollar market for so-called commercial mortgage-backed securities.”

Dividend dreams

The CEOs of some of Europe’s biggest banks “are hoping regulators will soon let them resume cash dividend payments, easing pressure on their flagging share prices. Spanish lender Banco Santander is even planning to pay a dividend in shares this year as an alternative.”

The European Central Bank “is likely to make an announcement before the end of the year, analysts said.”

Financial Times

Who’s to blame?

Two senior Federal Reserve officials “are calling for tougher financial regulation to prevent the U.S. central bank’s low interest-rate policies from giving rise to excessive risk-taking and asset bubbles in the markets.”

“If you want to follow a monetary policy . . . that applies low interest rates for a long time, you want robust financial supervisory authority in order to be able to restrict the amount of excessive risk-taking occurring at the same time,” Boston Fed president Eric Rosengren told the FT.

“I don’t know what the best policy solution is, but I know we can’t just keep doing what we’ve been doing,” said Neel Kashkari, the president of the Minneapolis Fed. “As soon as there’s a risk that hits, everybody flees and the Federal Reserve has to step in and bail out that market, and that’s crazy. And we need to take a hard look at that.”

Mind the gap

Citigroup, JPMorgan Chase and Bank of America “have warned staff their bonuses will not keep pace with blowout performances in areas such as fixed-income trading and debt and equity underwriting, setting the scene for a record gap between payouts and profits.” Profits at the three banks “were weighed down by a combined $48 billion of loan loss charges in the first nine months of the year, more than three times as much as they set aside for souring loans in the first nine months of 2019. At the same time, the three banks enjoyed big increases in revenues from parts of their investment banks.”

“This is the first time since the financial crisis that we’ve had such a dramatic difference between parts of the big banks,” said Alan Johnson, founder of New York-based pay consultancy Johnson & Associates, referring to the gulf in the performance of the banks’ retail business and their advisory and trading divisions.”

Happy trails

Sergio Ermotti, who is stepping down next month after nine years as CEO of UBS to become chairman of the insurer Swiss Re, reflects on his tenure, which began in November 2011 when “the 158-year-old Swiss bank was at one of the lowest points in its history. Markets were plunging amid the eurozone sovereign-debt crisis and just months earlier UBS had revealed that a rogue trader had hidden $2 billion of losses, a scandal that took down Mr. Ermotti’s predecessor, Oswald Grübel.”

“Mr. Ermotti says the best decision he made was to ignore the clamor from journalists, analysts and shareholders calling on him to sell the U.S. wealth business and shut down the investment bank in the wake of the rogue-trading scandal. There is little doubt that despite lingering misconduct issues — such as the bank’s potential €4.5 billion fine for helping French clients evade tax — he leaves UBS in a better state than he found it.”

New York Times

Mixed blessing

“Fellow finance executives sing the praises” of Ray McGuire, the Citigroup vice chairman who last week “announced that he was stepping down to join the crowded race for New York City mayor. But it’s unclear whether that helps or hurts his bid to run a city whose voters have shifted away from the centrist politics of leaders like Mike Bloomberg toward the progressive views of Representative Alexandria Ocasio-Cortez.”