Dimon’s role in WeWork IPO fiasco; Freddie tests underwriting software

Receiving Wide Coverage ...

Fallout

JPMorgan Chase CEO Jamie Dimon tried to salvage WeWork’s botched IPO, which led to the resignation of its CEO and co-founder Adam Neuman, the Wall Street Journal reports. “In several days of meetings at the bank’s Midtown Manhattan headquarters, Messrs. Dimon and Neumann discussed how to contain the crisis gripping the startup following its decision to delay its stock-market debut, and Mr. Dimon, as the leader of the bank underwriting the offering, was advising Mr. Neumann on his options.”

While "Dimon’s involvement in the deal is unusual," the paper says, "so is JPMorgan’s relationship with We. The bank is one of the office-space company’s biggest lenders. Funds it manages are, in aggregate, We’s third-biggest outside investor. It has extended nearly $100 million in mortgages and other loans to Mr. Neumann personally. It’s one of the lenders behind the $500 million credit line that allowed Mr. Neumann to cash out a big chunk of his shares. All this means that Mr. Neumann’s problems are Mr. Dimon’s problems.”

Giulia Marchi/Bloomberg

Neumann’s “flouting of corporate governance norms [was] enabled in part by JPMorgan,” the Financial Times says. “Along with other advisers including Goldman Sachs, JPMorgan’s own reputation risks being tainted by the unfolding crisis.” The meeting on Sunday between the two CEOs “ultimately did nothing to halt Mr. Neumann’s fate, but it did highlight the depth of a relationship between the entrepreneur and Mr. Dimon’s bank, which began courting him when he had just one building. Wall Street executives have fallen over themselves to woo Mr. Neumann and his company, but it was JPMorgan that won the coveted lead role” on the IPO.

The clock is ticking

Metro Bank’s stock plunged more than 35% on Tuesday after it failed to complete a £200 million bond issue on Monday. The U.K. bank’s stock is down nearly 90% so far this year following a misreporting scandal. “The upstart bank founded by American banker Vernon W. Hill II … pulled the sale after investors placed only £175 million of orders.”

The stock drop “prompted speculation from analysts and rivals that the challenger bank could be forced into a sale. However, its advisers insisted on Tuesday that it would be able to raise the new debt after it issues its third-quarter results next month. People close to Metro said the bank was still optimistic about meeting a Bank of England deadline of January 1 to raise the new debt.”

Tragic ending

Aivar Rehe, the former head of Danske Bank’s Estonian branch that was the center of a €200 billion money-laundering scandal has been found dead, an apparent suicide. Rehe had been missing since Monday. Rehe headed Danske’s Estonian operations from 2006 until 2015 throughout the scandal. Wall Street Journal, Financial Times

Wall Street Journal

Cash crunch

Banks asked the Federal Reserve Bank of New York for more than double the amount of two-week loans it was offering Tuesday, “a sign that banks could need more cash than Fed officials had anticipated.” The Fed offered $30 billion of cash loans but received $62 billion in bids. The Fed later received $80.2 billion in requests when it offered $75 billion of overnight loans.

“Tuesday’s operations marked the sixth and seventh times the Fed has intervened in the short-term lending market” in the past two weeks. “The actions came at an important time for banks because regulators regularly check at the end of the fiscal quarter to make sure they have enough cash and liquid assets to protect against potential losses. Demand from banks suggested officials may need to increase the amount of loans when conducting further operations later this week.”

Expanding the field

Freddie Mac “has been testing underwriting software from a financial-technology firm, ZestFinance, that could make mortgages more available for certain applicants, including first-time home buyers and minorities. The software evaluates consumers’ borrowing and income histories in new ways. The mortgage giant is assessing whether the software can improve the accuracy of its own models’ risk predictions. Mortgage applicants who could benefit include those who have a low credit score, high debt levels or other red flag but have other positive characteristics.”

Picking winners

Stripe made a big splash last week when it raised $250 million in the private market, bringing its valuation to $35 billion. “But in public markets, investor enthusiasm for the once red-hot payments industry seems to be cooling. What seems certain is that competition will keep heating up … [which] likely means further compression on fees and margins.” As a result, “valuations for some firms are easing somewhat.” But, obviously, not Stripe.

“The tidal wave of digital commerce will likely be enough to lift many boats, supporting high valuations. But it is getting trickier to pick the ultimate winners, especially with such a major player still locked behind the curtain of the private market.”

Financial Times

Collateral damage

HSBC shares have been regarded for decades “as a proxy for the rise of Asia as the export engine of a world that was embracing global trade. But today, as globalization stutters, HSBC has become an object of Beijing’s wrath, part of the collateral damage from the wide-ranging friction between China and the west. What does that mean for the future of one of the world’s biggest banks?”

Actually, it may not have much choice. “If HSBC is to have a bright future, it is unlikely it would be in a shrinking post-Brexit Britain or even in Europe. Nor can it be in the U.S. where it has been in retreat for many years. That leaves Asia. And if the bank’s future lies with China, does that mean ultimately transforming itself into a Chinese bank?”

Irrelevant

Deutsche Bank CEO Christian Sewing warned that Europe risks “losing its relevance” as more business shifts to the U.S. and China. “During my meetings and sessions in Asia last week, America and China were the hot topics of conversation. Europe was much less of an issue. We simply aren’t that interesting any more for many investors and companies,” he said. “Sewing has emerged as a leading critic of central bank policy and politicians’ failure to implement structural reforms in Europe.”

Elsewhere

Getting bigger

Online savings banks, such as Ally Financial and Capital One, which have “racked up $95 billion in customer deposits this year with enticing yields on most savings accounts, are starting to take market share away from traditional consumer banks, increasingly offering higher interest rates on deposits to a new generation of savvy, affluent consumers, who want higher payouts on their deposits.” Evercore says these banks now own about 10% of the overall U.S. deposit market and are poised to get more.

Quotable

“If JPMorgan’s institutional investors were throwing up all over this, they should have known.” — David Spreng of Runway Growth Capital on JP Morgan Chase’s role in the botched We Work IPO