Fed goes all in; Santander chief takes pay cut

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Whatever it takes

The Federal Reserve announced three new lending facilities Tuesday “to unclog credit markets,” including “unlimited purchases of Treasury and mortgage securities, an action that will swell the Fed’s balance sheet this week beyond the $4.5 trillion peak reached in 2014,” the Wall Street Journal reports. The Fed also resurrected the Term Asset-Backed Securities Loan Facility, or TALF, “which the central bank in 2008 used to support consumer and business credit markets. The Fed will lend money to investors to buy securities backed by credit card loans and other consumer debt.”

In addition, it announced two new programs to “support lending for large companies, an unprecedented step for the Fed. One will address the lack of new financing in the roughly $6 trillion market for highly rated corporate debt by offering bridge loans for up to four years," the paper says. "A second facility is aimed at unblocking the market for existing corporate debt, allowing the Fed to purchase bonds already issued by highly rated companies and eligible exchange-traded funds.”

The Fed “also said it would soon roll out a Main Street Business Lending Program that will support lending to eligible small and midsize businesses. Such a program is likely to depend on additional money from the Treasury Department,” according to the paper. It also said it “would begin purchasing commercial mortgage-backed securities issued by government-supported entities” to support the market for multifamily housing.

“The Federal Reserve is committed to using its full range of tools to support households, businesses, and the U.S. economy overall in this challenging time,” the Fed said, the Financial Times reports. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

Economists are calling the Fed’s moves as doing “whatever it takes” and “throwing the kitchen sink” at markets, the Washington Post says. New York Times here and here , Washington Post, American Banker

“Taken together, the Fed’s aggressive actions over the last week to shore up liquidity are an unprecedented commitment from the nation’s central bank to ensure the smooth flow of credit,” American Banker reports.

The Fed is leaning on America’s thousands of community and regional banks “to get funds all the way to families and small businesses bearing the brunt of the shutdowns” across the U.S., the FT writes.

Bigger bill

Goldman Sachs said it has spent nearly $1.9 billion — almost twice as much as it announced just last Friday — “to shore up liquidity in two of its prime money market funds after a rush of outflows," the FT reports. "Regulatory filings updated on Monday show Goldman paid $1.5 billion to buy securities from its Square Money Market Fund last week, and another $390 million to buy assets from its Square Prime Obligations Fund.” Wall Street Journal, Financial Times

Mortgage mess

Mortgage companies “are bracing for a severe cash crunch when Americans who lose jobs and income because of the coronavirus pandemic stop making payments on their home loans,” the Journal reports. “The mortgage firms are on the hook to continue paying principal and interest on the mortgages they service even if homeowners are in arrears. They are lobbying Congress and the Trump administration to establish a lending facility to help finance the billions of dollars of payments they will be obligated to make.”

The American Bankers Association, the Mortgage Bankers Association and the Housing Policy Council “have come up with a plan to help borrowers who can’t pay because of the economic fallout from the coronavirus — and they want the federal government to backstop it,” the New York times reports. Otherwise, they warn, “their efforts to help homeowners could cause the entire industry to collapse.”

“The more consumers we help through forbearance, and the longer this goes on, the greater the strain on the servicers needed to foot the bill,” the groups said in a letter to Treasury Secretary Steven T. Mnuchin and other federal officials.

Financial Times

Giving back

Santander chairman Ana Botín “said she has taken a 50% pay cut this year to back a €25 million medical equipment fund the Spanish bank is creating to help counter the coronavirus pandemic. The eurozone’s largest lender is also postponing its interim dividend, usually paid in November, and plans to consolidate it with the full-year dividend in May as it attempts to conserve cash ahead of a likely recession caused by the social lockdown across Europe,” the paper reports.

Bloomberg News

The bank’s CEO José Antonio Alvarez “will also contribute half his final salary and bonus for this year to the fund, which will purchase medical equipment and protective clothing among other items.”

Go home

Bank of America said its “traders can execute orders from home after an employee backlash over the number of people still working” at the bank’s New York City headquarters, the paper reports. “A memo sent to staff in BofA’s global markets division on Monday said traders would be allowed to perform their roles from home from Tuesday, putting the bank on par with peers including Citigroup, Goldman Sachs and JPMorgan Chase that already have traders executing orders from home.”

Quotable

“This is the first time they’ve really basically turned into a commercial bank instead of a central bank.” — Michael Feroli, chief U.S. economist at JPMorgan Chase, about the Federal Reserve’s announcement of a new round of asset purchases