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Putting money to work
Netflix said it will move $100 million — or 2% — of its $5 billion in cash holdings to Black-owned or -led financial institutions “to improve these financial institutions’ ability to offer loans to people and businesses,” the Wall Street Journal reported. “Netflix said $35 million of its $100 million commitment will be placed in two vehicles. The Black Economic Initiative, a newly created fund managed by the nonprofit Local Initiatives Support Corporation, will receive $25 million to invest in black financial institutions that serve low- and moderate-income communities. Another $10 million will go to the Hope Credit Union to ‘fuel economic opportunity in underserved communities across the Deep South,’” according to Netflix. The remaining $65 million would be allocated by the end of the year.
“The big banks where Netflix and other multinational companies keep their money are not able to operate ‘at the grassroots level these black-led institutions can and do,’” Netflix said, according to the New York Times. “So we wanted to redirect some of our cash specifically toward these communities, and hope to inspire other large companies to do the same with their cash deposits.”
Separately, Goldman Sachs’s investment bank has “formed a new group to increase its recruitment and hiring of black employees and improve career development and retention among existing Black employees,” Reuters reported. “The newly formed Council for Advancement of Racial Equity will work on honing and improving diversity targets set in 2019 specifically for the investment bank. It will also develop better divisionwide education and training on avoiding bias and improving management to promote wider racial inclusion in the bank’s leadership.”
Low demand
U.S. banks “say they have seen minimal interest” in the Federal Reserve’s $600 billion Main Street Lending Program for midsize companies, “raising questions about whether the federal response to the crisis is helping key parts of the American economy,” the Financial Times reports. “Senior executives at some of the biggest U.S. lenders told the Financial Times they had more people working on the [program] than they had borrowers interested in taking money from it.”
Fed Chairman Jerome Powell conceded the loans “are not in high demand, but reiterated the central bank’s commitment to continue making adjustments that could attract more borrowers,” American Banker’s Hannah Lang reports.
Meanwhile, the Senate “reached a surprise last-minute deal late Tuesday to extend the small-business Paycheck Protection Program through August 8, passing it just hours before the lending program was set to shut down at midnight,” the Washington Post reported. “Prospects for the legislation in the House, however, were uncertain. Both chambers are set to adjourn for a two-week recess by week’s end.”
Wall Street Journal
Squeezed
The coronavirus pandemic has increased banks’ compliance risks, as some financial institutions have “reduced staff or reassigned personnel at a time when applications for government relief programs are flooding in,” the Office of the Comptroller of the Currency is warning. That “could create challenges for financial institutions to abide by a host of policies, procedures and requirements ranging from data privacy and fair lending to efforts to combat money laundering.”
The regulator said “it would consider the impact of pandemic-related challenges on compliance as it conducts examinations and weighs enforcement.”
Caught in the middle
“Some specialty finance companies that lend to midsize businesses are confronting the threat of a funding squeeze just as the coronavirus pandemic is causing defaults to rise, a potential one-two punch that could curtail their activities. Middle-market lending companies typically rely on credit lines from banks to help fund their investments. In stressed environments such as the current one, banks can lower borrowing limits and demand additional collateral, or cash, if assets lose value. Lenders can also be squeezed from both sides if their own portfolio companies rush to draw down credit lines, which happened in March.”
Financial Times
Fire sale
Michael Jaffé, Wirecard’s insolvency administrator and “one of Germany’s leading specialists for complex insolvencies,” said “numerous" companies "have expressed interest in buying parts of the defunct payments company.”
Misleading
One hundred customers accounted for more than half of Wirecard’s sales in 2017, according to an internal company spreadsheet reviewed by the Financial Times. “The document provides fresh evidence that Wirecard comprehensively misled the market about its scale. It also shows that it processed payments for a variety of controversial businesses that have drawn regulatory scrutiny in a number of jurisdictions.”
Elsewhere
Cut deeper
Cerberus, which owns more than 5% of Commerzbank, wants the bank to “cut far more than a reported 7,000 jobs as part of plans by Germany’s second biggest bank to reduce costs,” Reuters reported. Cerberus plans to present its plan to Commerzbank “in the coming weeks.”
“A spokeswoman for Commerzbank, which at the end of 2019 employed around 48,500 workers, plans to announce details of cost-cutting measures by August at the latest.”
Quotable
“It’s really critical that leading voices like Netflix say it’s important to invest in these institutions so we can then reinvest in these communities. We will generate hundreds of mortgages, business loans, getting people out of debt traps with these resources. It is a game changer.” — Bill Bynum, CEO of Hope Credit Union. Netflix said it plans to deposit $10 million into the Black-owned credit union to help Black communities.
