Wall Street and Fed fly blind as coronavirus upends annual stress tests

WASHINGTON (Reuters) – U.S. financial regulators, banks and their investors will get their first glimpse into the health of the nation’s banking system as it confronts soaring corporate and consumer defaults in the economic crisis sparked by the novel coronavirus.

And no-one, including the U.S. Federal Reserve which sets the annual bank “stress test” exams, has a clue what to expect.

“That is the $100,000 question. Actually, it’s much bigger than that and I am sure the Fed is working hard to get it right. We’re curious, and we don’t have clarity,” said Kevin Fromer, CEO of the Financial Services Forum, which represents the biggest banks in the U.S.

That could mean banks may be on the hook for billions more in capital than they had anticipated, which could ultimately force them to slash dividends, slim down their balance sheets or reduce lending.

Since the 2009 financial crisis, the Fed has tested annually a snapshot of big bank balance sheets against an extreme hypothetical economic shock. The results ultimately dictate how much capital banks can dish out to shareholders.

This year, however, the real life economic blow dealt by the pandemic has by several measures exceeded the doomsday scenario the Fed unveiled in February, leading some banks to grumble it may as well scrap the tests this year.

Instead, the Fed told banks after they had handed in their exam papers in April that it was adding an extra test to reflect the rapid deterioration of economic conditions in recent months.

That eleventh-hour change combined with other tweaks the Fed passed last year has thrown the stress test playbook out the window.

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“Unnecessarily increasing bank capital could serve to limit bank balance sheets at exactly the wrong time, likely chilling economic recovery,” the Securities Industry and Financial Markets Association wrote in a note on Friday in which it urged the Fed to stick to its original plan.

While the banking sector has so far proved resilient, some Fed officials worry it will come under greater stress as mass unemployment leads to more corporate and consumer debt defaults, according to minutes from the Fed’s April meeting.

The country’s largest four lenders – JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N), Bank of America Corp (BAC.N), and Citigroup Inc (C.N) – combined put aside $20 billion to cover expected loan losses in the first quarter alone. Those lenders, alongside Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), are among the 34 banks to best tested this year.

Banks say they are in the dark about the potential outcome because the Fed hasn’t provided any details on how the extra analysis will work or which factors it plans to probe.

Some analysts expect the central bank to adjust for more job losses, which has already blown through the 10% level outlined in its February scenario, and to significantly raise lenders’ potential loan loss rates from the roughly 6% of previous years.

Nellie Liang, a former Fed official who is now a senior fellow at Brookings Institution, said the central bank will likely also probe banks’ exposures to struggling sectors like hotels.

“From a credibility standpoint, they need to be very severe, not just try to catch up with what’s already happened,” said Tim Clark, another former Fed official who helped build the stress tests and now works with the advocacy group Better Markets.

Regulatory changes to the tests agreed before the pandemic have created another unknown. This year the Fed will integrate the stress test results with other capital rules so as to better tailor banks’ overall capital level to their business mix.

Analysts at Keefe, Bruyette & Woods and Evercore ISI have said they expect the tests to result overall in less excess capital which may force banks to cut dividends. While the Fed declined to comment, some officials have said lenders should be prepared for that outcome, according to the April minutes.

But with pressure from the government and lawmakers to keep banks lending, some analysts are leaning the other way. Goldman Sachs said in a note last week that while the Fed could order higher bank capital, it may actually lower requirements “given the extra-ordinary demands on balance sheets.”

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UK is following scientific advice on cautious lockdown easing, minister says

LONDON (Reuters) – The British government is following scientific advice in cautiously easing the coronavirus lockdown, Business Secretary Alok Sharma said on Monday, after criticism from some prominent epidemiologists.

“Of course scientific advice does differ but I think the key point is what is the overall view from SAGE?” Sharma told BBC TV.

“The overall view from SAGE – the scientific advisory group on emergencies which advises the government – their overall view is that we must do this cautiously and that is precisely what we are doing,” Sharma said, adding that if people obeyed the rules there was a good likelihood that R0 would not go above 1.

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Notre-Dame renovation teams play catch-up as lockdown eases

PARIS (Reuters) – French renovation teams aim complete work on Notre-Dame Cathedral in time for the fifth anniversary of its 2019 fire despite the COVID-19 lockdown, the project leader said on Sunday, as admirers were allowed back into the adjoining square.

Casual passersby and faithful alike flocked to the Parvis de Notre-Dame as the square reopened with the partial lifting of lockdown restrictions.

The coronavirus pandemic “has unquestionably delayed the work”, said Jean-Louis Georgelin, the army general put in charge of the mammoth rebuilding programme.

But the goal remains to reopen for religious services in April 2024, Georgelin said, standing in front of the closed-off cathedral grounds. “There’s no reason to believe it cannot be met – we’ll have to find a way to catch up.”

The fire that engulfed the 850-year-old building on April 15 last year destroyed its spire and much of the roof. While the final renovation cost remains uncertain, an appeal for funds has raised close to 1 billion euros ($1.1 billion)

Renovation workers returned to the site six weeks after the pandemic halted operations. But health rules that remain in place are still limiting the pace of work, officials say.

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Italy records 75 new coronavirus deaths, 355 new cases

ROME (Reuters) – Deaths from the COVID-19 epidemic in Italy climbed by 75 on Sunday, against 111 the day before, the Civil Protection Agency said, while the daily tally of new cases fell to 355 from 416 on Saturday.

The total death toll since the outbreak came to light on Feb. 21 now stands at 33,415 the agency said, the third highest in the world after those of the United States and Britain.

The number of confirmed cases amounts to 233,019, the sixth highest global tally behind those of the United States, Russia, Spain, Britain and Brazil.

People registered as currently carrying the illness fell to 42,075 from 43,691 the day before.

There were 435 people in intensive care on Sunday, down from 450 on Saturday, maintaining a long-running decline. Of those originally infected, 157,507 were declared recovered against 155,633 a day earlier.

The agency said 2.434 million people had been tested for the virus against 2.405 million on Friday, out of a population of around 60 million.

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Coronavirus: Survival of ‘big five’ game reserve rests on return of tourists soon

When David Boshoff took the job as general manager of the Dinokeng Game Reserve he thought it would be a thrilling place to practise conservation, for there are few conservation projects in the world like this 20,000-hectare park.

Home to the so-called ‘big five’ – elephants, lions, rhinos, leopards and African buffalo – the reserve sits in the lap of South Africa’s biggest population centre. Dinokeng is a one-hour drive from Johannesburg.

And it came into being when the government and a group of private landowners decided to drop their physical and metaphorical fences and create something unique.

But Mr Boshoff and his team, who have worked to maintain this patch of wilderness on a fast-urbanising continent, now face a challenge that threatens the park’s very existence.

South Africa’s attempt to contain the coronavirus in the form of a nine-week-and-counting lockdown has completely eliminated the revenue generated by tourists.

Consequently, the manager now sits in his office wondering how he is going to keep the place going.

“I’ve got no income coming in, the whole income stream into the park has shut down. There (was not) even one tourist in this park for the whole of April. I have 60 dedicated employees, so how I am going to pay them next month?” asked Mr Boshoff.

The park’s frightening financial position is not the only pressing issue on the manager’s desk.

The number of incursions made by poachers into the park has tripled during the lockdown as intruders hunt for bushmeat – or a lucrative payday in the form of ivory or rhino horn.

“This week we lost an impala, a wildebeest and that is only the animals we found. We lost a lion a month ago, it walked into a snare that was meant for an antelope, so when you lose key species it is going to impact on tourism. It means less income.”

Dinokeng’s anti-poaching unit is formed by a group of specialist trackers and they have been run off their feet in recent weeks.

When the unit’s leader, Tim Higgs, found a fully-grown impala snagged in a poacher’s snare, they hauled themselves into a pick-up truck and raced off to help him near the park’s northern boundary.

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Chinese vaccine could be ready by year-end, government body says

HONG KONG (Reuters) – A Chinese-made coronavirus vaccine could be ready for market as early as the end of this year, China’s State-owned Assets Supervision and Administration Commission (SASAC) said in a social media post.

In trials, more than 2,000 people have received vaccines developed by the Wuhan Institute of Biological Products and the Beijing Institute of Biological Products. A vaccine could be ready for the market as early as the end of this year or early 2021, according to the May 29 post on Chinese social media platform WeChat.

Vaccines from the Wuhan Institute of Biological Products and the Beijing Institute of Biological Products had entered Phase II clinical trials. Both groups are affiliated with state-owned pharmaceutical group Sinopharm, whose management is overseen by SASAC.

The Beijing Institute of Biological Products’ production line will have an annual manufacturing capacity of 100 million to 120 million doses, according to the article.

China has five coronavirus vaccines in human trials. Neither company could be reached for comment on Saturday evening.

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Coronavirus: Businesses must pay towards furlough scheme from August, chancellor announces

Chancellor Rishi Sunak has unveiled plans for employers to start paying towards the wages of their furloughed staff .

Changes to the Coronavirus Job Retention Scheme (CJRS) let businesses bring back staff part time from July, and introduce a taper requiring firms to contribute to salaries from August.

Mr Sunak has also announced that financial help will be extended for sole traders for a further three months, although the grant available will be reduced by 10%, to 70% of their profits.

The government said the furlough scheme will close to new entrants on 30 June and the programmes of financial support will not be extended past October.

It comes as ministers try to get people safely back to work and restart the stalled economy as the coronavirus lockdown is eased.

Speaking at the daily press conference, Mr Sunak said: “As we reopen the economy, there is broad consensus across the political and economic spectrum, the furlough scheme cannot continue indefinitely.”

But fears are likely to persist that the reduced level of support could lead to a wave of redundancies as the economy heads into recession.

Mr Sunak added: “Our top priority has always been to support people, protect jobs and businesses through this crisis.

“The furlough and self-employment schemes have been a lifeline for millions of people and businesses.

“We stood behind Britain’s businesses and workers as we came into this crisis and we stand behind them as we come through the other side.

“Now, as we begin to re-open our country and kick-start our economy, these schemes will adjust to ensure those who are able to work can do so, while remaining amongst the most generous in the world.”

The job retention scheme has so far helped a million businesses cover the wages of 8.4 million staff unable to work during lockdown, at a cost of £15bn.

In June and July, the existing support will continue with the government still paying 80% of furloughed employees’ salaries, capped at £2,500, with firms not required to pay anything.

However, from 1 July – a month earlier than previously announced – firms will be able to bring staff back part time, but will be responsible for paying their wages while in work.

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German official sees Lufthansa bailout in reach, demands fairness

FRANKFURT (Reuters) – The Berlin government is likely to reach a deal with Brussels on a $10 billion government bailout of stricken airline Lufthansa (LHAG.DE), senior government official Thomas Jarzombek said on Friday, but stressed the German airline needed fair treatment.

“Offers are on the table and we have a long record of finding agreement eventually,” Jarzombek, who coordinates aviation on behalf of the cabinet, told broadcaster RTL/ntv in a morning show.

“I am confident that this will also be the case here.”

The deal was thrown into doubt on Wednesday after Lufthansa’s supervisory board refused to accept the conditions attached by Brussels to the aid.

The board did not agree with EU requirements that Lufthansa permanently give up take-off and landing slots at Frankfurt and Munich airports, where it commands a two-thirds market share.

Jarzombek said Germany would clarify the necessary scope of conditions tied to the deal, comparing these with how Lufthansa rivals such as SAS (SAS.ST) or KLM/Air France (AIRF.PA) were treated.

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French coronavirus cases jump by 3,325 due to better tracking

PARIS (Reuters) – The number of coronavirus infections in France jumped on the same day the government announced an easing of lockdown rules, but the increase reflected the inclusion of new data rather than a rise in daily infections, the Health Ministry said.

The inclusion of data from a new tracking system boosted the number of confirmed coronavirus cases by 3,325 to 149,071, the biggest increase since a 4,183 increase on May 6, when data from a new laboratory were included.

“The increase compared to yesterday is due to more efficient tracking, not to the epidemiological situation in France,” the ministry said in a statement on Thursday.

It said that from now on France would use a new monitoring system that will allow for more complete tracking.

The ministry did not specify how much the case count had increased on Thursday. On Wednesday, the number of confirmed cases rose by 191, or 0.1%, to 145,555, a lower daily rate of increase than the 0.2% average seen the previous seven days.

The ministry said the virus’ total death toll rose by 66, or 0.2%, to 28,662, the same increase as on Wednesday and the eighth day that the number of deaths remained below 100.

In the first half of April, France reported over 1,000 deaths per day on several days, with a peak of 1,438 on April 15.

The ministry said the number of people in hospital fell by nearly 500, or 3%, to 15,208, and the number of people in intensive care fell by 72, or 4.8%, to 1,429. Both numbers have been on a downtrend since mid-April.

The slowdown in the infection rate and reduced pressure on France’s health system were key factors in the government’s decision to announce further easing of the lockdown rules on Thursday, including the reopening of bars, restaurants and beaches.

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Bill lengthening coronavirus small business loan terms nears U.S. House passage

WASHINGTON (Reuters) – The U.S. House of Representatives on Thursday neared passage of legislation increasing the amount of time, to 24 weeks from the current eight-week deadline, for small businesses to use Paycheck Protection Program loans.

As voting continued, the bill was headed to overwhelming passage in the House.

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