Category Archives: Banking

New Game Show Gives Millennials A Chance To Eliminate Student Loan Debt

Overinflated college tuition facilitated by a bottomless ocean of cheap student loans has so far trapped forty-five million Americans with a record $1.48 trillion in non-dischargeable debt – an amount which has more than doubled since the 2009 lows.

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As we reported in January, approximately 40 percent of student loans taken out in 2014 are projected to default by 2023 according to the Brookings Institute.

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However, a new game show on TruTV offers millennial contestants a chance to answer trivia questions – and if they win, the game show will pay off their student debt.

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“Paid Off,” a new trivia game show that premiered this week tries to illuminate the student debt crisis that has entrapped countless millennials. To get the balance right, the show’s producers partnered with a nonprofit group called Student Debt Crisis.

Its executive director and founder, Natalia Abrams, gave this advice to producers: “Every step of the way, from signing up for college to paying back their loans, it’s been a confusing process. So make sure that there’s some heart to this show.”

Video: Paid Off with Michael Torpey Season 1 Trailer 

Michael Torpey, a New York-based actor (“Orange is the New Black”) who is the host of the show, acknowledges that student debt is a crisis and one of the most difficult financial issues plaguing millennials in the gig economy.

“We’re playing in a weird space of dark comedy,” said Torpey, who developed the show with TruTV producers and various nonprofit groups. “As a comedian, I think a common approach to a serious topic is to try to laugh at it first.”

Video: Paid Off with Michael Torpey – The Story Behind Paid Off with Michael

The rules of game show are simple: Three millennial contestants, all of whom have an exorbitant amount of student debt, go head-to-head in a few rounds of trivia questions, hoping that their useless liberal arts degree enables them to answer enough questions right. If they win, well, the show will cover 100 percent of their outstanding student loans.

“One of the mantras is ‘an absurd show to match an absurd crisis,’” Torpey told The Washington Post. “A game show feels really apt because this is the state of things right now.”

Earlier this year, the show had a casting call in Atlanta – this is what the casting flyer stated: “truTV’s new comedy games show PAID OFF is going to do something the government won’t – help people get out of student loan debt! If you’re smart, funny, live in the Atlanta area and have student loan debt, We Want You!”

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Video: Paid Off with Michael Torpey – Finger The Masters

Torpey told NBC that “he strives to balance the light hearted trappings of a game show with an earnest, empathetic look at the student debt issue.”

“I want to be very respectful of the folks who come on our show, who opened their hearts and shared their struggles with us,” Torpey said. “I hope this show de-stigmatizes debt. I mean, there are 45 million borrowers out there. It is a huge number of people!”

Google searches for “paid off game show” have been rising since June.

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Meanwhile, “student loans forgiveness” searches have been surging over the cycle.

Source: ZeroHedge

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UBS Creates A.I. Clone of Senior Banker to Advise Customers

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The computer-generated image of Mr Kalt greets clients on screen and can talk customers through the bank’s latest research as well as answer queries ( UBS )

An investment bank has digitally “cloned” one of its top staff members, allowing clients to get financial advice without the need to speak to a real-life banker.

UBS is testing the use of a lifelike avatar of Daniel Kalt, its chief investment officer for customers in Switzerland.

The computer-generated image of Mr Kalt greets clients on screen and can talk customers through the bank’s latest research as well as answer queries. Another digital assistant called Fin is also available to carry out transactions.

The new service, called UBS Companion is driven by artificial intelligence and voice-recognition technology developed by IBM. Another company, FaceMe, animated and visualised the avatars. UBS hopes the new tech will increase efficiency and allow it to advise more customers.

But are bankers set to be the latest group to fall victim to the much heralded about “rise of the robots”?

No, says UBS. The bank says it aims to find the “best possible combination of human and digital touch”.

The clone will give clients quicker answers to some questions but the option to speak to a human being will always be available.

UBS started trials in June at its branch in Zurich where it is testing the new system on 100 clients but it won’t say how they have reacted so far. 

At present, there are no plans to unleash an army of cloned bankers on the world.

“It is a project to explore new technology and find out how humans and machines can complement heightened levels of client experience in future,” UBS said.

“The aim is to explore how to create a new frictionless access to UBS’s expertise for our clients and to test the acceptance of digital assistants in a wealth management context.”

Source: Ben Chapman | Independent

Top Restructuring Banker: “We’re All Feeling Like It’s 2007 Again”

There is a group of bankers for whom “better” means “worse” for everyone else: we are talking, of course, about restructuring bankers who advising companies with massive debt veering toward bankruptcy, or once in it, how to exit from the clutches of Chapter 11, and who – like the IMF, whose chief Christine Lagarde recently saidWhen The World Goes Downhill, We Thrive– flourish during financial chaos and mass defaults.

Which is to say that the past decade has not been exactly friendly to the world’s restructuring bankers, who with the exception of two bursts of activity, the oil collapse-driven E&P bust in 2015 and the bursting of the retail “bricks and mortar” bubble in 2017, have been generally far less busy than usual, largely as a result of abnormally low rates which have allowed most companies to survive as “zombies”, thriving on the ultra low interest expense.

However, as Moody’s warned yesterday, and as the IMF cautioned a year ago, this period of artificial peace and stability is ending, as rates rise and as a avalanche of junk bond debt defaults. And judging by their recent public comments, restructuring bankers have rarely been more exited about the future.

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Ken Moelis

Take Ken Moelis, who last month was pressed about his rosy outlook for his firm’s restructuring business, describing “meaningful activity” for the bank’s restructuring group.

“Your comments were surprisingly positive,” said JPMorgan’s Ken Worthington, quoted by Business Insider. “Is this sort of steady state for you in a lousy environment? Can things only get better from here?”

Moelis’ response: “Look, it could get worse. I guess nobody could default. But I think between 1% and 0% defaults and 1% and 5% defaults, I would bet we hit 5% before we hit 0%.”

He is right, because as we showed yesterday in this chart from Credit Suisse, after languishing around 1%-2% for years, default rates have jumped the most in 5 years, and are now “ticking higher”

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Moelis wasn’t alone in his pessimism: in March, JPMorgan investment-banking head Daniel Pinto said that a 40% correction, triggered by inflation and rising interest rates, could be looming on the horizon.

These are not isolated cases where a gloomy Cassandra has escaped from the asylum: already the biggest money managers are positioning for a major economic downturn according to recent research from Bank of America. And while nobody can predict the timing of the next collapse, Wall Street’s top restructuring bankers have one message: it’s coming, and it’s not too far off.

However, the most dire warning to date came from Bill Derrough, the former head of restructuring at Jefferies and the current co-head of recap and restructuring at Moelis: “I do think we’re all feeling like where we were back in 2007,” he told Business Insider: There was sort of a smell in the air; there were some crazy deals getting done. You just knew it was a matter of time.”

What he is referring to is not just the overall level of exuberance, but the lunacy taking place in the bond market, where CLOs are being created at a record pace, where CCC-rated junk bonds can’t be sold fast enough, and where the a yield-starved generation of investors who have never seen a fair and efficient market without Fed backstops, means that the coming bond-driven crash will be spectacular.

“Even if there is not a recession or credit correction, with the sheer volume of issuance there are going to be defaults that take place,” said Neil Augustine, co-head of the restructuring practice at Greenhill & Co.

The dynamic is familiar: since 2009, the level of global non-financial junk-rated companies has soared by 58% representing $3.7 trillion in outstanding debt, the highest ever, with 40%, or $2 trillion, rated B1 or lower. Putting this in contest, since 2009, US corporate debt has increased by 49%, hitting a record total of $8.8 trillion, much of that debt used to fund stock repurchases.  As a percentage of GDP, corporate debt is at a level which on ever prior occasion, a financial crisis has followed.

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The recent glut of debt is almost entirely attributable to the artificially low interest-rate environment imposed by the Federal Reserve and its central bank peers following the crisis. Many companies took advantage and refinanced their debt before 2015 when a large swath was set to mature, kicking the can several years down the road. 

But going forward “there’s going to be refinancing at significantly higher rates,” said Steve Zelin, head of the restructuring in the Americas at PJT Partners.

And as the IMF first warned last April, refinancing at higher rates will further shrink the margin of error for troubled companies, as they’ll have to dedicate additional cash flow to cover more expensive interest payments.

“When you have highly leveraged companies and even a modest rise in interest rates, that can result in an increase in restructuring activity,” said Irwin Gold, executive chairman at Houlihan Lokey and co-founder of the firm’s restructuring group.

So with a perfect debt storm coming our way, many restructuring firms have been quietly hiring new employees to be ready when, not if, the economy takes a turn for the worse.

“The restructuring business is a good business during normal times and an excellent business during a recessionary environment,” Augustine said. “Ultimately, when a recession or credit correction does happen, there will be a massive amount of work to do on the restructuring side.” Here are some additional details on recent banker moves from Business Insider:

Greenhill hired Augustine from Rothschild in March to co-head its restructuring practice. The firm also hired George Mack from Barclays last summer to cohead restructuring. The duo, along with Greenhill vet and fellow co-head Eric Mendelsohn, are building out the firm’s team from a six-person operation to 25 bankers.

Evercore Partners in May hired Gregory Berube, formerly the head of Americas restructuring at Goldman Sachs, as a senior managing director. The firm also poached Roopesh Shah, formerly the chief of Goldman Sachs’ restructuring business, to join its restructuring business in early 2017.

“It feels awfully toppy, so people are looking around and saying, ‘If I need to build a business, we need to go out and hire some talent,'” one headhunter with restructuring expertise told Business Insider.

“In our world, people are just anticipating that it’s coming. People are trying to position their teams to be ready for it,” Derrough said. “That was the lesson from last cycle: Better to invest early and have a cohesive team that can do the work right away and maybe be a little bit overstaffed early, so that you can execute for your clients when the music ultimately stops.”

Of course, if the IMF is right (for once), Derrough and his peers will soon see a windfall unlike anything before: last April, the International Monetary Fund predicted that some 20%, or $3.9 trillion, of the total global corporate debt is in danger of defaulting once rates rise.

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Although if and when that day comes, perhaps a better question is whether companies will be doing debt-for-equity swaps, or fast forward straight to debt-for-lead-gold-and canned food…

Source: ZeroHedge

***

Fortunately, the Dying Do Die

July 6, 2016 marks the point when the US government’s condition became irretrievably terminal. On that date the US Treasury’s 10-year note yield hit its low, 1.34 percent, and has been trending irregularly higher ever since. Historically, debt has been the life support for regimes in extremis. No regime has ever been more in debt than the US government. Its annual deficit and debt service expense are growing, old-age pension and medical programs face a demographic crunch, and now interest rates are rising. One way or the other, the government walking away from some or all of its promises is as set in stone as anything in this life can be.

Seattle Crawls Back To Wells Fargo Because No Other Bank Wants Their Business

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Dakota Access Pipeline protesters chant outside of the Wells Fargo Bank at Westlake Center in January 2017. The city of Seattle has renewed its contract with Wells Fargo, after it could get no other takers for its banking business. (Lindsey Wasson / The Seattle Times)

Seattle split with Wells Fargo a year ago in protest over the bank’s investments in the Dakota Access Pipeline and fraud scandals. But the two are together again after the city could find no other bank to take its business.

The city of Seattle will keep banking with Wells Fargo & Co. after it could get no other takers to handle the city’s business.

The City Council in February 2017 voted 9-0 to pull its account from Wells Fargo, saying the city needs a bank that reflects its values.

Council members cited the bank’s investments in the Dakota Access Pipeline, as well as a roiling customer fraud scandal, as their reasons to sever ties with the bank.

Some council members declared their vote as a move to strike a blow against not only Wells Fargo, but “the billionaire class.”

“Take our government back from the billionaires, back from [President] Trump and from the oil companies,” Council member Kshama Sawant said at the time.

The contract was set to expire Dec. 31, but as finance managers for the city searched for arrangements to handle the city’s banking, it got no takers, said Glen Lee, city finance director. That was even after splitting financial services into different contracts to try to attract a variety of bidders, including smaller banks.

In the end, there were none at all.

It became clear this was our best and only course of action,” Lee said of the city’s decision to stick with Wells Fargo after all.

The first sign that it would be hard to make the council’s wish a reality came soon after the vote when Wells Fargo too-hastily informed the city it could sever its ties immediately with no penalty for breaking the contract. The bank even promised to help the city find a new financial partner.

But it quickly became clear how hard that would be as the city reworked its procurement specifications and searched for months.

Source: By Lynda Mapes | Seattle Times

Subprime Auto Loan Default Rates Are Now Higher Than During The Great Recession

One month ago, when discussing the most recent trends in the US subprime auto loan space, ZH revealed how despite a virtual halt in direct loans by depositor banks to subprime clients following the financial crisis, the US banking sector now has over a third of a trillion dollars in indirect subprime exposure, in the form of loans to non-banks financial firms which in the past decade have become the most aggressive lenders to America’s sub-620 FICO population.

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As we further explained, the banks’ total indirect exposure to subprime loans – not just auto loans, but also subprime mortgages, and subprime consumer loans – could be pieced together through public filings, and according to FDIC reports, bank loans to non-banks subprime lenders soared this decade, with the following 5 names standing out:

  • Wells Fargo: $81 billion, up from $13.4 billion in 2010
  • Citigroup: $30 billion, up from $4.1 billion in 2010
  • Bank of America: $30 billion, up from $2.8 billion in 2010
  • JP Morgan: $28 billion, up from $10.4 billion in 2010
  • Goldman Sachs: $22 billion
  • Morgan Stanley: $16 billion

Visually:

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But while the supply side of the subprime equation is clearly firing on all cylinders – as only the next crash/crisis will stop desperate yield chasers – things on the demand side are going from bad to worse, and according to the latest Fitch Autoloan delinquency data, consumers are defaulting on subprime auto loans at a higher rate than during the 20082009 financial crisis.

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The highly seasonal rate for subprime auto loans more than 60 days past due reached the highest in 22 years – since 1996 – at 5.8%, according to March data; this is well over 2% higher than the comparable March default rate in the low 3%s hit during the peak of the financial crisis a decade ago.

The more recent April data, showed a delinquency rate of 4.3%, higher than the 4.1% last year, and the second highest April on record. Keep in mind, April is the “best” month of the year from a seasonal perspective as that is when the bulk of tax refunds hit, which are then promptly used to repay outstanding bills – it’s all downhill from there… or rather uphill as the chart shows ever higher default rates. 

And while delinquencies have been rising, the number of auto loans and leases to subprime borrowers has continued to shrink, falling 10% Y/Y according to Equifax. However, as we showed at the top, it’s not due to supply constraints at the non-bank subprime lenders, the slide in subprime loan volume is all on the demand side: auto-lease origination by subprime customers tumbled by 13.5%.

Meanwhile, as Bloomberg reports, the volume of bond sales backed by these loans are likely to remain the same because banks and credit unions don’t turn most of their loans into securities: “ABS is a fraction of the total auto credit market, which is mainly funded on balance sheets,” Wells Fargo analyst John McElravey told Bloomberg in an interview. “If the pullback from subprime is more from the balance-sheet lenders, banks, then maybe securitization keeps moving along.”

Not maybe: definitely. As the following chart show, the percentage of subprime securitization of all auto ABS as a share of total loans has not only surpassed the pre-crisis peak, it is at a new all time high.

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Call it the latest “new (ab)normal” paradox: the underlying auto subprime loan market is shrinking fast, and yet the market for subprime auto ABS securitizations has never been stronger.

Subprime-auto asset-backed security sales are on pace with last year at about $9.5 billion compared to $9.6 billion a year ago, according to data compiled by Bloomberg. With new transactions from Santander, GM Financial, Flagship, and Credit Acceptance expected to hit the market this week, volume may exceed 2017’s total of about $25 billion.

And while it is safe to say it will all end in tears – again – as it did a decade ago, with the next recession the catalyst, the shape of the next crash will be very different. As we explained last month, this subprime bond market is vastly different from what it was even a few years ago, let alone during the last crisis as an influx of generally riskier, smaller lenders flooded into it in the post-crisis years, bankrolled by private-equity money and funded by big bank loans, pursued the riskiest borrowers in order to stay competitive.

“Neither banks nor credit unions have done ‘deep subprime’ lending,” Gunnar Blix, deputy chief economist at Equifax told Bloomberg. “That’s mainly done by smaller dealer-finance and independent finance companies” who rely almost solely on ABS for funding. According to Bloomberg, only about 10% of $437 billion of outstanding subprime auto loans have been securitized into ABS, according to Wells Fargo, which means that underwriters are generally massively exposed to the subprime auto loan crunch that is already playing out before our eyes, and which will be magnified exponentially in the next recession.

* * *

The latest subprime delinquency data seemed confusing, almost a misprint to Hylton Heard, Senior Director at Fitch Ratings who said that “it’s interesting that [smaller deep subprime] issuers continue to drive delinquencies on the index in an unemployment environment of around 4%, low oil prices, low interest rates — even though they are rising — and a positive economic story overall.” In other words, there is no logical explanation why in a economy as strong as this one, subprime delinquencies should be soaring.

Unless, of course the real, unvarnished, and non-seasonally adjusted economy is nowhere near as strong as the government’s “data” suggests.

Making matters worse, rising interest rates have made interest payment increasingly unserviceable for those subprime borrowers who are currently contractually locked up – hence the surge in delinquency rates – or those consumers with a FICO score below 620 who are contemplating taking out a new loan to buy a car, and suddenly find they could no longer afford it, an ominous development we first described one month ago in “Subprime Auto Bubble Bursts As “Buyers Are Suddenly Missing From Showrooms.

And even if the subprime bubble hasn’t burst just yet, every incremental 0.25% increase in rates assures it is only a matter of time. For once, St. Louis Fed president James Bullard was not wrong when he warned this morning that he sees Fed policy as the reason behind the flattening of the yield curve, saying that it’s been the Fed, I think, that has flattened the curve more than worries by investors on the state of the global economy.

“My personal opinion is the Fed does not need to be so aggressive that we invert the yield curve” he noted, adding that “I do think we’re at some risk of an inverted yield curve later this year or early in 2019,” and “if that happens I think it would be a negative signal for the U.S. economy.”

If he’s correct, it begs the question: why is the Fed seeking to crash the economy and, by implication, the market?

We’ll close with a quote from the last Comptroller of the Currency, Thomas Curry, who during an October 2015 speech said that “what is happening in [the subprime auto lending] space today reminds me of what happened in mortgage-backed securities in the run up to the crisis.” It’s only gotten worse since then.

Source: ZeroHedge

The Fruits of Graft – Great Depressions Then and Now

Wayne Jett, author of “Fruits of Graft”, interviewed by Sarah Westall in an eight part (video) series to discuss in depth the amazing history of events and actions leading up to the Great Depression. They also discuss the activities and actions taken during the Great Depression that caused increased misery for millions of Americans. This is an epic historical view of the Great Depression you have not heard before; that also serves to explain what is really driving most current events we are living through today.

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Classical Capital

Video Series Links

Part 1

Part 2

Part 3


Part 4


Part 5


Part 6

The Elitist Manifesto

The Red Symphony

Progress and Poverty by Henry George

Wells Fargo Agrees To Pay $480 Million To Shareholders Over Fake Accounts Suit

This settlement is on top of the recent $1 billion fine for mortgage lending and auto insurance abuses.

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The bank announced Friday afternoon that it reached a new settlement over its sales practices and will pay $480 million to a group of shareholders who accused the bank of making “certain misstatements and omissions” in the company’s disclosures about its sales practices.

The settlement stems from actions originally taken in 2016 by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the city and county of Los Angeles to fine the bank $150 million for more than 5,000 of the bank’s former employees opening as many as 2 million fake accounts in order to get sales bonuses.

The action led to a class action lawsuit brought on behalf of the bank’s customers who had a fake account opened in their name.

That lawsuit led to a $142 million fake accounts class action settlement that covers all people who claim that Wells Fargo opened a consumer or small business checking or savings account or an unsecured credit card or line of credit without their consent from May 1, 2002 to April 20, 2017.

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But that wasn’t the only legal battle that Wells Fargo was facing.

According to the bank, a putative group of the bank’s shareholders also sued the bank in U.S. District Court for the Northern District of California, alleging the bank committed securities fraud by not being wholly honest in its statements about its sales practices.

Despite stating that it denies the claims and allegations in the lawsuit, Wells Fargo is choosing to settle the case and will pay out $480 million, assuming the settlement amount is approved by the court.

According to the bank, it reached the agreement in principle to “avoid the cost and disruption of further litigation.”

This settlement is also separate from the recent $1 billion fine handed down against the bank by the CFPB and the OCC for mortgage lending and auto insurance abuses.

The bank stated that the new settlement amount of $480 million has been fully accrued, as of March 31, 2018.

“We are pleased to reach this agreement in principle and believe that moving to put this case behind us is in the best interest of our team members, customers, investors and other stakeholders,” Wells Fargo CEO Tim Sloan said in a statement. “We are making strong progress in our work to rebuild trust, and this represents another step forward.”

Source: By Ben Lane | Housing Wire