Finance Brief: Hurricane Irma Damage Cost to Private Insurers Estimated at $19 Billion


Government Brief

  • The Justice Department told members of Congress that it will not reopen a criminal investigation of  former Internal Revenue Service official Lois Lerner related to the alleged targeting of conservative groups with IRS audits. Assistant Attorney General Stephen Boyd said in a letter sent Friday to Reps. Kevin Brady (R-Texas) and Peter Roskam (R-Ill.) that pursuing the investigation again would “not be appropriate based on the available evidence.” (CBS News)
  • The Bipartisan Policy Center estimated that Congress will have to vote to raise the debt ceiling again in March 2018, following congressional approval of a package that extends the debt limit until Dec. 9. But the center said the deadline could be affected by variables such as damages from hurricanes and current tax reform efforts. (The Washington Examiner)
  • Fallout from the massive data breach at Equifax Inc. has the potential to derail congressional GOP efforts to pass legislation that would limit civil penalties for credit reporting companies sued by consumers. (The Wall Street Journal)

Business Brief

  • The severity of Hurricane Irma on Florida’s west coast could increase the amount of damage that leads to insurance claims because of residents who were unprepared to bear the brunt of the storm. Chuck Watson, a risk modeler for Enki Research, estimated that the storm will cost private insurers about $19 billion out of total damages of $49 billion. (Bloomberg)
  • The hurricane’s impact on the U.S. Virgin Islands also could further damage the territory’s credit rating, S&P Global Ratings said. Though the firm said the extent of damage is still uncertain, the island may not have enough cash on hand to pay for the current storm-related expenditures, which could “force it to re-evaluate the priority of its current obligations.” (Barron’s)
  • Executives at the financial technology firm Social Finance Inc. have been accused by almost a dozen current and former employees of engaging or tolerating inappropriate treatment toward female employees. Some allegations of inappropriate comments are detailed in a wrongful termination lawsuit filed last month by Brandon Charles, who worked as an operations manager for the firm.  (The Wall Street Journal)

Chart Review

Events Calendar (All Times Local)

Monday
NAFCU Congressional Caucus 8:15 a.m.
Tuesday
NAFCU Congressional Caucus 8 a.m.
Bipartisan Policy Center panel on curbing money laundering and terrorist financing 9 a.m.
Senate Banking hearing on fintech landscape 10 a.m.
Senate Finance Committee hearing on healthcare cost and coverage issues 10 a.m.
House Financial Services Hearing on Federal Reserve monetary policy 2 p.m.
NACHA webinar on millennials in small business 2 p.m.
Wednesday
NAFCU Congressional Caucus 8 a.m.
SEC Advisory Committee on small and emerging companies 9:30 a.m.
House Financial Services hearing on North Korea’s access to finance 10 a.m.
Tax Foundation panel with U.S. Sen. Ted Cruz 12 p.m.
TCH Payments Thirty webinar 2 p.m.
Thursday
POLITICO Pro Policy Summit 8:30 a.m.
AAP review workshop 9 a.m.
Senate Banking hearing on foreign investment 10 a.m.
Senate Finance Committee hearing on individual tax reform 10 a.m.
Friday
AEI seminar on trade deficits and the Trump administration 10 a.m.
FDIC webinar on deposit insurance coverage 1 p.m.
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General

March looms as estimated deadline for next debt ceiling vote
Joseph Lawler, The Washington Examiner

Sometime in March is likely to be the next deadline for Congress to vote to raise the debt ceiling. That estimate is from the Bipartisan Policy Center, a think tank that tracks the government’s spending and tax revenues to provide guidance on the federal debt limit.

Irma’s Surprise Path May Fuel Insurance Claims
Sonali Basak et al., Bloomberg

Hurricane Irma’s westward shift will probably inflict heightened damage on people and businesses unable to adjust to its new path in time, while the storm fuels floods that many insurance policies don’t cover. Along Florida’s west coast — now in the direct path of the storm — many residents thought they would avoid the worst of it, and then found themselves with too little time to fully prepare, according to Duncan Ellis, the U.S. property practice leader at Marsh & McLennan Cos.’ main brokerage unit.

In sunny Monte Carlo, insurers tally hurricane costs
Tom Sims, Reuters

As Hurricane Irma battered Florida on Sunday, the cream of the insurance world — gathered under the Mediterranean sun in Monte Carlo — was assessing the costs of the storm for the global industry. The takeaway so far: Irma and its predecessor Hurricane Harvey, which caused massive flooding in Texas two weeks ago, are likely to take a toll on profits in a sector struggling with thin margins, stiff competition and falling prices.

Reinsurers Will Largely Be Writing the Checks to Pay for Irma Damage
Leslie Scism, The Wall Street Journal

Irma’s winds are expected to leave tens of billions of dollars in insured damage. And when the insurance money arrives for many homeowners, much of it will be via reinsurance companies—not the carrier on their contract.

Embattled CFPB chief Richard Cordray vows to make sure “people are treated fairly”
CBS News

Richard Cordray has been called one of the most powerful men in Washington. And that comes with a price.

Cordray’s possible exit from consumer regulator cheers US banks
John Dizard, Financial Times

There is usually a cordial, even cheerful relationship between financial markets people and their regulators. Wall Street and the banks need the regulators to provide public legitimacy, adjudicate arguments among companies and keep a lid on illegitimate or price-cutting action.

GOP bristles at Mnuchin’s debt plea: Do it for me
Niv Elis and Scott Wong, The Hill

House Republicans bristled Friday at Treasury Secretary Steven Mnuchin’s pitch for them to vote for a three-month debt and spending extension “for me,” exacerbating divisions between Capitol Hill and the White House. “His performance was incredibly poor, and his last words, and I quote, were ‘vote for the debt ceiling for me,’ ” said Rep. Mark Walker (R-N.C.), chairman of the conservative Republican Study Committee (RSC), a group that opposed the bill.

EU criticizes Trump’s economic policy: report
Michelle Martin, Reuters

The European Union’s economic and financial committee has criticized U.S. President Donald Trump’s economic policy and is worried that his efforts to boost protectionism pose a threat to the global economy, a German magazine reported on Saturday. “The effects of that could be much more damaging than had been thought until now,” Der Spiegel said, citing an internal paper from a committee of top officials from the finance ministries of EU member states.

Dollar Gains as Korea Fears, Irma Abate; Oil Rises: Markets Wrap
Samuel Potter, Bloomberg

The dollar gained, Treasuries retreated and stocks advanced as an appetite for risk returned to global markets after an anticipated North Korean missile test failed to materialize and Hurricane Irma struck the U.S. with less force than feared. Futures on the S&P 500 Index increased 0.5 percent to the highest

Banking

Europe’s bank regulators on expensive hiring spree before Brexit
John O’Donnell, Reuters

Europe’s regulators are competing to hire risk specialists to prepare for an influx of banks escaping Brexit, nudging up salaries and stretching staff budgets. Wall Street giants Goldman Sachs, Citigroup and Morgan Stanley, which have big operations in London, intend to expand in the European Union after Britain’s departure.

Financial Products and Investments

After Irma: Credit Conditions Worse for Virgin Islands, Same for Puerto Rico
Amey Stone, Barron’s

While Puerto Rico avoided a direct hit from Hurricane Irma, the U.S. Virgin Islands took suffered a direct blow, which will harm its credit quality, S&P Global Ratings reported Friday. Analysts caution that it’s too soon to assess damage, but had come to some conclusions nonetheless.

DeVos Tells CFPB to Back Off on Student Loans
Shahien Nasiripour, Bloomberg

Last week, the Education Department quietly informed the Consumer Financial Protection Bureau that it would stop sharing critical information on $1.3 trillion of federal student loans, ending a partnership that has let the CFPB sue loan companies and force others to change their practices in the nation’s second-largest household debt market. Several former high-ranking federal officials fear the directive signals a greater leniency toward loan companies trying to collect on debts, and perhaps a new effort by the Trump administration to undermine the bureau’s enforcement authority.

Trump dampens ETF market optimism
Attracta Mooney, Financial Times

Like many of Barack Obama’s big ideas, the fiduciary rule had ardent backers as well as fervent opponents. “It’s a very simple principle,” the then US president said when setting out his plans in 2015. “You want to give financial advice, you’ve got to put your client’s interests first.”

Housing and GSEs

California Lawmakers Spar Over Bills to Ease Housing Shortage
Ian Lovett, The Wall Street Journal

As the California legislature enters its final week of this year’s session, lawmakers are battling over a series of bills designed to ease the state’s worsening housing shortage, which is driving up prices and pushing low- and middle-income residents out of cities from Oakland to Los Angeles. Democrats, who control all branches of government in California, are hoping to bring the package of bills to a vote this week.

Taxes

DOJ denies GOP request to reopen case against former IRS official Lois Lerner
Kathryn Watson, CBS News

The Justice Department will not be re-opening a criminal investigation to consider charging former IRS official Lois Lerner for her role in delaying non-profit status for conservative groups, the DOJ said in a letter to top members of the House Ways and Means Committee. Lerner, former head of the IRS’ exempt organizations division, became a focus for conservative groups after IRS employees delayed some applications for non-profit status based on applicants’ names or policy positions.

Freedom Caucus might go rogue on tax reform
Rachael Bade and Josh Dawsey, Politico

House Freedom Caucus leaders told White House officials this week that Republicans need to release a tax plan soon — or the conservative group may put out one of its own. Freedom Caucus Chairman Mark Meadows (R-N.C.) and founding chairman Jim Jordan (R-Ohio) delivered that message Thursday to Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn, the top officials leading the tax effort for the White House.

Trump Debt Limit Deal Undermines Trust Among GOP on Tax Overhaul
Sahil Kapur, Bloomberg

The White House said President Donald Trump cut a short-term debt ceiling and government spending deal with Democrats to clear the deck for a major tax bill. But the agreement could be complicating tax efforts by eroding trust within his own party.

Republicans will try to win over Democrats on tax reform
Joseph Lawler, The Washington Examiner

The Trump administration and congressional Republicans are still contemplating ways to reach 60 votes in the Senate for tax reform legislation, a goal that would require a time-intensive outreach to Democrats even as they are pressed for time this year. Such an effort would be an alternative to the plan long favored by Senate Majority Leader Mitch McConnell of proceeding through the budget process known as reconciliation, which would allow them to bypass a filibuster and pass a bill with only a bare majority in the Senate.

Financial Technology

Employees of Fintech Firm SoFi Allege Women Are Treated Improperly
Peter Rudegeair, The Wall Street Journal

Social Finance Inc., a fintech company whose hard-charging ethos propelled it to success, is grappling with accusations about its workplace culture that mirror a broader storm about the treatment of women at Silicon Valley technology startups. In interviews, nearly a dozen current and former employees working in various departments told The Wall Street Journal that some executives, including the company’s former finance chief, engaged in or tolerated what they described as improper behavior toward women in recent years.

Equifax Hack Likely to Scramble Deregulatory Efforts
Yuka Hayashi and Gabriel T. Rubin, The Wall Street Journal

Hours before Equifax Inc. announced its huge data breach Thursday, a congressional panel was debating a proposed bill that aims to reduce penalties for credit-reporting companies accused of harming consumers with inaccurate credit reports. The legislation is part of congressional Republicans’ pushback against increasing regulatory scrutiny of an industry that until a few years ago escaped broad government oversight.

Massive Equifax cyberattack triggers class-action lawsuit
Kevin McCoy, USA Today

Credit-reporting giant Equifax was hit with a class-action lawsuit within hours after disclosing that a cyberattack had potentially compromised personal information for 143 million U.S. consumers. Filed in Oregon federal court late Thursday, the civil action accuses the Georgia-based company of failing to maintain adequate electronic security safeguards as part of a corporate effort to save money.

Blockchain Developers Face Off Over $1 Billion in Digital Cash
Jef Feeley et al., Bloomberg

Two of the world’s largest blockchain developers are battling over more than $1 billion in virtual-currency options, in a dispute that may help establish the leading player in providing new payment technologies to financial companies. R3, a blockchain startup that leads a group of more than 100 firms, sued rival Ripple Labs Inc. in state court in Delaware Friday, accusing it of reneging on an options agreement for Ripple’s XRP digital currency that is now worth more than $1 billion.

Opinions, Editorials and Perspectives

Achieving ‘Malaysia First’ Along With ‘America First’
Mah Siew Keong, Morning Consult

On Sept. 12, Malaysian Prime Minister Najib Razak will meet President Donald Trump, to celebrate the 60th anniversary of ties between our two countries. It is customary on such occasions to speak about our common bonds, shared values and our success over the past six decades.

Don’t get rid of the debt ceiling. Reform it.
Maya MacGuineas, The Washington Post

As has happened more than 100 times before, Congress just raised the debt ceiling, the legal amount our government can borrow. In the past, this act has occurred smoothly, and on many occasions, it has been used productively to spur fiscal efforts from budget deals to process reforms to the creation of a fiscal commission.

Central bank to Trump: Keep your tiny hands off Dodd-Frank
Editorial Board, The Newark Star-Ledger

We are governed by a faux-populist president from a gilded penthouse with little regard for the middle class and a Republican-dominated Congress that lives to feed the deregulation bonfire, which is an unsettling combination if you value stability in our banking institutions. So Janet Yellen came out and admitted it: The Federal Reserve chair smells another financial catastrophe like a distant blaze if there is a wholesale rollback of Dodd-Frank regulations, and she deserves our national gratitude for speaking truth to reckless power.

How Will Trump Remake the Federal Reserve Board?
Irwin M. Stelzer, The Weekly Standard

And then there were four. Vacancies on the Federal Reserve Bank’s seven-person board of governors, that is, now that vice-chair Stanley Fischer has tendered his resignation for “personal reasons”—widely believed to be his wife’s health. So here’s the state of play: Current Fed chair Janet Yellen’s term as governor doesn’t expire until 2024, but her stint as chair ends on February 3 of next year.

Finding America’s Lost 3% Growth
Phil Gramm and Michael Solon, The Wall Street Journal

Growth deniers are declaring that America’s economy has lost its ability to grow at 3% above inflation. If that’s the case, maybe we should go back to where we lost 3% growth and retrace our steps until we find it.

America’s Self-Defeating Cycle of Floods and Federal Aid
Stephen Mihm, Bloomberg

After two weeks of nonstop coverage of massive hurricanes, the blame game has only begun, beginning with climate change and unregulated growth — for good reason. But the situation would not be nearly so dire without decades of well-intentioned but deeply flawed federal programs. It was impossible to purchase insurance policies to cover floods until 1895. This offered some protection until 1927, when the Mississippi River overflowed its banks across several states.

Stanley Fischer’s Well-Timed Fed Exit
Brendan Brown, Mises Institute

Fed vice-chair Stanley Fischer’s surprise announcement of early retirement triggers the obvious question as to whether this could be the fore-runner to a serious market and economic deterioration ahead. Monetary bureaucrats, even if signally bad at counter-cyclical fine tuning, sometimes have a reputation for intuition about how to time their own career moves ahead of crisis.

Research Reports

Tax Evasion and Inequality
Annette Alstadsæter et al., The National Bureau of Economic Research

This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits—the key source used to study tax evasion so far—with new micro-data leaked from large offshore financial institutions—HSBC Switzerland (“Swiss leaks”) and Mossack Fonseca (“Panama Papers”)—matched to population-wide wealth records in Norway, Sweden, and Denmark.