Top Stories

  • The Federal Reserve and the Office of the Comptroller of the Currency issued separate consent orders to Citigroup Inc. over “significant ongoing deficiencies” in the bank’s risk-management systems, fining the bank $400 million. The consent orders require the bank to create a new board committee to oversee the overhaul of risk-management systems and to produce plans to hold managers accountable, while the OCC consent order requires the bank to get approval for any acquisition and allow the regulator to force the bank to replace managers or directors. (The Wall Street Journal
  • Fed officials were divided on how to apply a new policy strategy in their September meeting, with discussions on how they would at some point need to better explain their intentions around purchases of Treasurys and mortgage-backed securities and some disagreement on how to make their low-rate strategy more explicit, according to newly released minutes from the meeting. Economic projections released at the meeting show that officials expected stronger economic recovery this year compared to their thoughts in June, although “the pace of the recovery could be slower than anticipated” if “future fiscal support was significantly smaller or arrived significantly later than they expected.” (The Wall Street Journal)
  • Following President Donald Trump’s halting of stimulus package negotiations, House Speaker Nancy Pelosi (D-Calif.) suggested that she would be open to an airline-relief bill in a call with Treasury Secretary Steven Mnuchin. However, Pelosi pushed back on Trump’s insistence on a bill that would authorize $1,200 in individual stimulus checks, saying the measure wouldn’t be enough to deal with the coronavirus pandemic. (Bloomberg)
  • The Trump administration is weighing restrictions on Ant Group Co. and Tencent Holdings Ltd. over questions of national security, citing specific concerns that Ant Group and other Chinese fintech platforms could dominate digital payments around the world, according to people familiar with the matter. Two people familiar with the matter said that administration officials discussed the idea in late September, although it’s unclear if the idea has been presented to Trump. (Bloomberg)

Chart Review

Events Calendar (All Times Local)

10/08/2020
HousingWire Annual 2020
WHF/WHFF Partner Series: Mortgage Forbearance and its impact on Borrowers and the Industry 12:00 pm
10/13/2020
WorkRise event: “How Economic Forces and Racial Inequity Shape Opportunity and Mobility” 1:00 pm
View full calendar

Special Report: The Rise of Retail Investing in The U.S.

Retail investing is surging in 2020. Today, retail investors are now the second-largest group of investors in the market, a shift with profound implications for the economy, financial services and public companies faced with reaching a rapidly-expanding market.

Understanding this new class of investors will be critical to navigating the economic landscape moving forward. That’s why Morning Consult has released a first of its kind retail investor study, with detailed insight into the Americans behind this change. Download the special report.

General

‘We need to step forward’: Fed leaders call for new focus on race in the economy
Zachary Warmbrodt, Politico 

Top Federal Reserve officials on Wednesday said the central bank has a clear role to play in fighting the damaging economic effects of racism in the U.S. and should do much more to address it. Atlanta Fed President Raphael Bostic, Minneapolis Fed President Neel Kashkari and Boston Fed President Eric Rosengren delivered that message in the first of an extraordinary series of planned Fed events focused on race and the economy.

What a second Trump term would mean for U.S. financial policy
Pete Schroeder and Michelle Price, Reuters

A victory by U.S. President Donald Trump in the Nov. 3 election would continue his administration’s four-year deregulatory streak, which has delivered at least $40 billion in gains to banks and other financial firms, according to industry estimates. 

As Washington fumbled relief talks, economy’s cracks deepened in recent months
David J. Lynch, The Washington Post

Katie Button has put her bar stools into storage, laid off about half of her 130 employees and learned how to run a half-empty restaurant. But she remains at the mercy of Washington, D.C. With the recession having blown a $3 million hole in her business, Button, 37, was counting on the federal government to provide one more round of financial aid to get Curate, her Asheville, N.C., restaurant, through the winter.

‘Trump just kicked over the chess board’: GOP faces an election with more pain
Ben White, Politico 

President Donald Trump may have tweeted away one of his best chances to prop up a struggling economy, deliver a boost to jittery markets and improve his own standing with wavering voters less than a month from Election Day. In announcing on Twitter that he was killing ongoing Covid-19 stimulus talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin, Trump stunned investors and reduced the chances of bolstering an economic recovery that is clearly losing momentum in the final stretch of the 2020 race.

The Most Dovish Fed in History Is on a Mission to Spur Inflation
Peter Coy, Bloomberg Businessweek

Federal Reserve Chair Jerome Powell has done everything to demonstrate his desire for higher inflation short of dressing up as a dove and cooing in front of Fed headquarters. In August he unveiled a policy that not just tolerates but seeks periods of inflation above the Fed’s 2% target. 

Wait, Wall Street Is Pro-Biden Now?
Matt Phillips, The New York Times

The suspense surrounding the next round of fiscal stimulus — will there or won’t there be a deal — has whipsawed markets this week. Investors first pushed stocks up on news of progress between Congress and the White House, only to pull back on Tuesday when President Trump said on Twitter that there would be no fresh stimulus. Mr. Trump then backtracked, demanding that Congress pass a relief bill, pushing the market up again.

Millions brace for more layoffs, hunger and utility shutoffs as stimulus talks break down
Eli Rosenberg and Heather Long, The Washington Post

Americans left in the lurch by President Trump’s sudden decision to abandon negotiations over a long-delayed stimulus package expressed disbelief, disgust and desperation Wednesday about Trump’s abrupt move. In interviews with The Washington Post, more than a dozen unemployed workers and struggling business owners affected by the move said that while they are familiar with Washington dysfunction, they are stunned by the latest decision by Trump and Republicans to break discussions off.

Unemployment Claims to Remain Historically High
Sarah Chaney, The Wall Street Journal

The number of Americans applying for unemployment benefits likely held above pre-pandemic highs last week, a sign the labor market is still being battered by the novel coronavirus’s effects. Economists expect applications for jobless benefits—seen as a proxy for layoffs—ticked down to 825,000 last week from 837,000 a week earlier.

Borrow to fight economic impact of pandemic, says World Bank’s chief economist
Jonathan Wheatley, Financial Times

‘First fight the war, then figure out how to pay for it,’ warns longtime debt critic Carmen Reinhart. 

Stocks Advance on Stimulus Hopes; Dollar Weakens: Markets Wrap
Cecile Gutscher, Bloomberg

U.S. futures rose alongside European stocks as global markets extended a rally fueled by optimism that American lawmakers will reach a stimulus deal.

Banking

Wells Fargo CEO Finds Himself on Defense After a Tough First Year
Ben Eisen, The Wall Street Journal

A long list of challenges confronted Wells Fargo & Co. Chief Executive Charles Scharf when he was brought in to restore the bank’s tarnished reputation. In the year since, his problems have only multiplied. America’s fourth-largest bank is in the grip of a recession that threatens to deliver steep loan losses.

Senator Warren asks big U.S. banks for details on pandemic performance
Pete Schroeder, Reuters

U.S. Senator Elizabeth Warren is asking large U.S. banks to disclose how they performed under a recent Federal Reserve exam of their finances during the coronavirus pandemic. In a letter sent to 14 large firms Wednesday, Warren asked each to provide its results from a confidential Fed test, arguing the central bank’s “limited transparency” on whether banks could weather a severe economic downturn is insufficient.

Wells Fargo Cuts More Than 700 Jobs in Commercial Banking
Hannah Levitt, Bloomberg

Wells Fargo & Co. cut more than 700 commercial-banking jobs as it embarks on workforce reductions that could ultimately number in the tens of thousands, according to people with knowledge of the matter. The terminations affected positions across the division, the people said, asking not to be identified discussing details of internal decisions.

Libor Law Is Adrift in Albany and Wall Street Is Getting Nervous
William Shaw and Keisha Clukey, Bloomberg

For the past seven months, an arcane financial-markets proposal has been collecting dust in the statehouse halls of Albany, New York. Between the pandemic and the racial-justice protests, lawmakers have been so preoccupied that no one in either chamber has even initiated the legislative process on it.

JPMorgan Unveils $30 Billion Push to Bridge Racial Wealth Gap
Orla McCaffrey, The Wall Street Journal

JPMorgan Chase JPM 1.74% & Co. said it would extend billions of dollars in additional loans to Black and Latino home buyers and small-business owners as part of a push to narrow America’s racial wealth gap. The bank—America’s largest—said it is committing a total of $30 billion over five years to the effort, which focuses heavily on expanding access to affordable housing as well as boosting minority-owned small businesses.

Small businesses slam banks for restricting bounceback loans
Claer Barrett and Andry Bounds, Financial Times

Mounting concerns over fraud and defaults push lenders to vet new borrowers as deadline looms.

Financial Products and Investments

Morgan Stanley to acquire Eaton Vance in cash-and-stock deal with equity value of about $7 billion
Ciara Linnane, MarketWatch

Morgan Stanley said Thursday it has agreed to acquire asset manager Eaton Vance Corp. in a cash-and-stock deal with an equity value of about $7 billion.

Chance of post-vote spending splurge wakes up sleepy US bond market
Colby Smith and Richard Henderson, Financial Times

Despite Fed support there are warnings of the potential for rapid falls.

The Baby Boomer Bond Dilemma
Carla Fried, The New York Times

Today’s record low bond yields could not come at a worse time for many baby boomers. Owning U.S. Treasuries, the undisputed safest bond for retirees, means signing on for next to nothing in earnings for the next five to 10 years. 

Housing and GSEs

U.S. consumer watchdog rescinds ban on mortgage marketing deals
Michelle Price, Reuters

The U.S. consumer watchdog said on Wednesday it was rescinding guidance that had effectively banned joint marketing agreements between mortgage lenders, realtors and other home buying service providers, saying it did not provide necessary “regulatory clarity” on how to comply with the law. The move is another boost for the mortgage industry, which has long lobbied against the guidance, and is the latest example of the Trump administration rolling back Obama-era consumer protections.

Inside the $1 Billion Bid to Rescue Affordable Housing
Kriston Capps, Bloomberg CityLab

In normal times, the deal to rehab Coggins Square Apartments might have been a very minor victory for advocates of preserving affordable housing. But these are not normal times. The nearly 20-year-old building — a modest transit-adjacent apartment building in Walnut Creek, California, just northeast of Oakland — is getting a $16 million facelift, and its developers will preserve its existing 86 units as affordable housing for residents making under 60% of area median household income, with some units set aside for tenants earning much less.

Manhattan Apartments Haven’t Been This Cheap to Rent Since 2013
Oshrat Carmiel, Bloomberg Wealth

Manhattan renters have never had this many apartments to choose from. And it’s been seven years since rents were this low. September proved to be another winning month for bargain-hunters committed to finding a place in New York City’s costliest borough — and another month of worry for landlords trying to fill mounting vacancies.

Taxes

IRS Whittles Mail Backlog, Aims to Make Final Stimulus Payments
Richard Rubin, The Wall Street Journal

The Internal Revenue Service is still digging out from a backlog of millions of pieces of mail and trying to get outstanding stimulus payments authorized by Congress in March to as many people as possible this fall, Commissioner Charles Rettig said Wednesday. The mail backlog is now at 5.3 million, about half of what it was a few months ago, and the IRS is using multiple shifts, overtime pay and mail shipments to less-stressed facilities to whittle that down.

Financial Technology

PPP Scammers Made Fintech Companies Their Lenders of Choice
Michelle F Davis, Bloomberg Businessweek

In April the Paycheck Protection Program was under fire for moving too slowly and leaving too many people out. Part of the $2 trillion Cares Act, it was set up to offer forgivable loans to small businesses such as restaurants and hair salons that would help keep them afloat through the Covid-19 lockdowns in the U.S.

Opinions, Editorials and Perspectives

The Fiscal Federal Reserve
The Editorial Board, The Wall Street Journal

Federal Reserve officials understandably, and righteously, invoked their need for independence last year when President Trump berated them on Twitter to keep interest rates low. But what if the Fed itself decides to compromise its independence by snatching an ever-greater role in fiscal policy that is usually reserved for elected officials?

Americans still need pandemic aid. Trump is ensuring they’ll get nothing.
The Editorial Board, The Washington Post

We do not pretend to understand the political logic that impelled President Trump to call off talks over a new economic support package with House Speaker Nancy Pelosi (D-Calif.). An agreement could have boosted his flagging electoral prospects; and surely his popularity among Republicans gave him the clout to overcome the hesitancy of some GOP senators to vote yes on any package, which was apparently one factor in his decision.

 

Research Reports

The Banking Industry and COVID-19: Lifeline or Life Support?
Madeline Finnegan et al., Liberty Street Economics

By many measures the U.S. banking industry entered 2020 in good health. But the widespread outbreak of the COVID-19 virus and the associated economic disruptions have caused unemployment to skyrocket and many businesses to suspend or significantly reduce operations.

Morning Consult