Randal Quarles, the Federal Reserve’s vice chairman for financial regulation, said that while global policy makers responded decisively to the coronavirus outbreak earlier this year, the financial system isn’t out of the woods yet, the Wall Street Journal reported. “The COVID event is not behind us yet,” Quarles said. “We know that the financial system will face more challenges.” Many households face “bleak” employment prospects, Quarles said, and the next phase of the pandemic will “inevitably involve an increase in nonperforming loans and provisions as demand falls and some borrowers fail.” The global economy is projected to contract sharply by 4.9 percent in 2020, a much worse outcome than during the 2007-08 crisis, he said, citing a recent International Monetary Fund forecast. “While some indicators suggest a rebound in activity, the path of recovery remains highly uncertain,” he said.
A surge in coronavirus cases threatens to arrest the country’s early economic recovery, leaving Texas and other hard-hit states staring down another round of massive revenue losses that could imperil their budgets, the Washington Post reported. The new infections, particularly in parts of the South, have left some state leaders no choice but to begin reclosing some businesses and encouraging residents to stay home once again. Much as the shutdowns this spring slowed consumer spending to a trickle, these efforts to stave off the pandemic could deliver a second financial blow to local governments already struggling to salvage their economies while protecting public health. The stakes have been on display in Texas, which witnessed a $650 million drop in tax revenue collected in June, according to data released on Wednesday by state budget officials, which includes sales mostly made in May. Texas leaders attributed the decline to consumers shelling out less for cars, gasoline, alcohol and other goods, as well as precipitous drops in travel and tourism, compared with the same period a year earlier. No state has been untouched by the coronavirus pandemic, which this spring brought commerce to a halt and cleaved massive holes in local governments’ budgets. But Texas had been considered one of the healthier states entering 2020, flush with a robust reserve of cash to help it weather an economic downturn.
Home-goods retailer Pier 1 Imports Inc. has found a potential buyer offering more than $20 million for the bankrupt company’s intellectual property and e-commerce business as its brick-and-mortar retail operations wind down, WSJ Pro Bankruptcy reported. The Fort Worth, Texas-based retailer has tapped Retail Ecommerce Ventures LLC to serve as the stalking-horse bidder to acquire Pier 1’s intellectual property, data and other assets related to the e-commerce business. The proposed buyer last year purchased the brand assets of Dressbarn and its e-commerce business from Ascena Retail Group Inc., the parent company of Ann Taylor and Lane Bryant. Pier 1 plans to hold a bankruptcy auction Wednesday after receiving offers from other bidders, according to a securities filing. A hearing to approve the sale to the best bidder is scheduled for July 30 in the U.S. Bankruptcy Court in Richmond, Va.
Senate Majority Leader Mitch McConnell (R-Ky.) appeared to open the door yesterday to including some direct payments to Americans in a future coronavirus relief bill, The Hill reported. Asked if funding for individuals like the stimulus checks included in a March package would be in the next piece of legislation, which would be the fifth in response to COVID-19, McConnell said they "could well" be. "I think the people that have been hit the hardest are people who make about $40,000 or less. Many of them work in the hospitality industry. .... That could well be a part of it," McConnell said. Congress included a $1,200 one-time payment for individuals making up to $75,000 per year in the $2.2 trillion March coronavirus stimulus package. The amount a person could receive then decreased until it hit a salary ceiling of $99,000 per year, where the direct payment was phased out altogether. The Trump administration has pushed for a second round of the direct payments to be included in the next coronavirus relief package taken up by Congress. House Democrats passed a nearly $3 trillion bill in May that included a $1,200 check for individuals, similar to the March bill, but that legislation is not expected to be taken up by the GOP-controlled Senate. President Trump said late last month that he supports another round of stimulus checks. But GOP lawmakers have been wary, believing that the payments don't directly stimulate the economy and went to individuals who have not been impacted financially by the spread of the coronavirus. Read more.
In related news, direct cash payments can improve financial security, boost consumer spending and may speed up the recovery, according to a letter from a group of economists calling on U.S. policymakers to keep providing direct cash payments to Americans until the economy is stronger, Reuters reported. The stimulus payments should be issued automatically, based on certain economic indicators such as the unemployment rate, until there is enough evidence that the economy is recovering, the group of mostly left-leaning economists said in an open letter organized by the Economic Security Project and The Justice Collaborative. “The first round of economic impact payments were a lifeline that helped some get by for a few weeks,” the economists wrote. “Even after businesses start to re-open and jobs begin to come back, there will be significant economic fallout, and demand will continue to lag if people don’t have money to spend.” The stimulus payments issued in April under the $2.3 trillion CARES Act helped lift spending for lower income households faster than higher income households, with much of the cash going to essentials, according to an analysis by Harvard University’s Opportunity Insights. The $600 supplement Congress added to weekly unemployment benefits are set to expire at the end of the month, leaving jobless Americans at risk of facing a cash cliff while jobs are still scarce. Read more.
Congress designed the Paycheck Protection Program to help small businesses weather fallout from the coronavirus pandemic, but the program’s $521 billion in loans also went to well-heeled and politically connected firms across the economy, including law offices, charities, restaurant chains and wealth managers, the Wall Street Journal reported. The Trump administration released the names of borrowers for the first time yesterday, following pressure by Congress and others to disclose who received the taxpayer-funded loans. On the list: Boies Schiller Flexner LLP, the law firm headed by antitrust litigator David Boies; Newsmax Media Inc., the media company run by Trump donor Christopher Ruddy; and an Indianapolis service provider to charities part-owned by Education Secretary Betsy DeVos. P.F. Chang’s China Bistro Inc., a restaurant operator with more than 200 U.S. locations, got a loan. So did prominent real-estate investors and wealth managers. Nonprofits receiving funds included the Girl Scouts of the United States of America, the Sidwell Friends School in Washington, D.C., whose alumni include children of former presidents, and the foundation that runs the Guggenheim art museum in New York. The 660,000 companies named accounted for only the largest loans — those worth $150,000 or more. The loans can be forgiven if used largely to retain employees. The loans disclosed yesterday represented about 15 percent of more than 4 million loan participants in the program but about $3 of every $4 distributed.
Iconic clothing franchise Brooks Brothers is nearing a bankruptcy filing that could take place as early as this week, sparking a possible bidding war for the troubled company, FOX Business has learned. Private equity firm Solitaire Partners is in talks with the haberdasher to make a bid once a possible chapter 11 filing has been made. Founded in 1818, the fabled brand is part of the fabric of American retail history — outfitting 41 of the 45 U.S. presidents from James Madison to Barack Obama. Most recently, President Donald Trump wore a Brooks Brothers suit on his Inauguration Day. Despite its storied reputation, Brooks Brothers is in a slump — with company sales hovering around $1 billion since 2017. And analyst estimates suggest sales will be down 30 percent this year as the recession continues. Even the company’s most optimistic efforts don’t show it making a profit until 2022.
Apollo Global Management Inc. is launching a big new credit operation as the buyout giant dives deeper into the rapidly expanding pool of direct lending, the Wall Street Journal reported. The New York firm is creating a $12 billion platform focused on providing companies with loans of around $1 billion, Apollo officials said. Abu Dhabi state fund Mubadala Investment Co. is the lead backer of the venture, whose firepower Apollo plans to augment with additional capital from other investors. In direct lending, an alternative credit provider makes a loan and keeps it on its books rather than syndicating it out to investors. Direct lending has expanded dramatically since the financial crisis as new regulations and a desire to avoid the mistakes of the past push banks to eschew riskier businesses. That has left a void for private capital to fill, creating a market Apollo and others estimate at roughly $800 billion — up from around $100 billion a decade ago.
Wells Fargo & Co. is pulling back from student lending as the U.S. surge in coronavirus cases threatens to further disrupt higher education and the broader U.S. economy, Bloomberg News reported. The firm, which has been reviewing businesses under new Chief Executive Officer Charlie Scharf, said student loans for the upcoming academic year will be granted only to people who submitted applications before July 1 or to customers who already have an outstanding balance on a prior student loan from the bank. “Wells Fargo has decided to narrow its student-lending focus,” Manuel Venegas, a spokesperson for the bank, said in a statement. The pandemic is disrupting academic programs and undermining the ability of many borrowers to repay as it halts commerce and costs tens of millions of Americans their jobs. Already, more than 40 million student-loan accounts were in deferment as of mid-June, according to Equifax. San Francisco-based Wells Fargo had a $10.6 billion private student-loan book at the end of the first quarter — a portfolio that’s been shrinking in recent years. Private makes up about $130 billion of the $1.7 trillion student-debt pie, according to data provider MeasureOne.
The IRS and taxpayers face a number of obstacles before crossing the finish line in this year's longer-than-usual tax filing season, The Hill reported. The coronavirus prompted the IRS in March to extend the deadline for individuals to file their 2019 returns, and pay their 2019 taxes, from April 15 to July 15. In addition to processing returns during that time, the agency also had to implement COVID-19 relief measures passed by Congress in the spring. The virus also caused the IRS in March to direct most of its employees to work remotely, bringing a halt to key agency functions that cannot be performed remotely. As it started to bring employees back to their worksites in recent weeks, workers faced a backlog of tax returns to process and taxpayers to assist. “While we had to adjust and redeploy resources during the pandemic, our employees have remained dedicated to delivering the 2020 filing season,” IRS Commissioner Charles Rettig said during a Senate Finance Committee hearing last Tuesday. Throughout the pandemic, the agency has processed electronic returns, issued refunds via direct deposit and accepted electronic payments, Rettig said. He added that as part of the agency’s phased reopening, employees are processing paper tax returns, responding to mail and reopening telephone lines. Most people have already filed their tax returns, though the IRS has processed fewer returns and issued fewer refunds than it had at this point last year. The IRS said Thursday that as of June 26, it had processed about 129 million returns, down 10.6 percent compared to the same period last year. As of June 26, it had issued about 94 million refunds, down 10.3 percent from this point in 2019.
Pizza Hut, Ponderosa & Bonanza Steakhouses and other restaurant chains have roped off their buffets to prevent contamination and crowding as they seek to reopen dining rooms during the COVID-19 pandemic, the Wall Street Journal reported. And grocery stores such as Whole Foods Market and Wegmans Food Markets Inc. have kept hot-food bars closed since March, until lately a growing part of the business and a draw for customers. Now, those sales have plummeted given the risk of self-service food. Health officials have advised suspending self-service food stations because they lead to crowding of customers and repeated touching of utensils. Restaurants are trying to restore dine-in service in states where they still can, and grocers are starting to return some features common before the pandemic, including sampling and prepackaged meals. But they say many buffets and salad-bar stations are unlikely to return soon, if ever. Without a clear way to move to a takeout model, Garden Fresh Restaurants, owner of around 100 Souplantation and Sweet Tomatoes buffet-focused restaurants, filed for bankruptcy in May. “Our sales collapsed,” said John Haywood, Garden Fresh’s pre-bankruptcy chief executive. (Subscription required.)
