Analysis: Leveraged Loans Face Less Cushion in a Crash

Some have been warning recently that a crash in leveraged loans, one of Wall Street's hottest debt markets, could do investors a lot more damage than in the past. Investors, however, have shown few signs of concern as money has continued to race into leveraged loans, according to a Bloomberg News analysis. U.S. companies have raised nearly $1.4 trillion in the relatively risky lending market this year, up 46 percent from a year ago. The lack of concern could stem from prices, which despite the rush of money haven't climbed all that much. They are up from March but basically flat from a year ago. The yield on the average leveraged loan was 5.4 percent at the end of November, which is nearly the same as it was in the month a year earlier.

 

U.S. Cancels Student Loan Debts for 12,900 College Fraud Victims

The U.S. Education Department yesterday canceled the student-loan debts of 12,900 people defrauded by defunct Corinthian Colleges, but its announcement that it will give varying amounts of debt relief in the future set off fierce criticism, Reuters reported. For-profit higher education provider Corinthian collapsed in 2015 amid government investigations into how many of its graduates found gainful employment. An internal review released this month showed the Education Department had stopped discharging loans of former attendees of Corinthian and other failed for-profit schools once President Donald Trump took office. The department added it also had denied 8,600 requests for relief from Corinthian loans. It gave no reason for the denials and no value for the canceled debt. Future loan discharges will follow a tiered system based on income, the department also announced yesterday. Borrowers earning less than 50 percent of their peers will receive full relief, and those earning more will receive partial relief. Borrowers will also receive credit for interest that accrues on their loans if the time to decide whether they qualify for forgiveness takes longer than a year.

 

The Internal Divide Behind Trump’s Takeover of Consumer Watchdog

The Trump administration’s move to put its budget chief in charge of the Consumer Financial Protection Bureau exposed a divide between a White House faction and the Treasury Department over just what the role of the consumer watchdog should be, the Wall Street Journal reported. The installation of Mick Mulvaney, head of the Office of Management and Budget, as the CFPB’s interim director was a win for conservatives who favor dismantling much of the independent regulator as part of a sweeping reversal of Obama-era financial rules. Many in this camp, including Mulvaney, a former congressman, have spent years trying to block the CFPB’s agenda under Richard Cordray, an Obama appointee who stepped down after Thanksgiving. Mulvaney in the past has described the CFPB as “one of the most offensive concepts in government.” His appointment, until a permanent successor can be found, was also a setback for some financial companies. While they hoped for a less-aggressive regulator than Cordray, companies in certain industries still wanted the watchdog to have some regulatory teeth. Companies have invested billions of dollars in complying with the agency’s rules since it began operating six years ago.


In related news, the Trump administration and acting Consumer Financial Protection Bureau chief Mick Mulvaney won round one in a legal battle challenging Mulvaney's leadership. His critics will have a tall order trying to win round two, according to an American Banker commentary. The lawyer for CFPB Deputy Director Leandra English, who claims she is the rightful acting director, will face off tomorrow against the Justice Department in a court hearing where key questions about the CFPB's independence and the president's authority to appoint an interim director are sure to be raised. English, who is represented by a former CFPB attorney, is still a long shot to unseat Mulvaney — as evidenced by the judge's denial last month of English's request to have Mulvaney immediately removed.

Commentary: U.S. Banks Make Progress on Their Living Wills

The Federal Reserve and the Federal Deposit Insurance Corporation cleared the resolution plans of the eight biggest lenders on Tuesday, though four, including Wells Fargo, need improvements, according to a New York Times commentary yesterday. It’s a far cry from 2016 when five failed outright, according to the commentary. Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street and Wells Fargo had to resubmit their plans, with the risk of additional penalties such as higher capital requirements or forced divestitures. Wells Fargo was rejected twice. This year, the lender, based in San Francisco, was among four banks that were found to have shortcomings, along with Bank of America, Goldman Sachs and Morgan Stanley. They passed, but need to improve by next year. For example, regulators said that Wells Fargo did not provide enough documents and analysis to show how it would divest businesses if needed.

ABI's Newest Title Provides an Update on the Fundamentals of Consumer Bankruptcy Law While Navigating Today's Most Litigated Consumer Issues

One of ABI's most important consumer bankruptcy titles, Consumer Bankruptcy: Fundamentals of Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code, Fourth Edition, covers the fundamentals of consumer bankruptcy proceedings under chapters 7 and 13 of the Code, including debtors’ duties, procedure, dischargeability, the automatic stay and much more. The Fourth Edition includes information on today's most litigated questions and addresses the current state of consumer bankruptcy law. This newly updated title is ideal for both the generalist practitioner and the experienced consumer bankruptcy professional. Click here to order.

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