Tag: finance

One of the many side effects of the coronavirus pandemic is that it has thrown out all recent economic forecasts right out of the window, certainly those of the perpetually cheerful CBO. In a publication released on Thursday afternoon, the CBO said that it now expects the economy to contract sharply during the second quarter of 2020 as a result of the continued disruption of commerce stemming from the spread of the novel coronavirus. What it expects now is, at least in the short-run, nothing short of a depression, with Q2 GDP expected to plunge to -28% as unemployment soars to 10%

The following are CBO’s latest preliminary estimates, based on information about the economy that was available through this morning and which include the effects of an economic boost from recently enacted legislation.

• Gross domestic product is expected to decline by more than 7 percent during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28 percent. Those declines could be much larger, however.

• The unemployment rate is expected to exceed 10 percent during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)

• Interest rates on 10-year Treasury notes are expected to be below 1% during the second quarter as a result of the Federal Reserve’s actions and market conditions. This is hardly a surprise, and the real question is when will rates turn negative.

And visually:

That’s about as far as the CBO will go. As it admits, its “economic projections, especially for later periods, are highly uncertain at this time.”

Below are some details on what specific updates are incorporated in Today’s Cost Estimate:

To estimate the costs of legislation that is especially sensitive to economic conditions, such as provisions affecting unemployment insurance benefits, CBO is taking into account as much economic information as possible. Later today, CBO will publish a preliminary estimate of the costs of H.R. 6201, the Families First Coronavirus Response Act, which was enacted as Public Law 116-127 on March 18. The estimate incorporates an updated projection of the unemployment rate that was based on information that was available about the economy through March 27. It was not based on all information available as of this morning because of the time needed to process new information about economic developments and incorporate it into cost estimates. (Also, following the conventions of cost estimating, the economic projections used for the estimate do not include the effects of the act itself or the larger effects of P.L. 116-136, the subsequently enacted CARES Act.)

The unemployment rate underlying the cost estimate for H.R. 6201 was 12 percent in the second quarter of 2020. The extent of social distancing was a key factor in that projection. The analysis incorporated an expectation that the current extent of social distancing across the country would continue—on average, and with local variation—for the next three months. That expectation was broadly consistent with the projections of the virus’s spread that have been reported by the Administration’s coronavirus task force.

CBO’s projections also included the possibility of later outbreaks of the virus. To account for that possibility, social distancing was projected to diminish by only three-quarters, on average, during the second half of the year. And CBO expected the effects of job losses and business closures to be felt for some time; the unemployment rate underlying the cost estimate was 9 percent at the end of 2021.

Future Updates

CBO is currently working to develop central projections of economic variables that take information into account that has become available since March 27—information that has been more negative than anticipated. The agency is also preparing central estimates of the economic effects of recent legislation enacted to help boost the economy. All of that information will be provided with CBO’s next baseline projections of the economy and the budget; those projections will be published later this year.

Two things were “unprecedented” today… America’s labor market collapse and global oil markets’ surge in price.

Just shy of 10 million Americans have signed up for unemployment benefits in the last two weeks… quite an outlier historically…

Source: Bloomberg

For oil traders, it was the worst of times (biggest quarterly loss ever) and the best of times (today’s manic jawboning and denials prompted the single-best daily gain for crude ever)…

All thanks to President Trump’s apparent lying tweet of an imminent supply-cut deal. Saxo’s Ole Hanson summed things up nicely as Trump triggered everyone’s stops…

I’m normally a very calm person but Trump just created a sh-show in the #oil market which many will loose from. That false rally just sucked in a lot of fresh retail money from traders desperate join the uptrend. It will come but not yet. #OOTT

— Ole S Hansen (@Ole_S_Hansen) April 2, 2020

The 24.7% rise is the largest daily gain for WTI ever (and at one point Brent rose a stunning 47% intraday)…BUT let’s put that in context…

Source: Bloomberg

US equity markets were volatile intraday,  but thanks to a late-day surge (seemingly triggered by the ventilator DPA) all ended green, led by S&P and Dow…

Futures show the chaos best though as the frightening labor data sparked a market puke into the cash open, which dip-buyer manically bought…

Despite the mixed picture in indices, the Virus-Fear trade is reaccelerating…

Source: Bloomberg

“Most Shorted” Stocks fell for the 5th day in a row…

Source: Bloomberg

Fun-durr-mentals…

Source: Bloomberg

High-yield bond algos triggered in Trump’s oil deal comments… but that faded rapidly…

Treasury yields were marginally higher today pushing 30Y back to unchanged on the week…

Source: Bloomberg

10Y yields popped back above 60bps…

Source: Bloomberg

The Dollar drifted higher again today…

Source: Bloomberg

Cryptos spiked today (but fell back after that panic-buying) back into the green for the week…

Source: Bloomberg

Bitcoin spiked above $7200, back to 4-week highs…

Source: Bloomberg

Commodities were all higher on the day (despite dollar gains) with oil the outlier…

Source: Bloomberg

Gold spiked on the terrible jobless data (more helicopter money?)…

Notably, gold futures and spot have started to decouple once again (as physical shortages rear their ugly head again)…

Source: Bloomberg

Finally, Gold coins sold by the U.S. Mint were snapped up in March at the fastest pace in over three years as investors flocked to the haven metal amid the coronavirus pandemic.

Source: Bloomberg

As Bloomberg reports, by the end of the month, investors had purchased142,000 ounces of American Eagle coins, the most since late 2016. With so much retail demand, dealers are charging premiums for bullion — and even offering to pay more than spot prices to clients willing to part with their gold bars and coins.

Amazon has banned the sale of N95 and surgical masks to the general public, claiming it would restrict sales to hospitals and government organizations dealing with the COVID-19 pandemic.

The ban took effect April 1, according to Recode, after the company said in a forum for Amazon sellers that the ban includes “facial shields, surgical gowns, surgical gloves, and large-volume sanitizers.”

Hospitals and governments can qualify to purchase said items by filling out a form, while Amazon will be eliminating the commission it usually charges sellers in order “to encourage our selling partners to make additional inventory of these products available at competitive prices to these customers with the greatest need.”

The move is the latest drastic change Amazon has made to its business practices amid the global pandemic that has upended billions of lives and economies across the globe. Amazon has become a lifeline to essential goods during this time for millions of customers ordered to stay at home and those fearful of shopping in stores during the crisis.

In mid-March, faced with merchandise shortages in the United States and Europe due to the pandemic, Amazon instituted sweeping changes on which products it will store and ship from its warehouses, in a move it said was aimed at keeping essential items in stock and speeding up orders. –Recode

Two weeks ago, the Seattle-based e-retailer said that it would be “temporarily prioritizing household staples, medical supplies, and other high-demand products coming into our fulfillment centers so that we can more quickly receive, restock and deliver these products to customers,” meaning it will no longer accept new shipments to warehouses for discretionary items through at least April 5.

The company will continue to sell products on its websites, however sellers listing discretionary items will have to wait to ship them on their own if they aren’t already in – or on their way, to an Amazon warehouse. Products which can be shipped include: “baby products, health and household, beauty and personal care, grocery, industrial and scientific, and pet supplies.”

Third-party resellers who participate in the Fulfillment by Amazon program, as well as wholesale vendors who sell directly to the company were notified of the changes.

“We are seeing increased online shopping, and as a result, some products, such as household staples and medical supplies, are out of stock,” said an Amazon spokesperson in a statement, adding “We understand this is a change for our selling partners and appreciate their understanding as we temporarily prioritize these products for customers.”

With governments across the globe recommending and even mandating that people stay inside during the pandemic, more shoppers are turning to Amazon to stock up rather than visiting brick-and-mortar stores. But the rush of shopping in select categories has meant frequent out-of-stock messages for items ranging from hand sanitizer and hand soap to face masks, as well as sellers taking advantage of low supply by attempting to price-gouge customers.

This restriction on which items it will store in warehouses — coupled with Amazon’s announcement that it was hiring 100,000 warehouse workers to keep up with surging demand — highlights the level at which consumers are relying on online shopping during the pandemic. At the same time, it’s also a realization that even the endless digital aisles of Amazon’s Everything Store, and Amazon’s logistics prowess, were not built to fully sustain the change in consumer behavior that the pandemic has forced essentially overnight. –Recode

News of the changes were greeted with panic – as third-party sellers logged in to find that their business was about to suffer a serious setback.

“Amazon just put tons of businesses out of business,” said one seller on Amazon’s forum. “Destroyed thousands of jobs amidst a crisis. Horrible joke. Absolute joke. No warning. Expect major lawsuits coming from sellers who now will go bankrupt.”

“It’s not doable,” wrote another seller. “Most of us do not have the infrastructure in place. We do not have the boxes or packing material to do this.”

Amazon said in the notice that they understand “this is a change to your business, and we did not take this decision lightly.”

Others were ok with the move, such as Will Tjernlund, CMO of Amazon seller consultancy Goat Consulting – who think it was a good move, and that sellers will be able to weather the storm.

“I am happy Amazon is focusing on fulfilling essential items over figuring how to ship couches or flatscreen TVs,” he said.

President Donald Trump issued an order under the Defense Production Act to speed production of ventilators after state officials raised alarm that supplies are inadequate for coronavirus patients.

Trump signed an executive order directing the Department of Health and Human Services to ensure supplies for:

• General Electric Company

• Hill-Rom Holdings, Inc.

• Medtronic Public Limited Company

• \ResMed Inc.

• Royal Philips N.V.

• Vyaire Medical, Inc. 

The order does not name the suppliers to companies manufacturing ventilators.

Trump said in a statement the order would “more fully ensure that domestic manufacturers can produce ventilators needed to save American lives.”

Authored by Ben Unglesbee of RetailDive,

Summary:

• Ratings agency Fitch has downgraded 11 consumer and retail companies because of the financial disruption caused by the COVID-19 pandemic.

• On Wednesday alone, Fitch downgraded credit ratings for nine retailers, according to emailed client notes.

• Among them were J.C. Penney, Macy’s, Nordstrom, Kohl’s, Dillard’s, Capri, Tapestry, Levi’s and Signet.

As COVID-19 rips through the country, retailers have shuttered stores, furloughed employees, dipped into their credit lines and made other painful decisions about what costs to pay.

As though the halt to physical sales wasn’t difficult enough, across the economy layoffs have surged into the millions and some economists say that the U.S. has already entered a recession.

Many of the department stores downgraded Thursday by Fitch had struggled to maintain or grow sales even in a booming economy. Now they are trying to manage their operations through an unprecedented market shock. 

In modeling for the retailers, Fitch analysts assumed discretionary retailers would stay closed through mid-May as the country tries to slow COVID-19’s spread. Revenue could fall up to 90% for those retailers, even if some sales shift online. Even by 2021, sales for some retailers could down double digits, according to Fitch. 

Morgan Stanley analysts said this week that apparel retailers they cover have not signaled any material e-commerce sales growth to offset the collapse of store revenue. Moreover, they found retailers were discounting products online to drive traffic to their sites, which is likely to eat into their margins.

As retailers manage the closures, the key to survival is cash. Cowen analysts found that department stores, as a group, have enough cash to stay afloat for five to eight months. Some, like Macy’s, have even less. 

And even once stores re-open, retailers face an uncertain selling environment. Will consumers feel safe returning to stores? Will the economy support discretionary spending? For now, nobody can answer these questions with certainty.

That uncertainty, as well as the sales implosion and disruption to financial markets, have set in motion cascading downgrades. S&P, too, has downgraded major retail names in recent weeks. The crisis has the potential to weaken some of the stronger retail names, and eliminate the weaker.

As Sarah Wyeth, sector lead for S&P Global’s retail and restaurant coverage, told Retail Dive earlier this month, “As the secular headwinds retail is facing accelerate, this could be the nail in the coffin of some of these brick-and-mortar retailers.”

Bill Gates has been warning about the risk of a global pandemic for years. And since the novel coronavirus slammed the US, he’s been advocating a “super painful” 10-week national shutdown that has earned him plenty of criticism for being an out-of-touch billionaire (just like when he suggested that the biggest contributor to poverty in Africa was too many poor Africans being born)

And yesterday, Gates opened himself to critics once again by publishing an op-ed in the Washington Post where he obliquely criticized the Trump Administration’s approach to combating the virus, and suggested an alternative that sounded like something that might be possible in the world from The Jetsons.

Yeah, humanity (and the US in particular) has made some pretty big strides in the worlds of big data and AI in recent years, but we suspect that American government’s capabilities aren’t quite advanced enough to permit for the seamless and flawless allocations of vital medical resources and semi-automated contact tracing.

Of course, Gates’ guide to how the US can “catch up” in its battle against the coronavirus includes some more practical tips, too, like recommending a mandatory national shutdown that the Trump Administration has specifically said it is opposed to doing (Florida only finally closed the last of the state’s beaches when Gov. DeSantis caved to critics and issued a sweeping lockdown order yesterday). Still, several states have only “recommended” that people WFH and avoid public places…if and when possible.

He brings up other valid points too, echoing Andrew Cuomo’s criticism of the federal government essentially forcing states to bid for vital resources. And finally: Running more rapid trials to find effective treatments while drug companies race to find a vaccine (kind of like what was done here?)

The full op-ed is below. We’ll let readers be the judge.

*    *    *

This is a recipe for disaster. Because people can travel freely across state lines, so can the virus. The country’s leaders need to be clear: Shutdown anywhere means shutdown everywhere. Until the case numbers start to go down across America – which could take 10 weeks or more – no one can continue business as usual or relax the shutdown. Any confusion about this point will only extend the economic pain, raise the odds that the virus will return, and cause more deaths.

Second, the federal government needs to step up on testing. Far more tests should be made available. We should also aggregate the results so we can quickly identify potential volunteers for clinical trials and know with confidence when it’s time to return to normal. There are good examples to follow: New York state recently expanded its capacity to up to more than 20,000 tests per day.

There’s also been some progress on more efficient testing methods, such as the self-swab developed by the Seattle Coronavirus Assessment Network, which allows patients to take a sample themselves without possibly exposing a health worker. I hope this and other innovations in testing are scaled up across the country soon.

Even so, demand for tests will probably exceed the supply for some time, and right now, there’s little rhyme or reason to who gets the few that are available. As a result, we don’t have a good handle on how many cases there are or where the virus is likely headed next, and it will be hard to know if it rebounds later. And because of the backlog of samples, it can take seven days for results to arrive when we need them within 24 hours.

This is why the country needs clear priorities for who is tested. First on the list should be people in essential roles such as health-care workers and first responders, followed by highly symptomatic people who are most at risk of becoming seriously ill and those who are likely to have been exposed.

The same goes for masks and ventilators. Forcing 50 governors to compete for lifesaving equipment – and hospitals to pay exorbitant prices for it – only makes matters worse.

Finally, we need a data-based approach to developing treatments and a vaccine. Scientists are working full speed on both; in the meantime, leaders can help by not stoking rumors or panic buying. Long before the drug hydroxychloroquine was approved as an emergency treatment for covid-19, people started hoarding it, making it hard to find for lupus patients who need it to survive.

We should stick with the process that works: Run rapid trials involving various candidates and inform the public when the results are in.

Once we have a safe and effective treatment, we’ll need to ensure that the first doses go to the people who need them most.

To bring the disease to an end, we’ll need a safe and effective vaccine. If we do everything right, we could have one in less than 18 months – about the fastest a vaccine has ever been developed. But creating a vaccine is only half the battle. To protect Americans and people around the world, we’ll need to manufacture billions of doses. (Without a vaccine, developing countries are at even greater risk than wealthy ones, because it’s even harder for them to do physical distancing and shutdowns.)

We can start now by building the facilities where these vaccines will be made. Because many of the top candidates are made using unique equipment, we’ll have to build facilities for each of them, knowing that some won’t get used. Private companies can’t take that kind of risk, but the federal government can. It’s a great sign that the administration made deals this week with at least two companies to prepare for vaccine manufacturing. I hope more deals will follow.

The Opinions section is looking for stories of how the coronavirus has affected people of all walks of life. Write to us.

In 2015, I urged world leaders in a TED talk to prepare for a pandemic the same way they prepare for war – by running simulations to find the cracks in the system. As we’ve seen this year, we have a long way to go. But I still believe that if we make the right decisions now, informed by science, data and the experience of medical professionals, we can save lives and get the country back to work.

*   *   *

Source: Washington Post

As millions of Americans spend quality time with their families to avoid the global pandemic, box office sales across the US have predictably cratered – falling to just $5,179 from March 20 through March 26 as movie theaters across the country remain shuttered.

During the same week in 2019, ticket sales were over $204 million – thanks to “Captain Marvel” and “Us.”

The Domestic Box office (movie theaters) brought in a whopping $5,179 for the week of Mar 20-26. Down 100% from $204,193,406 the same week a year ago… These numbers are just incredible.

— Strider Elass (@StriderElass) March 31, 2020

So far this year, domestic box office sales are down $600 million year-over-year according to The Hollywood Reporter.

Domestic ticket sales turned in a combined $1.81 billion from Jan. 1 through March 19, the day when Comscore stopped reporting theater grosses. That compares to $2.41 billion for the first full three months of 2019, according to Comscore.

In March of this year, revenue came in at a mere $255.7 million as new product underwhelmed at the beginning of the month before moviegoing started slowing and then came to a standstill. That compares to $612.8 million for the March 1-19 stretch last year, making for a decline of 58 percent. When counting all of March 2019 ($967.8 million), the year-over-year dip for the month was 74 percent. -The Hollywood Reporter

Earlier in the week, AMC Theaters CEO Adam Aron predicted that it might take until mid-June before they’re back in business.

We’re not so sure.

Now that Tom Brady has left town, it looks like the Patriots are getting a jump start on trying to convince the rest of the country to stop hating the most successful franchise in football.

Bloomberg reported Thursday that team owner Robert Kraft is using the Patriots’ private jet to ferry nearly 2 million N95 masks back to the US.

At 3:38 a.m. Wednesday morning, the New England Patriots’ team plane departed from an unusual locale: Shenzhen, China. On board the Boeing 767, in the cargo hold that used to be home to Tom Brady’s duffel bags, were 1.2 million N95 masks bound for the U.S.

Video and pictures of the event show workers in masks and full-body suits at Shenzhen Bao’an International Airport loading box after box of the scarce and valuable personal protective equipment onto a red, white and blue plane emblazoned with the Patriots logo and “6X CHAMPIONS.”

The plane was permitted to be on the ground in China for a maximum of three hours, people familiar with the matter said, and the crew was required to stay on the plane while a ground crew loaded the cargo. It took 2 hours and 57 minutes. On Thursday, that plane will land somewhere more familiar: Boston Logan International Airport.

As they pointed out, the luggage hold that once carried Tom Brady’s bags is currently stuffed with masks that are widely believed to prevent the spread of the virus, even as the White House and CDC continue to debate whether they should officially “recommend” that all Americans wear masks when they go out in public.

USA Today Sports

The decision to pick up the masks was a major entertainment news story in China. Video and pictures show workers in body-suits and masks loading crates of the preciously valuable medical equipment in to the jets cargohold at Shenzhen Bao’an International Airport. The red, white and blue plane emblazoned with the Patriots logo and “6X CHAMPIONS” could be clearly seen. The Kraft family put up $2 million – about half the cost of the load and the logistics.

The masks will be turned over to the State of Massachusetts, whose desperate quest to acquire the masks, which are valued because they are secure enough to be worn in hospitals and other clinical settings, eventually led it to the Patriots.

Kraft’s son, Jonathan Kraft, the chairman of the board at Massachusetts General, played an integral role in connecting Mass. Gov. Charlie Baker to his father, and then in helping resolve the many logistical hurdles.

“I’ve never seen so much red tape in so many ways and obstacles that we had to overcome,” said Robert Kraft, the Patriots’ owner. “In today’s world, those of us who are fortunate to make a difference have a significant responsibility to do so with all the assets we have available to us.”

The effort began with Massachusetts Gov. Charlie Baker, who was concerned about the state’s mask supply and, two weeks ago, believed he had struck a deal to acquire more than a million of them from a collection of Chinese manufacturers. But officials had to figure out how to get them shipped out of China at a time when unusual cargo shipments out of the country can be especially tricky.
“I just have to get them here,” he told a longtime friend.

That longtime friend was Jonathan Kraft, Robert Kraft’s son, who holds two jobs that became highly relevant to the proceedings. Jonathan Kraft is the chairman of the board at Massachusetts General Hospital, one of the country’s most renowned facilities. He’s also the Patriots’ president, and the team had something it thought might be of help: a giant airplane.

There were tough questions to resolve. Robert and Jonathan Kraft first had to check if the plane was ready and able to make such a lengthy journey on such short notice. There was also the fact that the team’s Boeing 767 is a passenger plane built to carry Bill Belichick and Tom Brady, not massive stores of cargo.

The wealthy have been such objects of scorn and derision during the outbreak so far, it’s a nice break to read a story about a rich person doing something good for a change. The WSJ story about how the whole thing came together is pretty interesting.

But we still have one question: Would Kraft have been so eager to help out another state, say, Florida?

Authored by Tsvetana Paraskova via OilPrice.com,

These days, every corner of the oil market is “unprecedented” – from the demand destruction to the supply surge and the resulting glut. The oil futures curve is no exception and is also in a state never seen before.   

This is the super contango, the market situation in which front-month prices are much lower than prices in future months, pointing to a crude oil oversupply and making storing oil for future sales profitable.  

The last time a super contango appeared on the market was during the previous glut of 2015. During the peak of the 2008-2009 financial crisis, the super contango hit a record—the discount at which front-month futures traded compared to longer-dated futures was at its highest ever.

The double supply-demand shock of the past month threw the oil futures market into another super contango. And this super contango is already beating previous records.

[ZH: Update after this morning’s tweet from Trump]

The super contango is representative of the state of the oil market right now: the growing glut with shrinking storage capacity as oil demand craters, OPEC’s leader and the world’s top exporter, Saudi Arabia, intent on further cratering the market with a supply surge beginning this month. Storage costs are surging, and so are costs for chartering tankers to store oil at sea for future sales when traders expect demand to recover from the pandemic-hit plunge.

The market structure flipped into contango in early February, when the Chinese oil demand slump in the coronavirus outbreak led to lower estimates for oil consumption. A month and a half later, oil consumption is set to plunge by 20 million bpd, or 20 percent, this month. Add to this the Saudi supply surge, and here we have what analysts expect to be the largest glut the oil market has ever seen.

Earlier this week, the oversupply and fast-filling storage capacity sent the discount of the May futures of Brent to the November futures contract to the widest contango spread ever—$13.95 a barrel, higher than even the super contango at the peak of the 2008-2009 financial crisis.  

With the rollover of the front-month futures contract in April, the June Brent futures traded early on Wednesday at a discount of $10.30 a barrel to the November futures, while the June 2020 futures spread to the June 2021 futures was $13.59.

One of the hottest ‘commodities’ in the market right now is storage—be it onshore or offshore—as commodity traders and oil majors are increasingly looking to profit from the super contango in several months’ time.  

Apart from the traders who manage to secure storage for stashing crude for sale in a few months, the other big winners of the super contango market structure are set to be tanker owners and operators, as rates for chartering tankers for storage are soaring.

Over the next few months, the tanker companies will be the biggest winners from the double market shock as traders rush to secure what’s left of available crude carriers for storage in the super contango structure.

The inventory buildup around the world will be so high that it will force up to 10 million bpd of global oil production to be “cut or shut-in from April to June 2020 as oil storage fills up and output from financially strapped companies begins to fall,” IHS Markit said on Tuesday.

“Under current conditions second-quarter global demand for oil is expected to be 16.4 million barrels per day less than a year ago. That is more than six times the record drop experienced during first quarter 2009 during the Great Recession. In April the drop will be even bigger,” said Aaron Brady, vice president, IHS Markit.   

“A combination of rapidly increasing crude supply and a buoyant market for crude storage is underpinning a very robust tanker freight market and strong cash generation presently,” tanker operator Euronav said in the outlook in its 2019 results release. However, it warned this would be a temporary event.

“The second quarter of 2020 now looks like it will be one of the greatest quarters in history for large crude carriers, and while there will be a hangover at some point, this party is totally worth it,” Eirik Haavaldsen, head of research at Pareto Securities, told Financial Times this week.

After the crude tanker operators, the next in line to profit from the super contango are the traders who will have stored oil to sell at higher prices several months or a year from now.

Tonight at midnight, the most critical – if hardly biggest – part of the Fed’s $2 trillion fiscal stimulus is expected to begin: that’s when small and medium business with 500 employees or less can request a loan of up to 2.5x the average monthly payroll (capped at $10 million), and meant to buy cash-strapped small businesses just under 3 months in liquidity. As we discussed previously, the loans which are packaged under the SBA’s Paycheck Protection Program, carry a 0.5% interest rate, and would be forgiven if their proceeds are used toward payrolls, utilities, and rent.

Needless to say, getting these loans into the hands of America’s small business is absolutely critical: they employ about half of U.S. private sector employees, according to the Small Business Administration website.

There is just one problem: with just hours to go until millions in small businesses across the nation scramble to apply for much needed funding, the program appears to be on the verge of collapse amid what appears to be sheer chaos between the Treasury, the Small Business Administration, and the various commercial banks that will be tasked to loan the action money.

One reason why the program is woefully unprepared for a Friday midnight rollout is that banks that haven’t underwritten SBA loans before will need to get onboarded in the system. However, as Politico reports, as of last night, there was no application available for banks to do this, and as CNBC’s Kayla Tausche adds, Treasury remains committed to originating these loans beginning tomorrow, despite hiccups.

But wait there’s more: as CNBC’s Kate Rogers reports, an “official familiar with the Paycheck Protection Program loans rolling out tomorrow says official guidance for banks is not yet finalized” with Kayla Tausche adding that in addition to general guidance, banks are asking Treasury for two specific changes to the small biz program:

• Smaller banks want higher interest rate so they don’t lose money
• Big banks want “know your customer” rules waived so they can lend to co’s they haven’t worked with

In addition to general guidance, banks are asking Treasury for two specific changes to the small biz program:
– Smaller banks want higher interest rate so they don’t lose money
– Big banks want “know your customer” rules waived so they can lend to co’s they haven’t worked with

— Kayla Tausche (@kaylatausche) April 2, 2020

Meanwhile, with the supply side choked off amid last minute rollout chaos, demand for the bailout cash is exploding with some estimates that as many as $1 trillion in loan requests will be available for the $350BN in “first come, first serve” loans. As Tausche adds, “industry sources say a “feeding frenzy” of small biz demand for limited resources will be problematic for the system, technically” and notes that “executives are preparing for a situation akin to the 2013 roll-out of http://Healthcare.gov“

That, for those who may not recall, was an unmitigated disaster lasting for months.

But while logistical issues will be overcome, a potential dealbreaker of a problem is that the physical source of new loans is getting cold feet. According to Reuters, thousands of U.S. banks, including some of the country’s largest lenders, have said they may not participate in the federal government’s small-business rescue program due to concerns about taking on too much legal and financial risk.

While the Trump administration has said it wants the loans disbursed within days, bank representatives, as well as thousands of community lenders, have expressed serious reservations about participating in the scheme in its current form and called that deadline totally unrealistic.

Their biggest concern is that the Treasury Department said on Tuesday that lenders will be responsible for preventing fraudulent claims by verifying borrower eligibility, which is determined by a few measures including the borrower’s number of employees and its average monthly payroll costs.

That’s not all: banks also must take steps to prevent money laundering and terrorist financing, a process that would normally take weeks, the sources said. Additionally, banks are concerned they could face regulatory penalties or legal costs down the line if things go awry in the haste to get money out the door. But at the same time they are worried they will be blamed for not moving funds fast enough if they perform due diligence the way they would under normal circumstances, the sources said.

Then there is the mandated interest rate on the loans: community banks said the Treasury’s guideline interest rate of 0.5% will be unprofitable, and that many small banks will not have sufficient liquidity to front up the loans (this, as we said yesterday, may have been a primary consideration for the Fed to release Treasuries and deposits from the Supplementary Leverage Ratio test, effectively opening up over $1 trillion in additional loan capacity across the US banking sector).

“Taking all of the above concerns into consideration, many banks have already indicated that they will not be able to use the Program under the current terms,” the Independent Community Bankers of America wrote to the U.S. Treasury and Small Business Administration, which are jointly administering the loans program, on Wednesday.

“We strongly recommend that you make changes to the guidelines before the Program goes live so that it will work as intended by Congress,” the group, which represents thousands of small banks across the country, wrote.

Alas, that is impossible as going back to the drawing board would mean days if not weeks of additional delays, which for an economy where every hour matters, is simply not feasible.

Still, as Reuters reports, as of late Wednesday night, after hearing the concerns, Treasury officials are considering withdrawing Tuesday’s guidance and are working to fix the issues, although as of this moment the same guidelines for the PP program were still in place as earlier this week.

Banks also want a document customers can sign attesting to their eligibility and other requirements, thereby relieving the industry of responsibility for potential misconduct. One source said banks are also seeking a written assurance from the government regarding their legal liabilities and obligations before they agree to participate in the program.

Reuters could not learn which specific big banks are thinking about shunning the program. The Bank Policy Institute (BPI), a Washington trade group, hosted a call on Wednesday during which executives from its members discussed their concerns, three of the sources said. Members of the group include JPMorgan Chase, Bank of America, Wells Fargo Citigroup, Truist Bank and PNC.

“Our banks are committed to ensuring this program works and that all of the operational complexities and process challenges are worked through so we can achieve Congress’s goal of helping America’s small businesses,” Greg Baer, President and CEO of the BPI, said on Thursday.

Which is ironic: back in September 2008 all the banks demanded multi-trillion taxpayer funded bailouts right this instant as the world was going to implode if a few banks went under. However, now that the tables are flipped, and mainstream America and half of all the private sector employees demand a similar turnaround time or else the US economy will truly collapse, banks suddenly think that taking their time, dotting i’s and crossing t’s is far more important than getting money into the hands of America’s workers. Money which, as a reminder, is now of the “helicopter” variety, openly printed by the Treasury, monetized by the Fed, and which can be delivered to banks through the back door if need be.

With that we look forward to seeing how this chaos resolves itself. Here is a recap of the biggest challenges courtesy of CNBC’s Tausche.

$350 billion of small business loans will be made available tomorrow, but is the government ready to roll out the program? @kaylatausche has the details on bankers’ concerns that the program is not ready for prime time on @CNBC. pic.twitter.com/fmheeBTNmE

— The Exchange (@CNBCTheExchange) April 2, 2020