A weekend topic starting with Go Local Prov. “In Rhode Island, GoLocal reported that in March that Santander Bank was expected to lay off nearly 200 employees. The layoffs by Santander are taking place across the globe. ‘What’s behind banking giant’s job cuts?’ reported mortgage industry publication MPA in March. ‘It has discontinued its home originations segment.’ Wells Fargo is also in the midst of major layoffs. Business Insider is reporting, ‘As mortgage revenues fell at Wells Fargo in the first quarter of 2022, the company began laying off employees in mortgage-related positions.’”
“Another mortgage company Better.com has laid off approximately 4,000 over the past few months. Peloton, the home fitness company, is laying off 2,800. Carvana is laying off an estimated 2,500, according to multiple reports. Uber, Robinhood, and Netflix have all announced significant layoffs. And, Facebook’s parent company Meta has announced a hiring freeze. All of these cuts and freezes are not exclusive to the post-pandemic world or rising interest rates. Scotts Miracle-Gro has announced it is cutting about 10% of its workforce and even the cannabis industry is getting hit.”
From Verdict. “Fintechs have reason to be worried. There’s certainly been no shortage of bad news hitting the sector recently. Headlines about investment cooldowns, mass layoffs and plummeting stock valuations have slammed the entrepreneurs of this space in the face for months. Then, of course, there’s the very public implosion of Fast to consider. While the startup had aggressively branded itself as a one-click checkout revolution, no amount of hype was able to save it from crashing when investor money dried up. And if you ask industry experts, it won’t be the last fintech to collapse in the months to come.”
“‘When the tide goes out you’ll know who’s swimming naked,’ James Allum, SVP and regional head of Europe at fintech Payoneer, tells Verdict. He and other market stakeholders suggest that the fintech industry will suffer a mass-cleanse of startups only held up by investor optimism, hype, good intentions and over-heated markets. ‘We talk about it almost daily’ Allum says.”
“‘[It] seems obvious that there would be a slowdown in fintech investment,’ Mark Hartley, founder and CEO at banking software developer BankiFi, tells Verdict. ‘I’ve actually been banging the drum about this for some time now, but the fintech boom of recent years has shared some eerie similarities with the dot-com bubble of the early 2000s. You’re seeing lots of money being thrown at things that at best, are yet to be proven and, which at worst, represent big bets on solutions that may never materialise. Ultimately, there needs to be a correction in the market.’”
From Reuters. “Japan’s SoftBank Group Corp reported a record $26.2 billion loss at its Vision Fund investment arm on Thursday, as rising interest rates and political instability whiplashed high-growth tech stocks. Investors are now increasingly questioning whether many of the once high-flyers it has invested in have a clear path to profitability. South Korean e-commerce firm Coupang is trading 70% below its listing price. Ridehailers Didi Global Inc and Grab Holdings, also tumbled during the January-March quarter.”
From WENY News. “This week, one popular so-called algo coin cratered, wiping out billions of dollars’ worth of value in just a few days.The coin, called TerraUSD, is designed to maintain its value at $1, forever and ever, amen. Instead, it fell as low as 23 cents Wednesday before recovering some ground. It was hovering around 60 cents early Thursday. To critics of the controversial crypto product, it’s an ’emperor has no clothes’ moment. Or, more pessimistically, a Lehman Brothers moment.”
“Algorthmic stablecoins aren’t necessarily backed by any real external asset, relying on complex financial engineering to hold their value steady. And when they fall, they tend to fall hard — industry watchers call this a ‘death spiral.’ Algorithmic coins are ‘just a fancy way of saying, ‘We are going to say that this is worth a dollar because it’s backed by another asset that we also create out of thin air,’ says Charles Cascarilla, the chief executive of Paxos, a blockchain infrastructure firm. In the case of TerraUSD, that other ‘out of thin air’ asset is the cryptocurrency Luna.”
“The problem is that the entire ecosystem relies on traders believing Luna has value. Once investors lose faith in the system, all bets are off. ‘Any morning, people could wake up and say ‘wait a minute, you just made up this all up, it’s worthless,’ and decide to dump their Lunas and Terras,’ wrote Bloomberg columnist Matt Levine.”
From Reuters. “If the Federal Reserve sells any of its holdings of mortgage backed securities it may have to do so at a loss, Cleveland Federal Reserve bank President Loretta Mester said Tuesday, a potentially difficult problem for the central bank, at least politically, since it remits its annual profits to the U.S. Treasury.”
“‘A potential drawback of sales is that, depending on the interest rate path, they could result in realized market-to-market losses,’ Mester said in comments to an Atlanta Fed conference. ‘Such losses would not entail any operational challenges for the Fed in setting monetary policy. However, they would pose communication challenges that would need to be appropriately addressed.’”
“An ICE index of mortgage backed securities is down about 9% on the year. Mester’s comments do not reflect the likelihood of sales. But Fed officials do want their balance sheet to consist mainly of Treasury securities, and to get rid of most if not all of the $2.7 trillion in mortgage securities the central bank currently holds. Because home mortgage interest rates have been rising, the sale price of those mortgage securities may well have fallen since buyers would demand a discount to accept mortgages based on a smaller stream of payments.”
From Bisnow New York. “Oceanwide Holdings, like many Chinese developers in the middle of the last decade, had grand ambitions to make their mark on the Manhattan luxury condo development market. Instead, the market has left a mark on Oceanwide — the site where it planned to build a 1,500-foot skyscraper has been placed in receivership over a $175M default. The site at 80 South St. has been taken over by Kalo, an insolvency and restructuring firm headquartered in the Caribbean, after Oceanwide failed to pay back $165M on its loan from New York-based DW Partners.”
“Oceanwide’s spending spree has been almost entirely unwound: Lenders took over the company’s stalled, semi-complete project in the heart of San Francisco. The Oceanwide Center was supposed to be the city’s second-tallest skyscraper, but it currently sits as an abandoned construction site. The company said in March it plans to sell the rest of its U.S. holdings, save for one: the planned Oceanwide Plaza in Downtown Los Angeles. While multiple contractors have filed liens against the developer, including a $350M lien from general contractor Lendlease, it said it plans to complete development on the project.”
From My News LA in California. “Two men involved in a $15 million mortgage fraud scheme in Orange County were sentenced Thursday to seven years in prison. Jimmy Phan, 47, and Vinh Phan, 47, both pleaded guilty Dec. 16, according to court records. The Phans are not related. Co-defendant Stephen Nguyen, 59, is a fugitive. Jimmy Phan and Vinh Phan pleaded guilty to multiple felony counts of grand theft, mortgage fraud, attempting to file a false or forged instrument and admitted sentencing enhancements for aggravated white collar crime exceeding $500,000.”
“The defendants acquired property ‘and (used) them as collateral to borrow large amounts of money from lenders and private parties for short terms and high interest,’ an Orange County District Attorney’s investigator said in a bail petition. Some of the payments were made, but the lenders did not know the defendants ‘would record forged conveyances (an instrument to indicate that the loan was paid),’ prosecutors said. ‘Then they would take the advantage of the title being free from the first loan and obtain a second loan,’ prosecutors said.”
“The second loans were sometimes used to finance acquisition of property with an ‘arms-length buyer,’ who was ‘in fact in collusion with the seller to inflate the value of the property or to give the appearance of legitimacy,’ prosecutors alleged. Prosecutors allege 12 victims were duped in 10 separate real estate transactions with total losses of about $15 million.”
The Globe and Mail. “Canada’s banking regulator is leaving the door open to tweak its mortgage stress test before the end of this year, as the cost of borrowing soars and the housing market starts to cool across the country. Although the Office of the Superintendent of Financial Institutions expressed satisfaction with the current rules, the regulator said it could revisit them again ahead of its annual stress-test announcement scheduled for mid-December.”
“Since OSFI toughened the mortgage stress test last June, the country’s housing market and borrowing conditions have changed significantly. The regulator must grapple with whether its rules are still effective in the current environment. And the stress test will become even harder as mortgage rates continue to climb. That will drive more borrowers to variable-mortgage rates, as well as to non-bank mortgages – which typically have higher interest rates than chartered banks.”
“Already, borrowers are seeking variable-rate mortgages, which are at about 2.4 per cent today, according to mortgage brokers. ‘Qualifying for more money under a variable rate is a new phenomenon based on the recent rapid rise of fixed rates,’ said Elan Weintraub, co-founder of Mortgage Outlet Inc.”
“Borrowers are also turning to alternative lenders such as trusts and private mortgage-investment companies, which do not have to comply with federal banking rules. Samantha Brookes, chief executive officer of Mortgages of Canada, said her clients are now flocking to alternative lenders. Today, the vast majority of her customers are borrowing from an alternative lender compared with about half her client base at the beginning of this year. ‘We’ve seen a huge increase over the last couple of weeks,’ she said.”
From Bloomberg. “One of the world’s most expensive property markets faces its biggest test in more than 30 years. Australia’s A$10 trillion ($7 trillion) residential real estate sector will this year have to absorb the sharpest interest-rate increases since 1989, if bond markets are right. The Reserve Bank last week began its first tightening cycle in 11-1/2 years, shaking the confidence of consumers with some of the world’s highest debt loads. That turnaround was on display at a weekend auction in the inner Sydney suburb of Darlington, where a two-bedroom home of 104 square meters yielded no bidders.”
“‘A property like that would typically get snapped up within 3-4 weeks and the auction would typically have 5-plus registered bidders,’ said auctioneer Alex Pattaro at real estate firm Ray White. ‘But the market is cooling, and as more stock comes into the market place it will have a bigger hit on the price.’”
“It remains uncertain how Australia’s households, with A$2.1 trillion in outstanding mortgage debt, will respond to rising borrowing costs. ‘Most buyers are worried about consecutive rate rises,’ said Thomas McGlynn, chief executive officer of Sydney-based real estate firm Bresic Whitney. ‘It would be ill-advised to have quick interest rate hikes because it’s something that the current group of buyers haven’t really had to deal with for the last 10 to 15 years.’”
From Reuters on New Zealand. “When Aarti and Gaurav Kathuria were saving for their first home, a three-bedroom townhouse in Auckland, they cut back on eating out and other expenses so they could put together the hefty deposit. Now, only months after paying NZ$875,000 ($560,000) for a home in one of the world’s most unaffordable cities, they’re faced with a new challenge: property prices are falling, while mortgage rates and living costs are going up. For people like the Kathurias, the hit to household wealth has meant a tightening of the purse strings. ‘All you can do is cut back on things,’ Aarti Kathuria said.”
“Miles Workman, senior economist at ANZ Bank, said recent buyers who borrowed heavily were most at risk of falling into negative equity as prices come down. ‘That is going to hurt from a psychological perspective,’ he said. ‘Hopefully those first-home buyers can just grit their teeth and get through it because the labour market is very tight.’”
From ICIR Nigeria. “Public endorsement of Ponzi schemes by Nigerian celebrities, greed and poor financial investment knowledge have been identified as some of the major enablers to the loss of billions of naira by investors in ponzi schemes, ICIR findings have shown. Nigerians lost over N300 billion in ponzi schemes in five years, according to a research. ‘Most Nigerians get into the ponzi scheme knowing it is a bubble, hoping they get in early enough to make some profit. Most players know it is a gamble, so they put in only small amounts they can afford to lose,’ the Managing Director of Norrenberger Financial Investments, Tony Edeh, toldthe ICIR.”
We Got This Covered. “Following widespread crashes of various cryptocurrencies, critics on Twitter are taking the opportunity to troll actor Matt Damon for being one of the many celebrities in recent years to do an advertisement for the blockchain-centered technology. While Damon isn’t the only celebrity shilling crypto, many people are not-so-fondly remembering his particularly cringey-in-retrospect ad that premiered last year for Crypto.com, called Fortune Favours the Brave. The one-minute ad, which had an impressively high production value, had quite the call to action for viewers and premiered on Oct. 28, playing on everything from TV screens to movie theaters.”
“There’s been some bad publicity surrounding the digital form of currency lately, as the cryptocurrency market, overall, saw a loss of more than $200 billion as of Thursday. People on social media were quick to point out how seemingly poorly the ad has aged, with its comparison of investing in crypto as analogous to inventing aircraft. Reporter Jason Schreier even went so far as to characterize crypto-backed non-fungible tokens as ‘the latest failed trend,’ along with the buzzy ‘metaverse’ companies keep blathering on about.”
“Professor and author Dr. Steven W. Thrasher was also vocal on social media about his criticism of both Matt Damon and Larry David, the latter of whom also starred in a Super Bowl ad for crypto. In his opinion, the actors may have ‘conned’ poor and desperate people out of their money. Another writer, Jon Schwarz, pointed out just how much money someone would’ve lost if they invested at the time the ad first dropped, compared to today. Assuming the calculation is correct, that would leave a person with about half of what they started out with.”