The Wall Street Journal - 09.08.2019

B10| Friday, August 9, 2019 ** THE WALL STREET JOURNAL.

Nickel prices on the London
Metal Exchange notched their
highest close in over a year on
Thursday, surging more than
7% on media reports about a
ban on ore exports in Indone-
sia.
Three-month nickel con-
tracts rose as high as $16,690
per metric ton earlier in the
session, but settled at $15,880
per ton—still a 7.2% uptick
from the previous day.
Since the start of the year,
Nickel has risen over 50% on
the London Metal Exchange,
making it one of the best-per-

Note: Delinquency rates cover borrowers at least 120 days late on repayments at least once within a five-year period. *Or associate degree

Sources: Census data from 2015 (education attainment); Federal Reserve (deliquency rate); Consumer Financial Protection Bureau (score)

Thegovernmentfoundracial

disparitiesamongthosewith

nocreditscoresandstaleor

insufficientscores.

Credit Factor

0 0% 40

Asian

White

Black

Hispanic

Noscore Stale Insufficient

Fedeconomistsfoundthose

withcollegedegreeswereless

likelytodefaultthanthose

whodidn’tgraduate.

College Factor

0 0% 40

No degree

Certificate*

Bachelor’s

Master’s

and above

Student-loandelinquencyrate

Censusdatashowgaps

byraceoneducation

attainmentforpeople25

andolder.

Race Factor

0 0% 40

Asian

White

Black

Hispanic

Bachelor’sdegreeormore

forming commodities globally.

The main driver for nickel’s

rise was a report that the In-

donesian government could

impose an export ban on

nickel ore sooner than origi-

nally anticipated by the mar-

ket, raising the specter of a

tighter supply next year, ac-

cording to analysts.

The original plan was for

Indonesia to ban exporting

nickel ore by 2022, as part of

the country’s plan to build up

its manufacturing base by us-

ing the country’s raw re-

sources.

According to a Thursday re-

port from Reuters, Indonesian

officials are considering tight-

ening the ban ahead of sched-

ule, but haven’t commented on

the possibility. That hasn’t

stopped traders from reacting.

“The markets are con-

cerned,” said Edward Meir, a

commodity consultant at bro-

ker-dealer INTL FCStone, in a

note.

Indonesia is a leading pro-

ducer of nickel ore, along with

the Philippines and China.

Nickel prices had already

been on the rise this year due

to a mix of supply disruptions

world-wide and higher de-

mand for the metal from the

electric-vehicle market, specif-

ically for batteries.

However, nickel demand

isn’t immune to the uncer-

tainty over the U.S.-China

trade tensions. On Wednesday,

Citi Research cut its nickel-de-

mand growth forecast for 2019

to 4.7% from 5.8%, citing the

recent trade-fight escalation.

However, Citi noted that the

growth of the electric-vehicle

market would likely offset fur-

ther demand loss.

Slowing activity in China

also could eat into nickel de-

mand. The most recent gauge

of China’s manufacturing

showed the sector still in con-

traction. The country’s na-

tional purchasing managers

index came in at 49.7 in July—

an improvement from June

but still stuck below 50.

Should Indonesia choose to

ban nickel exports earlier than

2022, then the world-wide

nickel deficit would increase

to roughly 100,000 metric

tons, according to Citi.

However, without this ban,

nickel prices may soon see a

potential selloff, analysts said.

“For me, unless Indonesia

bans nickel now, these prices

aren’t justified,” said Colin

Hamilton, managing director

of commodities research for

BMO Capital Markets.

BYKIRKMALTAIS

Nickel Soars on Fear of Indonesia Banning Ore Export

names of universities or col-

leges attended and areas of

study, as well as employment

history.

“The use of occupational

history and educational back-

ground generates a signifi-

cantly more accurate credit

model,” said Dave Girouard,

Upstart’s chief. He added that

the company’s model approves

27% more loan applicants for

its personal loans than the

traditional credit-scoring

model and results in 16% lower

average interest rates for ap-

proved loans.

Other lenders are also using

educational history or employ-

ment status to screen borrow-

ers, with similar results, along

with more widely accepted

data such as rent and utility

payments and cash-flow re-

cords from borrowers’ bank

statements.

Despite the growing em-

brace of such measures, some

consumer advocates say the

trend will hurt lower-income

or minority borrowers. “It en-

trenches and perpetuates in-

equality in such an obvious

and stark way,” said Chi Chi

Wu, an attorney for the Na-

tional Consumer Law Center,

who added that the existing

system already makes it

harder for people with lower

Mozambique is suing Leba-

nese-French businessman Is-

kander Safa for fraud in a U.K.

court, opening a new front in

the country’s efforts to rid it-

self of $2 billion in debt raised

by state-owned companies to

buy fishing boats and other

products from Mr. Safa’s com-

pany,Privinvest Group.

The civil lawsuit is the lat-

est in a series of criminal and

civil cases centered around the

$2 billion in loans that were

used to pay for procurement

contracts with Privinvest.

Keith Oliver, a partner at

Peters & Peters Solicitors LLP,

acting on behalf of Mozam-

bique’s attorney general, said

the southern African country

is seeking damages and com-

pensation for fraud, including

bribery and conspiracy. The

case was filed in a London

commercial court on July 31.

Mr. Safa denied wrongdoing

and “does not accept that the

English court has jurisdiction

over him,” a Privinvest

spokesman said. Mr. Safa

hasn’t seen the details of the

claim yet, he said.

In January, U.S. prosecutors

charged eight people, includ-

ing two Privinvest employees,

with engaging in bribes and

kickbacks of at least $200 mil-

lion from the loan proceeds to

enrich themselves and Mo-

zambique officials. The indict-

ment describes alleged activi-

ties of unnamed, unindicted

co-conspirators, including a

Privinvest principal that refers

to Mr. Safa, according to peo-

ple familiar with the matter.

The U.S. alleges a Privinvest

employee, Jean Boustani, con-

spired with Mozambique’s

then-finance minister, Manuel

Chang, in 2011 to create gov-

ernment maritime projects as

fronts for receiving loans and

bonds. Credit Suisse Group AG

and Russian bank VTB Group

arranged the loans and bonds.

Three former Credit Suisse

bankers were charged and two

of them have since pleaded

guilty to receiving kickbacks.

Mr. Boustani denies wrongdo-

ing. Mr. Chang denies wrong-

doing and is fighting extradi-

tion to the U.S. from South

Africa.

BYMARGOTPATRICK

Mogul Is

Sued for

Fraud in

U.K. Court

BANKING & FINANCE

income and fewer assets to

qualify for cheaper loans.

The percentage of people

with at least bachelor’s de-

grees is 33% among whites

and 54% among Asians, com-

pared with 23% for African-

Americans and 16% among

Hispanics, according to census

data.

Policy makers hope, though,

that alternative data will allow

lenders to reach some of the

45 million Americans, or 19%

of the adult population, who

don’t have access to credit, ac-

cording to the Consumer Fi-

nancial Protection Bureau.

Given their reliance on peo-

ple’s loan-repayment history,

traditional scoring models

handicap young people with

limited credit history, as well

as those who may have had

previous financial difficulties.

But determining what types

of data should be permitted in

credit scoring is a complex

and contentious task. The

Equal Credit Opportunity Act

of 1974, the main law used to

ensure credit access and pre-

vent discrimination, prohibits

lenders from using informa-

tion such as race, sex, national

origin and age as factors in

determining credit availability.

The use of other types of in-

formation, such as income and

assets, are permitted.

Whether the use of data re-

lated to education and occupa-

tion is appropriate is debat-

able. While serving as a strong

indicator of people’s credit-

worthiness, the data show

similar correlation to prohib-

ited factors. A 2015 study by

Federal Reserve economists

showed the average student-

loan delinquency rate among

those who didn’t finish college

was 44%, compared with 11%

for bachelor’s degree holders.

“America’s 1970s-era anti-

discrimination law is not well

suited to deal with today’s big

data reality,” said Aaron Klein,

policy director for the Brook-

ings Institution’s Center on

Regulation and Markets. He

added change must start with

an honest conversation about

which borrowers deserve spe-

cial protection and how to

compensate lenders for serv-

ing riskier consumers.

The uncertainty largely has

kept traditional banks from

using alternative data. Even fi-

nancial-technology lenders in

the U.S. typically stick to non-

controversial information such

as bank-account data and steer

clear of information gleaned

from social media.

“There is yet a framework

that makes it perfectly safe to

[use such information] with-

out facing an existential

threat,” said David Klein, chief

executive of CommonBond, an

online student-loan provider.

The Government Account-

ability Office, the independent

watchdog arm of Congress,

recommended in December

that financial regulators pro-

vide clearer guidance to lend-

ers about how to use alterna-

tive data in the underwriting

process, something that hasn’t

yet happened.

While most lenders tightly

guard their lending models,

the experience of Upstart is

revealing. The company has

developed and operated its

lending model under the su-

pervision of the CFPB for

nearly two years. It is the only

company that has been ap-

proved for its innovation pro-

gram. On Monday, the CFPB

unveiled detailed data on how

Upstart’s model has expanded

credit access and encouraged

other lenders to explore ways

to lend to more people with no

or limited credit history.

Upstart’s Mr. Girouard said

the company’s model provides

higher approval rates and

lower interest rates for “every

traditionally underserved de-

mographics.”

WASHINGTON—Should bor-
rowers be denied new loans
because they didn’t finish col-
lege?
That sort of question is
vexing policy makers as they
seek to encourage lenders to
use new types of data and
computer-driven models to al-
low more borrowers to qualify
for loans and at lower prices.
Such efforts seek to address
mounting criticism of an exist-
ing credit-evaluation system
that relies on past loan-repay-
ment history but also raises
questions about fairness and
accessibility to credit.
Several bills have been in-
troduced in the House of Rep-
resentatives this year by law-
makers from both parties to
improve the credit-scoring
system. Last month, a biparti-
san House financial-technol-
ogy task force held a hearing
on the use of alternative data.
Rep. French Hill (R., Ark.),
the task force’s top Republi-
can, said alternative credit cri-
teria have “the potential to
widen the universe of borrow-
ers and provide greater access
to affordable credit.” Citing a
report by credit-reporting
companyTransUnion, Mr. Hill
said two in three lenders were
able to lend to more borrow-
ers with the use of alternative
data.
Sen. Kamala Harris (D., Ca-
lif.), a Democratic presidential
candidate, has proposed in-
cluding on-time rent payments
and cellphone bills in credit
scores as part of her campaign
pledge to boost black home-
ownership.
Some financial-technology
companies are already using
these techniques. AtUpstart
NetworkInc., an online lender
founded by former Google Inc.
employees, loan applicants are
asked to provide the highest
education degree obtained, the

BYYUKAHAYASHI

New Credit Criteria Raise Fairness Issue

More lenders are using educational history or employment status to screen borrowers.

ROBYN BECK/AGENCE FRANCE-PRESSE/GETTY IMAGES

high for more large moves,”

Mr. Cappelleri said.

One upside: The adage that

large moves tend to be fol-

lowed by more large moves

applies to both up and down

days for the stock market. But

Mr. Cappelleri, among other

analysts, doesn’t view big one-

day rallies as necessarily posi-

tive, either.

“We just need to remember

that the largest up days typi-

cally come in stressed trading

environments,” he said, noting

the stock market managed to

rally in the midst of pullbacks

in October and December.

So far, it’s an open question

whether the latest wave of

selling hitting the market is

about to end. Bond yields

around the world have

slumped as bigger-than-ex-

pectedratecutsfromcentral

banks in Asia have raised fresh

fears about the global econ-

omy’s health.

Fresh jabs between the U.S.

and China have also put to

question whether the two

countries will be able to reach

a trade deal this year, as many

investors had widely expected

months ago.

“The U.S.-China trade war

has now escalated into a po-

tential currency war,” Bank of

America analysts said in a

note.

In other words: Don’t ex-

pect the market to settle into

a lull anytime soon.

Bad news for those hoping
for calmer trading ahead: His-
tory shows that big one-day
drops in the stock market are
often followed by further siz-
able pullbacks.
Stock declines of 3% or
more like Monday’s, while rel-
atively infrequent, tend to oc-
cur in clusters when they hap-
pen, Instinet analyst Frank
Cappelleri found in an analysis
this week.
The S&P 500 fell by at least
3% on five separate occasions
in 2018, with four of the drops
occurring in the final three
months of the year.
In 2015, the S&P 500 fell by
at least that much three times
in the span of two weeks; in
2011, it did so six times within
a little more than three
months, and in 2010, it did so
five times, with four of the
drops occurring within two
months.
In fact, of the five years
since 2010 when the stock
market dropped 3% or more,
there was only one year when
that drop was the only one of
its size for the year. That
means the S&P 500’s 3% drop
Monday, its first drop of that
size this year and its biggest
slide since December, will
likely not be the last of its
kind in 2019.
“Whether [Monday] marked
a key low or not, the odds are

BYAKANEOTANI

Stock-Market

Selloffs Tend to

Come in Clusters

FouroftheS&P5 00 ’sdropsofatleast3%in2 018

occurredwithinthefinalthreemonthsoftheyear.

S&P 500 over the past year

Sources: FactSet (S&P 500 index, VIX); Instinet analysis of Bloomberg data (S&P 500 one day drop of 3%)

*Figure for 2019 is based on market performance through Wednesday.

Cboe Volatility Index

TheVIXhasjumpedsince

thestartofthemonth,a

signthattradersbelieve

thestockmarketcouldbe

buffetedbymoreswings.

Since2 010 ,there’sonlybeen

oneyearwhentheS&P5 00

hasfallenatleast3%andthen

notfallenbythatmuchagain

fortherestoftheyear.

Number of times the S&P 500

logged a one-day drop of

3% or more each year*

6

0

1

2

3

4

5

times

2010 ’12 ’14 ’16 ’18 ’19

TrumpsaysU.S.tohitChinawithfurthertariffs

3000

2400

2500

2600

2700

2800

2900

2018 ’19

3% drop

3.3% drop 3.2% drop

3.1% drop

5% drop

25

10

15

20

Jan. Feb. March April May June July Aug.