The Wall Street Journal - 07.04.2020

B10| Tuesday, April 7, 2020 **** THE WALL STREET JOURNAL.

BANKING & FINANCE

banks have already suspended

buybacks.

That kind of collapse, once

considered unthinkable, is now

in line with some economists’

predictions for the second

quarter this year, though oth-

ers expect a substantive re-

bound in the third quarter.

“Entering into a crisis is

not the time to figure out

what you want to be,” Mr. Di-

mon wrote. “You must already

be a well-functioning organi-

zation prepared to rapidly mo-

bilize your resources, take

your losses and survive an-

other day for the good of all

your stakeholders.”

Writing only a month after

undergoing emergency heart

surgery and days after return-

ing to work, Mr. Dimon re-

leased his letter as the bank

deals with unprecedented eco-

nomic turmoil. Mr. Dimon

threw out his usual template

for his annual letter—detailing

the bank’s success and his

views on public policy—to ad-

dress the coronavirus crisis,

which he said he expects to be

“a bad recession combined

with some kind of financial

stress similar to the global fi-

nancial crisis of 2008.”

He said his bank has taken

steps to protect employees

and keep them safe, sending

them home faster and more

broadly than any plans the

bank had. That is while seeing

record volumes in securities

trading, extending new loans

to small businesses and deliv-

ering $1.9 billion in cash to

smaller community bank cli-

ents, he said. Companies have

already drawn down more

than $50 billion in credit lines

to prepare for the crisis, which

Mr. Dimon said “dramatically

exceeds what happened in the

global financial crisis.” The

bank approved more than $25

billion in new credit exten-

sions in March.

“While conditions may

sometimes be unusual and dif-

ficult, we are functioning

smoothly,” he wrote.

The bank has closed some

branches but still has thou-

sands of employees at work in

its retail operation and has

seen an outbreak of the virus

on its trading floor.

What the bank hasn’t done,

Mr. Dimon said, is ask the gov-

ernment to relax the rules that

force JPMorgan and other U.S.

banks to bulk up capital levels,

which he and others have long

said would restrain lending in

a crisis. He suggested that the

rules perhaps should be loos-

ened, but called it a conversa-

tion for another time.

“Saying that we will not ask

for regulatory relief does not

mean the government

shouldn’t change some rules

and regulations, however,” Mr.

Dimon wrote. “While a lot of

the rules were constructive

and made the financial system

stronger, we are now seeing

the impact of poorly coordi-

nated, poorly calibrated and

poorly organized rulemaking.”

Typically Mr. Dimon’s an-

nual letter is full of ideas on

fixing public policy, but that

was largely removed this year

other than to urge the country

to come together and to criti-

cize the initial U.S. response.

“The country was not ade-

quately prepared for this pan-

demic—however, we can and

should be more prepared for

what comes next,” he said.

Mr. Dimon, 64, only briefly

acknowledged he had been

out—thanking his team for

running the bank—and pro-

vided no new updates on his

health or whether it would

change his plans on how long

he would stay at JPMorgan.

JPMorgan Chase & Co.

Chief Executive James Dimon

said his bank hasn’t sought

looser regulations to help it

handle the economic collapse

caused by the coronavirus

pandemic, detailing instead its

ability to keep lending in even

more dire circumstances.

In his annual letter pub-

lished Monday, Mr. Dimon said

the work preparing JPMorgan

to be a “port in the storm”—a

long obsession of his—means

the bank can handle what he

expects to be a “bad reces-

sion.”

In internal stress testing, he

said the nation’s biggest bank

would be able to increase

lending to clients even if U.S.

gross domestic product were

to drop 35% in the second

quarter and stay there for the

remainder of the year. Only

then would the bank consider

cutting its dividend, he wrote.

JPMorgan and other big U.S.

BYDAVIDBENOIT

Dimon Sees Bank Enduring Bad Recession

The JPMorgan CEO is back at work after emergency heart surgery.

GIULIA MARCHI/BLOOMBERG NEWS

Pedestrians walk past the People’s Bank of China building in Beijing. The country’s economic slowdown is hurting profits in the sector.

QILAI SHEN/BLOOMBERG NEWS

Harry Curtis said. The fund

manages about $320 billion in

assets, according to the Sover-

eign Wealth Fund Institute.

“The risk-reward is appeal-

ing because the next eight

months, the industry has an

opportunity to gradually re-

cover from this crisis,” Mr.

Curtis said. “And their invest-

ment is being made at such a

low level that they feel like the

bad news is reflected in the

stock.”

Carnival Cruise Line said

last week that it is further

canceling some of its sailings

through the end of the year,

making it the first major

cruise line to do so because of

the global health crisis.

The company said last week

that it expects most of its

ships to be idled for a pro-

longed period. If 80% of its

fleetweretobeputinapro-

longed layup, the company

could reduce its monthly cash

burn by about $100 million to

$150 million, allowing it to

survive as long as 15 months

without revenue, UBS Securi-

ties LLC analyst Robin Farley

said in a note to clients.

The cruise industry was

among the first to take a pub-

lic hit from the virus, along

with airlines and hotels, as va-

cationers canceled plans, local

governments halted tourism

and passengers on board fell

ill, leading to entire vessels

full of passengers being quar-

antined.

Cruise companies were also

excluded from the roughly $2

trillion coronavirus stimulus

package, despite being one of

the hard-hit industries Presi-

dent Trump has pledged to

help. A spokeswoman for the

Cruise Lines International As-

sociation, a trade group, said

last month that the industry

wasn’t seeking a bailout in the

first place.

CarnivalCorp. shares rose

20% after Saudi Arabia’s sov-

ereign-wealth fund disclosed

an 8.2% stake in the world’s

largest cruise operator on

Monday.

The Public Investment

Fund’s purchase of 43.51 mil-

lion shares came as the coro-

navirus pandemic has put the

company’s sailings to a halt.

The fund has invested inUber

TechnologiesInc.,TeslaInc.,

Penske MediaCorp. andLu-

cid MotorsInc., according to

FactSet. Based on Carnival’s

closing price on Friday of

$8.49, the Saudi stake is val-

ued at $369.4 million.

The stock rise is the com-

pany’s largest percentage in-

crease on record, according to

Dow Jones Market Data.

Shares in Carnival gained

$1.72 to $10.21 on Tuesday.

The stock has fallen about 80%

so far this year.

Carnival and other cruise

lines have sought to preserve

liquidity as revenue dries up.

Separately on Monday, Carni-

val said it has closed its offer-

ing of 71.88 million shares of

common stock at $8 each. It

also closed its offering of

$1.95 billion in 5.75% senior

convertible notes due in 2023.

Carnival said it expects to

close its $4 billion offering of

11.5% first-priority senior se-

cured notes due in 2023 on

Wednesday.

The Saudi fund’s 8.2% stake

reflects the company’s number

of shares outstanding on

March 25 and doesn’t include

the latest capital raise, the

fund said in a securities filing.

The Saudis’ investment in

Carnival represents a fraction

of the fund’s overall portfolio,

and it could stand to gain

when the cruise industry re-

covers, Instinet LLC analyst

BYDAVESEBASTIAN

Carnival’s Shares

Soar on Saudi Stake

The cruise line canceled 2020 sailings because of the coronavirus.

PETER PARKS/AFP/GETTY IMAGES

eligible three-month corpo-

rate, asset-backed and munici-

pal commercial paper from eli-

gible issuers.

The New York Fed says on

its website that “the commer-

cial paper market has been un-

der considerable strain as in-

vestors have become reluctant

to purchase commercial pa-

per,” and that resulted in surg-

ing interest rates and some

firms being unable to access

the market. The Fed says its

support to this market will

provide “credit that will sup-

port families, businesses, and

jobs across the economy.”

The commercial paper will

be bought by a special vehicle

created by the central bank,

seeded with $10 billion from

the Treasury Department.

The Federal Reserve Bank

of New York said its new facil-

ity to assist the commercial

paper market will launch April

14.

Applications for participa-

tion in the Commercial Paper

Funding Facility must be sub-

mitted by Thursday, the bank

said. The facility is part of a

smorgasbord of tools aimed at

helping the financial system

navigate the shock of the coro-

navirus crisis.

Commercial paper securi-

ties are de facto short-term

IOUs issued by companies and

local governments. The New

York Fed said the commercial

paper facility will help smooth

those funding needs by buying

BYMICHAELS.DERBY

New York Fed to Launch

Commercial-Paper Facility

restrictions. The company

didn’t release details on the im-

pact on claims.

“We decided to give custom-

ers as much as we can” at this

early stage to help them man-

age through the economic

downturn, he said.

Trade groups believe the

pair are the first car insurers in

the U.S. to share their Covid-19-

related windfall. Wall Street an-

alysts believe many will follow

suit. Mutual insurers like

American Family that are

owned by their policyholders

may find a decision to provide

financial relief easier to make,

but publicly traded insurers

could also opt to pass along

some of their good fortune, for

reasons including competitive

Continued from page B1

shares.

Many small lenders have

been hard hit by the economic

slowdown in China over the

past two years, and by govern-

ment efforts to crack down on

financial risk-taking. Growth

has slowed especially sharply

in China’s northeast, where

Bank of Jinzhou is based,

since the regional economy is

dominated by inefficient state-

run companies.

Analysts widely expect Chi-

nese banks, including a hand-

ful of the nation’s largest

banks, to face headwinds to

their profitability this year, as

economic growth in China

takes a huge hit from the coro-

navirus pandemic that forced

nationwide business closures

for weeks since late January.

The sale, unveiled over the

weekend, in-

cludes mostly corporate loans.

The assets had an original

book value of about 150 billion

yuan and generated a net loss

of 8.08 billion yuan in 2019.

It is “effectively a govern-

ment rescue,” said Terry Sun,

an analyst with CMBI Securi-

ties in Hong Kong.” He noted

that Jinzhou’s core Tier-1 capi-

tal adequacy ratio was

scarcely over 5% in the last

quarter of 2019, well below

the required 7.5%.

Chinese authorities have

now stepped in to prop up

several smaller banks.

In December last year, state

investors led by the country’s

sovereign-wealth fund came to

the aid ofHengfeng Bank,a

troubled lender based in the

eastern industrial province of

Shandong, in a 100 billion

yuan bailout.

Earlier in 2019,Baoshang

Bankbecame the first Chinese

bank in decades to be taken

over by the central govern-

ment due to what the authori-

ties called “serious credit

risk.” Last year, three state-

backed Chinese investors

bought stakes in Bank of Jin-

zhou from existing sharehold-

ers. “The complexity of issues

at individual banks implies

there is no one-size-fits-all

formula for state support

when it comes to Chinese

banks,” said Grace Wu, the

head of Greater China Banks

Ratings at Fitch Ratings.

Mr. Sun of CMBI said the

three banks faced different

problems: Baoshang and Heng-

feng’s problems stemmed

largely from shareholder mis-

conduct, while Bank of Jin-

zhou was tripped up by poor

risk management.

Mr. Sun said Chinese au-

thorities will increasingly use

market valuation as the basis

for pricing when helping dis-

tressed lenders. He said Bank

of Jinzhou’s share and asset

sales were both priced at

about a 70% discount to book

value, roughly in line with val-

uations for Chinese municipal

banks listed in Hong Kong.

Bank of Jinzhou reported

an approximately $640 million

net loss for 2018, largely due

to rising bad loans and a move

to stricter accounting mea-

sures. It reported a narrower

net loss for 2019, helped by

higher operating income, but

its bad-loan ratio ticked

higher. The bank’s Hong Kong-

listed shares are down 7.8%

this year.

A stricken Chinese lender

will unload $21 billion of as-

sets to the central bank for

less than a third of their re-

ported value, as Beijing moves

to shore up the coun-

try’s overextended smaller

banks.

The sale byBank of Jin-

zhouCo., is part of a broader

overhaul of the bank an-

nounced last month. The

lender is also replenishing its

capital by selling new shares,

and will receive 5 billion yuan

($705 million) of annual in-

come from a long-dated debt

instrument issued by state-

backed firms.

Chengfang Huida, a vehicle

controlled by the People’s

Bank of China, will buy the

discounted assets for 45 bil-

lion yuan, Bank of Jinzhou

said in a weekend disclosure.

Chengfang Huida is also on

track to become the bank’s

biggest shareholder with a

stake of nearly 38% after

spending about $1.7 billion to

buy the bulk of the new

BYMARTINMOU

ANDBENOTTO

Chinese Lender Gets Rescue Bid

 Heard on the Street: The

missing Chinese stimulus... B12

pressure, industry executives

said. Allstate is publicly traded.

Across the U.S., just under

half of car-insurance premium

volume is sold by mutually

owned carriers like American

Family, trade groups said.

In recent days, Wall Street

analysts have begun predicting

improved financial results for

car insurers because vehicle

crashes correlate with miles

driven. With tens of millions of

people in the U.S. working from

home or losing their jobs, they

are no longer putting in as

many miles. That means fewer

accidents.

Analysts are flagging the

auto-insurance business as a

rare bright spot in coming

first-quarter results for publicly

traded U.S. property-casualty

insurers. They expect some

other parts of the industry to

experience a Covid-19-related

spike in claims, such as work-

ers’ compensation coverage for

the health-care industry.

Since mid-March, consumer-

activist groups Consumer Fed-

eration of America and Center

for Economic Justice have been

petitioning state insurance de-

partments to push insurers to

share any large profits with

customers.

“There is no question that

the total economic impact of

the pandemic will influence the

decisions of companies about

dividends [to policyholders],

but it is too soon to know what

that will look like,” said Neil

Alldredge, an executive with

trade group National Associa-

tion of Mutual Insurance Com-

panies.

Economists and executives

said one hesitation in quickly

making refunds or reducing

rates is that a downturn in

mileage after the 2008-09 fi-

nancial-crisis proved to be

short-lived. As the economy

improved, consumers revved up

their mileage, and claim fre-

quency shot above its precrisis

level at some insurers.

Many insurers are extending

payment plans and waiving late

fees as ways to help customers

through the tough times, Mr.

Alldredge noted.

American Family doesn’t

disclose its typical customer

premium. But nationally across

all carriers, the average annual

U.S. car-insurance premium

was an estimated $1,113 in

2019, the latest data available,

according to trade group Insur-

ance Information Institute. The

typical household with Ameri-

can Family auto coverage has

two insured vehicles, said Ms.

Yancy, so the average relief

check will be $100.

In an April 1 note to clients,

Morgan Stanley analysts said

that publicly traded carriers

such as Allstate, Geico owner

Berkshire Hathaway Inc., Hart-

ford Financial Services Group

Inc., Progressive Corp. and

Travelers Cos. would be among

the beneficiaries of the decline

in people being on the roads.

Insurers

Refund

Drivers

Allstate said most of

its customers would

receive 15% of their

monthly premium.