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Credit Works

FICO Works to Keep Credit Flowing During Uncertain Economic Times

SAN JOSE, Calif., June 29, 2020 /PRNewswire/ — FICO, a global analytics leader, today introduced the FICO® Resilience Index, an analytic tool that complements the FICO® Score and helps lenders, borrowers, and investors make more informed and precise decisions in assessing risk during rapidly changing economic cycles.



FICO Corporate logo.  (PRNewsFoto/FICO)

FICO research of more than 70 million consumer credit files from the Great Recession found that most consumers, including those with lower FICO Scores, paid their credit obligations and responsibly managed their financial affairs even under the challenging economic conditions of double-digit unemployment and low consumer confidence.  While losses across all FICO Score ranges did approximately double (or worse) during the Great Recession, these incremental losses from the downturn were disproportionately concentrated in a small subset of consumers across all FICO Score ranges.  With the FICO® Resilience Index, FICO can, for the first time, identify those consumers better positioned to weather an economic downturn and demonstrate that millions of those resilient consumers can be found in lower FICO ranges that could otherwise have their credit access cut off, curtailed or priced higher during an economic downturn.

Designed to complement the industry standard FICO® Score, the FICO® Resilience Index empowers lenders to consider the resiliency of a consumer when making credit decisions. This benefits lenders, consumers and the entire credit market by enabling more credit to continue to flow during an economic crisis. This new tool is designed to provide a better understanding and management of latent risk that is not evident in a strong economy but emerges when there is an economic downturn.

“Lenders and investors need to be able to evaluate and manage portfolios based on rapidly changing conditions, to further safety and soundness in credit as well as support the global economy,” said Sally Taylor, vice president and general manager, FICO Scores. “Consumers benefit when lenders have the tools to identify resilient borrowers, enabling lenders to price their products more competitively and to responsibly provide greater access to credit than they would otherwise be able to do.”

Lenders often respond to economic uncertainty by raising credit score cut-offs.  The FICO® Resilience Index allows lenders to identify those millions of borrowers that are resilient to economic stress and should not be subject to more stringent criteria. In addition to providing improved insight into individual borrowers’ financial resilience, the FICO Resilience Index also allows lenders to better predict how resulting loan portfolios will perform in changing economic cycles, facilitating improved capital coverage and more precisely tailored capital and securitization enhancement requirements.

“This innovation addresses an issue witnessed in the previous financial crisis, in that financial institutions have been limited in their ability to calculate how resilient individual consumers are in the presence of an economic downturn,” said Tom Parrent, principal, Quantilytic.  “Through more precise credit analytics, lenders concerned about increased economic stress can maintain lending to more consumers, while still protecting their portfolio. Broader lending to more resilient borrowers may even soften the impact of a downturn should it occur.”

Building on FICO’s legacy of innovation for over 30 years, the FICO® Resilience Index is the latest solution to assist lenders with the precise assessment of consumer credit risk. The tool is now available to lenders from multiple credit bureaus.

For more information on the FICO® Resilience Index, please visit the FICO blog.

Lenders who would like more information please contact ficoscoreinfo@fico.com.

About FICO

FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956 and based in Silicon Valley, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 195 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time. Learn more at http://www.fico.com.

Join the conversation at https://twitter.com/fico & http://www.fico.com/en/blogs/.

For FICO news and media resources, visit www.fico.com/news.

FICO is a registered trademark of Fair Isaac Corporation in the United States and in other countries.

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SOURCE Fair Isaac Corporation

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Credit industry

Credit card industry reins in balance-transfer offers as banks from JPMorgan to Amex fear defaults

Banks have pulled back from a popular credit card promotion on concerns that borrowers struggling during the coronavirus crisis may leave them with defaulting loans.

Balance transfer offers, which typically entice borrowers to move their debt to a new lender in exchange for a temporary 0% interest rate, have been sharply reduced at banks including JPMorgan Chase, Citigroup, Bank of AmericaBarclays and Capital One, according to people with knowledge of the matter at each firm.

American Express took the most drastic step, dropping the product altogether, according to a company spokesperson.

“We are not currently offering balance transfers across all our card products,” American Express said in a statement. “From time to time, we make adjustments to our offerings to ensure we’re managing risk for our customers and the company in a responsible way.”

When the economy was booming, credit card issuers fell over themselves to lure borrowers and their debt, mailing hundreds of millions of no-interest solicitations. Banks made money from transfer fees, typically around 3%, and begin to earn interest on debt after the promotional period, usually lasting six months to as long as two years, ended.

But banks were burned in the 2008 recession when users of balance transfers defaulted at among the highest rates in the industry, according to the sources. Some theorized that borrowers took advantage of balance transfers after worrying about their job security, or even after they’ve lost their jobs, putting them at risk of eventually defaulting.

Now, lenders are being more selective about who they make no-interest offers to, favoring customers with higher credit scores and other advantages, said the people. More than 40 million Americans have filed for unemployment benefits since the pandemic began.

At the same time, the industry has offered many borrowers forbearance during the pandemic, waiving late fees and interest for months. For many customers, those programs are ending soon, and it’s an open question as to whether they will resume making payments.

The irony is that while banks have never been more flush with deposits, taking in $2 trillion since February, they are pulling back from lending products they consider risky in their mortgage, auto and credit card businesses.

The industry’s move deprives borrowers of one of the best ways to cut down on credit card debt. When used properly, balance transfer cards can save thousands of dollars in interest payments over time. 

Janette Scott, a retired accountant living in Florida, had been planning on using balance transfers to pay down her daughter’s school debt. She was recently told by eight banks that they no longer had them, Scott said in an interview. Just months before, they had flooded her with offers. 

“I have an excellent credit rating, am current with all my accounts, paying the balance in full every month,” Scott said. “This just doesn’t make any sense to me.”

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Credit skimmers

Credit card skimmers are now being buried in image file metadata on e-commerce websites | ZDNet

Cybercriminals making use of online credit card skimmers continue to improve their attack methods, and this time, malicious code has been found buried in image file metadata loaded by e-commerce websites. 

According to Jérôme Segura, Malwarebytes Director of Threat Intelligence, the new technique is a way to “hide credit card skimmers in order to evade detection.”

Over the past few years, with the gradual increase of popularity in online shopping — now more so than ever due to the novel coronavirus pandemic — has given rise to cyberattacks dedicated to the covert theft of payment card information used when making online purchases. 

After well-known brands were hit in quick succession, including Ticketmaster and British Airways, the term ‘Magecart’ was coined for these types of attacks, in which malicious JavaScript is injected into the payment portal pages of vulnerable websites in order to harvest customer details for as long as possible without detection. 

Countless e-commerce domains have become victims to Magecart, of which prolific cybercriminal gangs known to specialize in card skimming have been split up and named as separate Magecart groups for tracking purposes. 

See also: Skimming code battle on NutriBullet website may have risked customer credit card data

The cybersecurity firm has explored the new technique, described in a blog post published on Thursday, which is believed to be the handiwork of Magecart Group 9.

Originally, when Malwarebytes stumbled across a suspicious-looking image file, the team thought it may be related to an older technique that uses favicons to hide skimmers, as previously reported by ZDNet. The technique used in documented attacks serves legitimate favicons to the bulk of a website — but saves malicious variants for payment portal pages.

However, it seems Magecart Group 9 has gone further. Card skimmer code was found buried within the EXIF metadata of an image file, which would then be loaded by compromised online stores. 

Malwarebytes says the malicious image detected was loaded by a store using a WordPress e-commerce plugin. 

The attack is a variation that uses favicons, but with a twist. Malicious code was tracked back to a malicious domain, cddn[.]site, that is loaded via a favicon file. While the code itself did not appear malicious at first glance, a field called “Copyright” in the metadata field loaded the card skimmer using an < img > header tag, specifically via an HTML onerror event, which triggers if an error occurs when loading an external resource.

CNET: Twitter challenges millions of accounts every week to determine if they’re bots or not

When loaded onto a compromised website, the JavaScript grabs input from fields used to submit payment information, including names, billing addresses, and card details. 

The Magecart group obfuscated the code within the EXIF data, and unusually, will not simply send stolen data via text to a command-and-control server (C2). Instead, data collected is also sent as image files via POST requests. 

“The threat actors probably decided to stick with the image theme to also conceal the exfiltrated data via the favicon.ico file,” the researchers say. 

TechRepublic: Phishing attacks target workers returning to the office

It is thought that Magecart Group 9 is to blame, due to links made by security researcher @AffableKraut to domains and registrars also hosting scripts using the EXIF technique. 

This is not the first time that WordPress e-commerce plugins have been connected to security issues over 2020. Several months ago, a bug was discovered in the Flexible Checkout Fields for WooCommerce plugin which permitted attackers to use XSS payloads to create administrator accounts on vulnerable domains.

Previous and related coverage


Have a tip? Get in touch securely via WhatsApp | Signal at +447713 025 499, or over at Keybase: charlie0


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cloud Credit

No Cloud Credit? No Problem. Fusion 360 Adds Unlimited Generative Design

No Cloud Credit? No Problem. Fusion 360 Adds Unlimited Generative Design

Michael Alba posted on June 24, 2020 |


New Generative Design Extension offers unlimited use with subscription.

Using Fusion 360 Generative Design. (Image courtesy of Autodesk.)

Using Fusion 360 Generative Design. (Image courtesy of Autodesk.)

Do you use Fusion 360 Generative Design? Are you tired of paying $25 for every study and $100 for every export? Well, you’re in luck, because Autodesk has a solution: the new Generative Design Extension.

The Generative Design Extension

Last year, Autodesk introduced Fusion 360 extensions as a way to layer additional functionality onto the CAD platform. Since then, Fusion 360 has added extensions for manufacturing and management. Now, it adds generative design.

The Generative Design Extension doesn’t change what the technology does, just how it’s licensed. Previously, all Fusion 360 users could access generative design in a pay-per-use model. Running a generative design study cost 25 cloud credits ($25). Exporting a generatively designed model back into Fusion 360 cost an additional 100 cloud credits ($100).

Each Fusion 360 Generative Design study costs 25 cloud credits ($25).

Each Fusion 360 Generative Design study costs 25 cloud credits ($25).

This pay-per-use model is still available, but Fusion 360 users can now choose to purchase unlimited access to generative design with the Generative Design Extension. While other Fusion 360 extensions can be licensed for $125/month, the Generative Design extension is a tad steeper—$1000/month or $8000/year.

Is the price worth it? When we used generative design to redesign the Golden Gate Bridge, we ran at least twenty separate studies and exported three or four different models. It would have cost us somewhere between $500 – $1000 if Autodesk hadn’t provided us with unlimited access for the experiment. It was certainly nice not to have to worry about racking up costs each time we wanted to tweak our study.

The Golden Gate Bridge, re-imagined with Fusion 360 Generative Design.

The Golden Gate Bridge, re-imagined with Fusion 360 Generative Design.

If you’re using Fusion 360 Generative Design even somewhat regularly, the new unlimited extension is probably well worth it. In fact, through to July 17, it’s doubly worth it: Autodesk is offering a limited discount of 50 percent off annual subscriptions to both Fusion 360 and the Generative Design Extension.

“We hear loud and clear that customers, especially these days, crave flexibility, and we’re more than happy to provide a solution at a price point that addresses their needs, especially for budget managers who require predictability,” said Stephen Hooper, Autodesk’s general manager of Fusion 360. “Most of all, we’re excited to see the momentum and incredible outcomes from casual users all the way up to major industry innovators or major brand innovators who are using generative design in the field.”

A New Foundation of Cloud Data

In other Fusion 360 news, the cloud-adjacent CAD program appears to moving closer to the cloud. In a blog post today, Hooper introduced what he calls the Fusion 360 Product Information Model (PIM), “the foundation of cloud data for Fusion 360 moving forward.”

PIM will be based on Autodesk’s Forge cloud development platform. Though Hooper didn’t get into the details, he repeatedly emphasised that users will no longer have to click the archaic save button, and seemed to be suggesting that Fusion 360 will shift to a database architecture such as that found in cloud CAD competitor Onshape. If so, it’s about time. Hooper revealed that PIM is in active development, and he hopes to roll out the first wave of changes before the year is out.

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Credit TopLine

TopLine Credit Union Members and Employees Help Our Neighbors in Need

MAPLE GROVE, Minn., June 16, 2020 (GLOBE NEWSWIRE) — TopLine Federal Credit Union’s annual Personal Care Drive held during the month of May benefit two local non-profits, Avenues for Youth and Keystone Community Services.  TopLine members and employees generously donated a variety of personal care items including body wash and soap, tooth paste and brushes, diapers, hair care products, pillows and so much more to help our neighbors in need.

Employees were able to participate by donating personal care items and money in exchange for a “Denim Days” sticker, allowing them to wear jeans to work on specific days during the four-week program.  TopLine members could also purchase items from our Amazon Wish List and have them delivered directly to TopLine, and in return we delivered to our charitable partners. When the program ended TopLine employees and members had donated over 760 personal care items and $570 in cash to assist local individuals and families in need.

“TopLine was established more than 85 years ago with a commitment to support and connect with our communities, says Tom Smith, TopLine President and CEO.  “And one of the best ways we can help each other during the COVID-19 pandemic is ensuring everyone has access to much needed personal care items to continue to help in keeping our community healthy and safe.”

Since 2002, TopLine Federal Credit Union employees and members have been involved in several programs each year to benefit Avenues for Youth and Keystone Community Services.  In addition to the annual personal care drive these efforts have included drives for food, books and back-to-school supplies, and holiday gifts.

Avenues for Youth provides emergency shelter, short-term housing and supportive services for homeless youth in a safe and nurturing environment.  There are over 6,000 homeless youth in Minnesota each night.  Avenues shelters in Brooklyn Park and Minneapolis help over 300 youth. Visit www.avenuesforyouth.org to learn more.

Keystone Community Services is a community-based volunteer organization in St. Paul that helps thousands of low-income individuals and families in the East Metro Area.  Keystone’s mission is to strengthen the capacity of individual and families to improve their quality of life. Visit www.keystoneservices.org to learn more.

TopLine Federal Credit Union, a Twin Cities-based credit union, is Minnesota’s 13th largest, with assets of more than $490 million and serves over 45,000 members.  Established in 1935, the not-for-profit cooperative offers a complete line of financial services, as well as auto and home insurance, from its five branch locations — in Bloomington, Brooklyn Park, Maple Grove, Plymouth and in St. Paul’s Como Park — as well as by phone, mobile app and online at www.TopLinecu.com.  Membership is available to anyone who lives, works, worships, attends school or volunteers in Anoka, Carver, Dakota, Hennepin, Ramsey, Scott or Washington Counties and their immediate family members.  Visit us on our Facebook page at https://www.facebook.com/TopLineFederalCreditUnion.  To learn more about the credit union’s foundation, visit https://www.toplinecu.com/foundation

CONTACT:

Vicki Roscoe Erickson

Senior Vice President, Marketing & Communications

TopLine Federal Credit Union

President

TopLine Credit Union Foundation

verickson@toplinecu.com

763.391.0872

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/57461d02-5cf2-4cec-88dc-f9deb25c4934

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bolsters Credit

Fed bolsters credit market support with latest launch

NEW YORK (Reuters) – The New York Federal Reserve’s planned launch on Tuesday of a bond-buying facility could help ease the potential stigma for companies of asking for help and create an important framework for what the central bank steps in to purchase, analysts and investors said.

FILE PHOTO: People walk wearing masks outside The Federal Reserve Bank of New York in New York City, U.S., March 18, 2020. REUTERS/Lucas Jackson

The Federal Reserve said that starting Tuesday it would buy corporate bonds directly through its secondary market corporate credit facility (SMCCF), one of several emergency programs recently instituted by the central bank to improve market functioning in the wake of the coronavirus pandemic.

“They are creating a plan, a framework for what they’re going to do,” said Nick Maroutsos, co-head of global bonds for Janus Henderson. “I’d be more concerned if they didn’t have a framework and they just started buying bonds blindly.”

The Fed’s pledged backstop of corporate bonds has allowed companies to continue borrowing money from credit markets despite the toll of the coronavirus on corporate earnings.

The Fed will buy a portfolio of individual bonds in an index that replicates the broad credit market, focused primarily on high-quality names. The program, which also included buying exchange-traded funds, had previously been announced but required companies to apply for direct bond purchases. On Monday the Fed removed the need for an application.

Aneta Markowska, chief financial economist at Jefferies, said removing the need for an application was critical. “Most don’t want to be seen as asking the Fed for help, unless things go really wrong. So the change eliminates an important hurdle,” Markowska said.

The change comes after markets were roiled last week following Fed Chair Jerome Powell’s bleak outlook on the U.S. economy and fears of a second wave of coronavirus infections.

John Roberts, U.S. rates strategist at NatWest Markets, said it will now “presumably not be discernible which corporates certified for the program and which did not,” removing a potential stigma.

The Fed declined to comment.

The Fed has also pledged to buy corporate bonds directly from issuers through its Primary Market Corporate Credit Facility, which has yet to launch.

According to Intercontinental Exchange, there are 8,181 investment-grade issues eligible for inclusion in a high-grade U.S. corporate bond index.

The announcement sent the credit market soaring on Monday, with the iShares iBoxx Investment Grade Corporate Bond index (LQD.P) hitting an all-time high of $134.83. U.S. stocks also rallied on the news.

Creating its own index also allows the Fed to avoid potential issues with buying ETFs. The central bank has bought modest portions of ETFs under the aegis of the SMCCF in recent weeks, which has driven the products to trade at a premium to the value of their underlying bonds.

Supporting the market through the Fed’s own index “gives them a straighter shot to buy, to buy in size and to not be accused of overpaying,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM.

Reporting by Kate Duguid and Megan Davies; Additional reporting by Jonnelle Marte; Editing by Leslie Adler

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Credit Looming

Amid Looming Credit Crisis, Retailers Turn to Fed and Treasury for Emergency Help

An increasing number of retailers are seeking help from the government amid a looming credit crisis spurred by the coronavirus pandemic.

The American Apparel and Footwear Association — which represents more than 1,000 companies across the United States — penned a letter last week urging the Federal Reserve and the Department of Treasury to provide a financing guarantee as businesses run out of cash and struggle to obtain credit.

Over the past couple months, the COVID-19 health crisis led to supply chain disruptions, impeding manufacturing and foot traffic to stores. Despite the federal government’s stimulus measures, many retailers’ balance sheets have taken a significant hit. What’s more, companies are now finding “vastly different” credit terms than prior to the pandemic as insurers scale back their coverage and services to avoid risk in today’s economy.

Addressing Fed chairman Jerome Powell and Treasury Secretary Steven Mnuchin, AAFA president and CEO Steve Lamar called on the agencies to structure credit insurance backstops in such a way that fashion, footwear and accessories companies can continue to access necessary funds during the COVID-19 health crisis.

“One of the side effects of the very severe liquidity and cash flow crunch we’ve experienced in the past two months — and the closure of most retail outlets in the country — is a commercial credit crisis that threatens to seize up our economy and stall the safe restart in its infancy,” Lamar wrote.

He added, “Unless this is fixed soon, the retail engine that supports one in four American jobs will have a hard time coming back to life. Moreover, many medium-and small-size retailers and suppliers that the CARES Act supported will be lost.” (The CARES Act, passed in late March, was designed to send direct payments and grant unemployment benefits to millions of Americans, as well as guaranteed hundreds of millions in loans to small-and mid-sized businesses.)

As the COVID-19 outbreak spread throughout the U.S., scores of stores, offices and businesses shuttered their doors for weeks, forcing many nonessential employers to terminate or furlough their workers. Since mid-March, more than 41 million people have filed jobless claims, while the pandemic also pushed nationwide chains from JCPenney to Neiman Marcus into bankruptcy.

Now that federal lockdown restrictions have eased in many swaths of the country, a growing number of retailers are opening their doors. However, saddled with merchandise, they now face the challenge of unloading goods at deep discounts to clear out their distribution centers and make room for upcoming seasons.

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Builds Credit Technology

Grow Credit, which builds credit scores by paying for online subscriptions services, gets Mucker cash

Grow Credit, the startup that launched last year to help customers build out their credit scores by providing a credit line for online subscriptions like Spotify and Netflix, has added Mucker Labs as an investor and closed its seed round with $2 million in total commitments.

The Los Angeles startup founded by serial entrepreneur Joe Bayen, had been bootstrapped initially and then received funding from a clutch of core angel investors before signing a deal with Mucker earlier this month, according to Bayen.

Using the Marqeta platform, Grow Credit can extend a loan to customers to expand their subscription services. Using the Mastercard network for payments, and Marqeta’s tools to restrict payment access, Grow offers credit facilities to its customers to pay for their monthly subscriptions. By using Grow Credit for those payments, users can improve their credit scores by as much as 61 points in a nine-month span, says Bayen.

The company doesn’t charge any fees for its loans, but users can upgrade their service. The initial tier is free for access to $15 of credit, once a user connects their bank account. For a $4.99 monthly fee, customers can get up to $50 of subscriptions covered by the service. For $9.99 that credit line increases to $150, Bayen said.

Increases to a user’s credit score can make a significant dent in their costs for things like lease agreements for cars, mortgages for houses and better rates on other credit cards, said Bayen.

“Everything is cheaper, you can get access to a credit card with lower interest rates and better rewards,” he said. “We’re looking at ourselves as the single best route to getting access to an Apple card.”

Additional capital for the new round came from individual investors like DraftKings chief executive, Jason Robins; former National Football League player and hall of famer Ronnie Lott; and Sebastien Deguy, VP of 3D at Adobe.

Coming up, Grow Credit said it has a deal in the works with one very large consumer bank in the U.S. and will be launching the Android version of its app in a few weeks.

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Credit Would

Would You Credit It? Canadian High Yield And The Anomaly With Investment-Grade Credit

By Robin Marshall, director, fixed income research

Risk rally and QE have driven in short-dated Canadian investment grade spreads relative to 7-10 yrs….

Credit markets extended April’s rally in May, with spreads narrowing further versus government bonds. This was driven by renewed risk appetite, and central bank QE programs. The Bank of Canada’s QE program, announced on March 27, is restricted to investment grade (IG) corporates only, and maturities of five years or less. The chart below suggests the program has helped tighten Canadian short dated IG spreads since the announcement, which exceeds the tightening in 7-10 yr IG spreads.

Canada credit spreads: 1-3yr and 7-10yr

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.

…but Canadian high yield spreads & yields are below 2015/16 peaks, despite not being in QE

But there is a notable divergence in the performance of Canadian investment grade and high yield (HY) spreads in 2020 when compared with the performance of spreads in 2015/16 after the Canadian downturn and collapse in commodity prices. The following chart shows both high-yield spreads-and outright yields-were much higher in 2015/16 than 2020, even before the announcement of the BoC’s QE program.

Further, Canadian high yield, or sub-investment grade spreads, have narrowed sharply since the BoC announced its QE program on March 27, despite HY credit not being included within the BoC’s QE program. In contrast to HY credit, Canadian IG spreads are still close to the 2015/16 highs, and were well above those highs before the BoC announced the QE purchase program.

Canadian high yield (HY) and investment grade (IG) credit spreads

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

This is odd, given the scale of recessions now underway

This seems odd, given the scale of the COVID-19 shock and deep recessions now underway, which far exceeds the mild Canadian contraction of 2015, which was concentrated in the energy sector, and not broadly based. Indeed, the BoC stated a further 10-20 percent deterioration in Canadian real GDP is likely in the second quarter 2020, in its press release on June 3, and the Federal Reserve Bank of Atlanta is projecting an enormous contraction of 51% in the US economy in Q2.

There is also a contrast with the US, since high-yield spreads and outright yields reached levels beyond the 2016 highs, in March 2020, before the Fed announced its QE, which also include high-yield credit (announced on April 9).

Index weight changes help explain some of the Canadian credit conundrum…

There are some possible explanations. Firstly, index weighting effects help to explain the relative movement in spreads between the two indexes. In 2016, the biggest credit-spread widening occurred in sectors in which the FTSE Canada High Yield Bond Index (HY) had much higher weights than the FTSE Canada Corporate Bond Index (IG); notably energy, industrials and communication. For example, in 2016, the HY index had a weighting of 26% in energy, compared to only 15% in the IG index, whereas now the index weights are 28% and 22% respectively. In contrast, financial spreads widened much less in 2016, in which the IG index had a far higher weighting than HY. This is shown in the chart below.

Canadian IG credit sector spreads since 2015

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

Second, the expectation of HY credits being added to the BoC’s QE purchase program might be a factor in Canada, restricting spread widening. Third, credit defaults in 2016/17 never reached the levels implied by spreads, so there may be some reluctance to push spreads out as wide as then. Fourth, previous experiences of HY spreads spiking above 800-850bp have often been followed by a period of strong returns in HY-in more normal cycles-as the spike unwound, so investors may have been attracted by the yield spreads. Finally, it is less likely that the average term, or duration, of the FTSE Canada High Yield Bond and FTSE Canada Corporate Bond indexes has been a factor since they have changed little since 2016. The HY index had an average term of 5.24 at on May 29, 2020 and the IG index an average term of 9.62. These compare with 5.15 for HY and 9.08 for IG in 2016.

…but outright yields are low in the HY sector for the depth, and breadth of recession underway

These factors may help explain relative credit spread index differences between 2016 and 2020, but they leave the puzzle as to why outright yields in sub-investment grade are still lower in 2020 than in 2016, given the depth of the recession, doubts about the trajectory of recovery, and higher default risks? Absolute yields are shown in the chart below, which suggest Canadian high yield credits may now represent a value trap, versus the more conservatively valued investment grade sector.

Corporate bond and 7-10 government yields since 2015

Source: FTSE Russell. Data as of May 31, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Credit Startups Technology

Brex, the credit card for startups, cuts staff amid restructuring

Brex, last valued at $2.6 billion, is restructuring its credit card for startups business and cut 62 staff members, the co-founders Pedro Franceschi and Henrique Dubugras said in a blog post.

“Today we’re restructuring the company to better align our priorities with this new reality, while simultaneously accelerating our product vision. With that, I have some very sad news to share. 62 people will be leaving Brex today,” the post reads.

The cuts come as Brex’s customer base itself is struggling to stay afloat amid COVID-19: high-growth startups. The trickle-down to Brex’s core business, which depends on its customers spending money, was thus expected.

Brex has already cut some customer credit limits to mitigate some of the exposure risk, The Information reported, and Dubugras confirmed. Customers say the credit limit cuts came without warning or notice.

Additionally, the company, launched in Brazil and graduated from Y Combinator, raised $150 million recently.

When TechCrunch talked to Dubugras about the latest fundraise, the co-founder said the capital was offensive, rather than defensive.

“I’m glad this round came together, but if it hadn’t, we would’ve been fine,” he said last week. “The capital is so we can play offensive while everyone else plays defensive.”

In the blog post, the co-founders wrote to former staffers.

“Please continue dreaming big and don’t lose the ambition that attracted you to Brex. Don’t let anything, not even a global pandemic, take that away from you. I wish we could give each one of you a hug, so instead I’ll end this message like I’d do it in Portuguese. Abraços, Pedro and Henrique.”

Those laid off will be provided with eight weeks of severance, their computer and equipment, and Brex will dedicate a part of its recruiting team to help find new opportunities for ex-staffers. Additionally, Brex is making adjustments to the equity cliff and has extended healthcare benefits through the end of 2020.

Brex has amassed $465 million in venture capital funding to date.

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