Banks Could Get $24 Billion In Fees From PPP Loans
July 07 2020 - 10:37AM
Dow Jones News
By David Benoit and Peter Rudegeair
JPMorgan Chase & Co. and Bank of America Corp. are in line
to split between $1.5 billion and $2.6 billion in fees for being
the conduits of the government's aid program for small businesses
stricken by the coronavirus shutdown, according to an analysis of
newly released data.
The nation's two biggest banks by assets delivered more
emergency loans than any other lenders that participated in the
Paycheck Protection Program and the two are set to earn the biggest
fees as well, according to a review of disclosures made Monday by
the Treasury Department and Small Business Administration.
In total, the more than 4,000 lending institutions in the
analysis are in line to split $14.3 billion to $24.6 billion in
processing fees for PPP loans, according to Edwin Hu, at New York
University School of Law's Institute for Corporate Governance &
Finance, and Colleen Honigsberg of Stanford Law School.
The PPP has delivered more than $520 billion in loans meant to
soften the economic blow of the novel coronavirus. The loans can be
forgiven if businesses spend the money on certain expenses like
rent or payroll, though businesses have said the process is
confusing.
It is common for banks to be compensated for facilitating loans
made under government programs. What sets PPP apart is its size:
The high end of the range of PPP fees lenders can earn exceeds the
total size of the SBA's flagship lending program in the 12 months
ended Sept. 30.
Banks have said they don't expect sizable profits for the
program. Getting their systems up-and-running quickly required
diverting thousands of workers to help with applications and
building new software to manage the process.
In addition to the program's fees, banks are also set to earn 1%
in interest on PPP loans they hold that aren't forgiven, not much
more than their cost of funds. The SBA guarantees the loans,
protecting banks against defaults.
Big banks including JPMorgan, Bank of America and Wells Fargo
& Co. have said they would donate whatever profits they make on
PPP.
"We will use the net proceeds of fees...to support small
businesses and the communities and nonprofits we serve," a Bank of
America spokesman said.
The fees banks earn depend on the size of the loans they make:
5% for loans less than $350,000; 3% for loans between $350,000 and
$2 million; and 1% for loans north of $2 million.
If the SBA later determines a borrower was ineligible for a PPP
loan, it can claw back the processing fee from the lender.
More than 30 banks, mostly smaller ones, could earn as much from
the PPP loans as they reported in net revenue for all of 2019,
according to a separate analysis from S&P Global Market
Intelligence.
The government released exact loan sizes only for loans of less
than $150,000. The remaining loans were placed within several
buckets. Ms. Honigsberg and Mr. Hu tallied the exact fees for those
loans under $150,000 and the potential range for every other
loan.
JPMorgan customers received $29 billion in PPP loans and the
bank stands to get between $800 million and $1.38 billion in fees,
according to the analysis. Bank of America customers received $25
billion in loans, and the bank is in line for $770 million to $1.21
billion in fees.
Write to David Benoit at david.benoit@wsj.com and Peter
Rudegeair at Peter.Rudegeair@wsj.com
(END) Dow Jones Newswires
July 07, 2020 11:22 ET (15:22 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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