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Mnuchin decision cuts Fed lending power, but sources say emergency programs can be revived

Treasury Secretary Steve Mnuchin’s decision to allow several of the Fed’s emergency lending programs to expire on Dec. 31 will dramatically reduce the central bank’s ability to backstop the financial system….

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U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Jerome Powell share an elbow bump greeting prior to testifying before a House Financial Services Committee hearing on oversight of the Treasury Department’s and Federal Reserve’s coronavirus disease (COVID-19) pandemic response on Capitol Hill in Washington, September 22, 2020.

Joshua Roberts | Pool | Reuters

Treasury Secretary Steve Mnuchin’s decision to allow several of the Fed’s emergency lending programs to expire on Dec. 31 will dramatically reduce the central bank’s ability to backstop the financial system. But people familiar with the situation say the Fed will still have considerable lending power in the event of a shock to the system.

Mnuchin issued a letter Thursday saying he would not extend the Fed’s programs that used Congress’ CARES Act funds. Created in response to the financial panic that accompanied the lockdowns in the spring, those programs gave the Fed the ability to lend up to $4.5 trillion into various financial markets. Mnuchin argued it was the intent of Congress for the funds to expire.

The Fed, in an unusual statement, made public its disagreement with the decision, saying, “The Federal Reserve would prefer that the full suite of emergency facilities established during the coronavirus pandemic continue to serve their important role as a backstop for our still-strained and vulnerable economy.”

But people familiar with the decision say that either Mnuchin or a new Treasury secretary from the Biden administration could decide to revive the emergency lending programs under a new agreement with the Fed. About $25 billion of existing equity from the Treasury will be left at the Fed from the CARES Act funds. In addition, the Treasury has about $50 billion in the Exchange Stabilization Fund. Using 10-to-1 leverage — which is what it used for the emergency programs — the Fed will have about $750 billion of lending authority to backstop markets in the event of a disruption. Congressional approval will not be required. There will, however, have to be a new agreement between the Treasury secretary and the Federal Reserve Board of Governors.

The Fed, so far, has only loaned about $25 billion from the programs that are being shuttered, making the $750 billion fairly sizable in context.

It’s not an optimal arrangement from the Fed’s standpoint, since it would likely require some new shock to the financial system to precipitate restarting the programs. The Fed had hoped to avoid that shock by keeping the programs in place. But the money would be there if it was needed.

Meanwhile, returning the unused $429 billion from the Fed to the General Fund creates a pot of money that is already funded that Congress could decide to use to fund extended unemployment benefits or additional loans or grants to small businesses. There’s an addition $135 billion of unused money already funded from the Paycheck Protection Program. A new relief package could include new money appropriated by Congress as well, but a big portion of it is already funded.

The biggest loser seems to be mid-sized businesses that appear to have just begun taking up loans in the Fed’s Main Street Lending Facility. Terms for the facility had recently been amended to allow for smaller loans of as little as $100,000. It will likely close to new lending in a couple weeks and can only be restated with agreement between the Fed and the Treasury.

The U.S. Chamber of Commerce criticized Mnuchin for that very reason. It said in a statement, “A surprise termination of the Federal Reserve’s emergency liquidity programs, including the Main Street Lending Program, prematurely and unnecessarily ties the hands of the incoming administration, and closes the door on important liquidity options for businesses at a time when they need them most.”

Mnuchin did extend for 90 days three programs that did not use CARES Act Funds, including facilities that backstopped commercial paper and money markets.

Source: https://www.cnbc.com/2020/11/20/mnuchin-decision-cuts-fed-lending-power-but-sources-say-emergency-programs-can-be-revived.html

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Stitch Fix shares surge as online styling service reports surprise profit

Stitch Fix shares jumped after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

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The Stitch Fix application for download in the Apple App Store on a smartphone arranged in Hastings-on-Hudson, New York, U.S., on Saturday, June 5, 2021. Stitch Fix Inc. is scheduled to release earning on June 7.

Tiffany Hagler-Geard | Bloomberg | Getty Images

Stitch Fix shares jumped 14% in extended trading Tuesday after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Consumers have been splurging on new outfits in recent months, as many head back to school and return to social gatherings. Some have also citied the need for new clothes after either gaining or losing weight during the Covid pandemic.

Here’s how Stitch Fix did compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: 19 cents vs. a loss of 13 cents expected
  • Revenue: $571.2 million vs. $548 million expected

Net income attributable to shareholders was $28 million, or 19 cents per share, in the latest period. A year ago, it posted a net loss of $44.5 million, or 44 cents a share. Analysts had been looking for the company to book a loss of 13 cents per share.

Revenue grew to $571.2 million from $443.4 million a year earlier. That was better than analysts’ expectations for $548 million.

Stitch Fix reported nearly 4.2 million active clients, up 18% from a year earlier. The company said net revenue per active client was $505, surpassing the $500 threshold for the first time ever. Customers have been purchasing more items to keep at home, Stitch Fix said, as they have more brands and price points to choose from.

Stitch Fix defines active clients as people who either ordered a “Fix” subscription or bought an item directly from its website in the preceding 52 weeks from the final day of the quarter.

The company also said it had its lowest ever churn rate at the end of the period, meaning its customers are sticking around.

Last month, Stitch Fix finally opened up its direct-buy option, which is now known as “Freestyle,” to the public. This allows people to shop Stitch Fix for individual items of clothing, without needing to sign up for a subscription.

CEO Elizabeth Spaulding said this should help Stitch Fix grow its addressable market in the year ahead. The company’s next initiative will be to market and raise broader awareness around the offering, she said. Stitch Fix is preparing to roll out a national advertising campaign on the debut.

Early indications are that “Freestyle” is meaningfully accretive to the company’s revenue per active client metric, Spaulding told analysts on a conference call.

“Clients have agency, flexibility and choice while also experiencing a highly personalized shopping experience,” Spaulding said.

For its fiscal first quarter, Stitch Fix said it sees sales in a range of $560 million to $575 million. That’s below analysts’ expectations for $588 million.

For the upcoming fiscal year, Stitch Fix anticipates sales rising 15% or more from the prior year. Analysts polled by Refinitiv had been looking for an 18% increase.

While the entire retail industry is working through supply chain complications, Stitch Fix said it is seeing a small impact, but nothing that will hurt the business in the fall and winter months. The company said it is less reliant on Vietnam, where manufacturing has largely come to a standstill due to ongoing pandemic lockdowns in the region.

As of Tuesday’s market close, Stitch Fix shares have fallen nearly 39% this year. The company has a market cap of $3.8 billion.

Find the full press release from Stitch Fix here.

Sales for the three-month period ended July 31 also came in higher than analysts were expecting, thanks to outsized growth in Stitch Fix’s women’s and kids’ categories. Menswear has been growing more slowly, the company said.

Source: https://www.cnbc.com/2021/09/21/stitch-fix-sfix-q4-2021-earnings.html

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Earnings

Corporate Company Earnings, Find Earnings Per Share and Earnings History Online

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International: Top News And Analysis

CNBC International is the world leader for news on business, technology, China, trade, oil prices, the Middle East and markets.

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