As government shutdown drags on, shares of subprime lenders rally

Firstcash Holdings

25/01/2019 15:44

By Noel Randewich and Chuck Mikolajczak
    Jan 25 (Reuters) - Payday lenders' stocks have emerged as
big winners during the record-long U.S. government shutdown,
though the updraft could prove short-lived.
    Shares of pawn brokers, payday lenders and other subprime
consumer finance companies have rallied and outperformed the
broader market since Dec 22, when 800,000 federal workers were
furloughed or left working without pay.  urn:newsml:reuters.com:*:nL1N1ZO283
    Pawn broker chains EZCorp  EZPW.O  and FirstCash  FCFS.O 
have jumped over 18 percent since that date, with no resolution
in sight over congressional Democrats refusal to approve
Republican President Donald Trump's demand for $5.7 billion in
partial funding for a wall along the U.S.-Mexico border.
    Companies that provide payday loans and other kinds of
subprime consumer credit have also rallied. Enova International
 ENVA.N , Curo Group Holding  CURO.N  and OneMain Holdings
 OMF.N  have each surged 23 percent.
    Citigroup  C.N  and other banks have helped with mortgage
payments, overdraft fees and credit card costs to government
workers, including employees from the Coast Guard, Transport
Security Agency and other government workers struggling to make
ends meet. 
    But with federal workers on Friday missing their second
consecutive paychecks, some are likely turning to subprime
consumer lenders. Virginia Attorney General Mark R. Herring this
week warned https://www.oag.state.va.us/media-center/news-releases/1370-january-22-2019-herring-warns-virginians-about-scams-related-to-government-shut-down
 people to be wary of the risks associated with high-interest
payday and online loans.
    On Thursday, U.S. Commerce Secretary Wilbur Ross on Thursday
urged furloughed federal workers facing a second missed paycheck
to seek loans to pay their bills.  urn:newsml:reuters.com:*:nL1N1ZO0NC
    Investors should be also be careful, warned Piper Jaffray
analyst Kevin Barker, who said any potential increase in
business for payday lenders and credit card companies is likely
to disappear when the shutdown ends.
    "These people are going to get their paychecks eventually.
The market is not going to look at this as a long-term,
sustainable uplift," said Barker, who has an "overweight" rating
on OneMain Holdings. 
    The shutdown has created uncertainty about consumer
confidence, retail spending and the economy at large.
Restaurants and other businesses in Washington that cater to
federal employees have already taken a hit. But Wall Street has
mostly shrugged off the shutdown, at least so far, even as it
extends its lead as the longest in history. 
    Dollar Tree  DLTR.O  and Dollar General Corp  DG.N , go-to
retail stocks for investors expecting economic downturns and
weak consumer spending, have both gained about 13 percent since
the shutdown began, better than the gain of more than 9 percent
in the S&P 500, but in line with other U.S. retailers.
 urn:newsml:reuters.com:*:nL1N1ZH22Q
    "I don't think the market has priced in that this government
shutdown is going to last much longer to where it is really
going to impact GDP," said Eric Marshall, a portfolio manager at
Hodges Capital Management in Dallas. "Because it has never
happened this long, nobody knows exactly how to discount it." 
    Meta Financial Group  CASH.O  is set to report quarterly
results on Monday. EzCorp is expected on Tuesday, according to
Refinitiv, followed by FirstCash on Wednesday and World
Acceptance  WRLD.O  on Thursday.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
RPT-ANALYSIS-Shutdown clouds outlook for consumer-driven U.S.
economic growth     urn:newsml:reuters.com:*:nL1N1ZH22Q
U.S. lawmakers search for remedies as government shutdown rolls
on      urn:newsml:reuters.com:*:nL1N1ZO283
GRAPHIC-Shutdown stocks    https://tmsnrt.rs/2B2EX9A
UPDATE 4-'Get a loan,' U.S. Commerce chief tells unpaid federal
workers     urn:newsml:reuters.com:*:nL1N1ZO0NC
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 (Reporting by Noel Randewich; Editing by Alden Bentley and Nick
Zieminski)
 ((noel.randewich@tr.com; Twitter handle: @randewich  (415) 677
2542; Reuters Messaging:
noel.randewich.thomsonreuters.com@reuters.net))