As government shutdown continues, subprime lender stocks rally
(Reuters) – Shares of payday lenders have emerged as the big winners in the record-breaking U.S. government shutdown, though the updraft may prove short-lived.
Shares of pawn shops, payday lenders and other risky consumer credit companies have rallied and outperformed the overall market since December 22, when 800,000 federal employees were put on leave or left to work without pay.
Pawnbroker chains EZCorp and FirstCash have jumped more than 18% since that date, with no resolution in view of Congressional Democrats’ refusal to approve Republican President Donald Trump’s request for $ 5.7 billion in funding partial for a wall along the US-Mexico border.
Companies that offer payday loans and other types of subprime consumer credit have also rallied around. Enova International, Curo Group Holding and OneMain Holdings each rose 23%.
Citigroup and other banks have helped with mortgage payments, overdraft fees, and credit card charges to government employees, including employees of the Coast Guard, Transportation Safety Agency, and others. government workers struggling to make ends meet.
But with federal employees missing their second straight paycheck on Friday, some are likely turning to subprime consumer lenders. Virginia Attorney General Mark R. Herring This Week people warned beware of the risks associated with high interest payday loans and online loans.
U.S. Commerce Secretary Wilbur Ross on Thursday urged federal workers on leave facing a second failed paycheck to apply for loans to pay their bills.
Investors should also be careful, warned Kevin Barker, analyst at Piper Jaffray, who said any potential increase in business by payday lenders and credit card companies would likely disappear when the shutdown ends.
“These people will eventually get their wages. The market will not view this as a long-term sustainable increase, ”said Barker, who is“ overweighted ”on OneMain Holdings.
The shutdown has created uncertainty over consumer confidence, retail spending and the economy as a whole. Restaurants and other Washington businesses that cater to federal employees have already taken a hit. But Wall Street has mostly ignored the shutdown, at least so far, even as it extends its lead as the longest in history.
Dollar Tree and Dollar General Corp, the retail stocks of choice for investors expecting an economic slowdown and weak consumer spending, have both gained around 13% since the start of the shutdown, better than the more than 9% gain of the S&P 500, but in line with other US retailers.
“I don’t think the market has taken into account that this government shutdown is going to last much longer where it’s really going to have an impact on GDP,” Eric Marshall, portfolio manager at Hodges Capital Management said at Dallas. “Because it’s never happened this long, no one knows exactly how to ignore it.”
Meta Financial Group is expected to release its quarterly results on Monday. EzCorp is due on Tuesday, according to Refinitiv, followed by FirstCash on Wednesday and World Acceptance on Thursday.
Reporting by Noel Randewich; Editing by Alden Bentley and Nick Zieminski