IMF projects deeper global contraction, Fed limits banks’ capital plans, and Wirecard collapses in ‘elaborate’ fraud: This Week in Finance

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Global recession will be deeper: IMF

The International Monetary Fund deepened its forecast for economic contraction globally this year, to 4.9% from 3%. The earlier projection, made in April, was already cast to be the largest slump since the Great Depression. The fund said the new forecast includes unanticipated supply shocks, as well as the ongoing impact of social distancing and on-demand business shutdowns during the coronavirus pandemic. It added that the projection doesn’t include more shutdowns in countries with declining infection rates. ?? Here's what people are saying.

• What's worrying economists now: The worst may not be over for the U.S., as the prospects of meager fiscal support, shaky consumer spending, strained municipal budgets, and more loom over the economic recovery.
• Data send mixed messages in a fragile recovery: While U.S. consumer spending rebounded by a record 8.2% last month, following April's record drop, confidence is faltering amid new outbreaks of the virus.

Fed: Banks can withstand crisis

The Federal Reserve said the largest U.S. banks can withstand the pandemic, while warning that they could experience a repeat of 2008's Great Recession — or worse — if the crisis drags on. Following expanded annual stress tests that took into account the pandemic's effects, the Fed ordered banks to maintain enough liquidity, cap dividend payments, and suspend share buybacks for the third quarter in an effort to keep them resilient. The central bank said it will reassess the limits on a quarter-to-quarter basis given the uncertainty surrounding the economy. ?? Here's what people are saying.

Private equity giant shakes up recruiting

The world's largest alternative-asset manager — and one of the most sought-after places to work for investors — is throwing out its traditional recruiting playbook. Blackstone plans to bypass the annual scramble to hire young talent from investment banks, according to The Wall Street Journal, and instead ramp up recruitment directly from colleges and business schools, including historically Black institutions and women's colleges. Blackstone executives say that relying on banks, which have their own challenges in building a diverse workforce, only narrows the funnel for the firm and its peers. ?? Here's what people are saying.

Wirecard collapses

German fintech company Wirecard filed for insolvency, with creditors expected to lose billions. EY auditors accused the payment processor of “elaborate and sophisticated fraud,” and Wirecard’s former CEO, Markus Braun, was arrested on charges of inflating the company’s balance sheet. The payments firm had been unable to locate €1.9 billion in cash missing from its balance sheet, which Wirecard now says probably doesn’t exist. ?? Here's what people are saying.

Fintech Square scrutinized by SMBs

Small business owners have a bone to pick with Square, after the payment processing company began withholding up to 30% of payments from merchants as part of a “rolling reserve” to protect from risky transactions. Keeping back payments is legal, but Square didn’t withhold money before and began doing so with little notice, The New York Times wrote. Small business owners say they’ve been disproportionately affected by the practice, which has deepened financial woes and forced layoffs at a time when businesses are already struggling due to pandemic lockdowns. ?? Here's what people are saying.

• Small businesses running out of cash: Forty-three percent of firms that received a Paycheck Protection Program loan expect to be out of cash within four weeks, with the situation even more dire among minority owners.

Bank deposits jump $2T amid crisis

The financial world's response to the coronavirus led to a massive influx of cash into U.S. banks, which are "swimming" in a $2 trillion surge since the pandemic hit in January, CNBC reported. Various factors are said to be involved: hundreds of billions of dollars in government aid and stimulus to help people make ends meet and shore up small businesses; the Federal Reserve's scramble to support financial markets; and households and corporations stockpiling cash as their futures became more uncertain. ?? Here's what people are saying.

Are we closer to ‘peak oil’?

The pandemic will accelerate ‘peak oil’ by three years, according to Oslo-based research firm Rystad Energy. Its latest review, considering the long-term effects of the coronavirus on consumption habits and exploration plans, slashed the estimate for future oil production by an amount exceeding the reserves of Saudi Arabia. ‘Peak oil,’ or the hypothetical point at which global oil production reaches its maximum rate, could occur as soon as 2027 or 2028, according to the report. ?? Here's what people are saying.

• ADNOC seals 2020’s biggest energy deal: Abu Dhabi National Oil Company struck a $20.7 billion agreement with six global companies, including investment firms and sovereign wealth funds, to finance gas pipelines.

China rises, even amid pandemic

Not even a pandemic can keep China's manufacturing down. It accounts for 28% of global manufacturing, rivaling the output of the U.S., Japan, and Germany combined, according to The Economist. Why China? It has a huge range of factory operations, from low- to high-tech. And setting up shop there gives companies better access to its large customer base. Also, China faced the coronavirus crisis earlier than other nations, giving it a head start on returning to business. It's not all sunshine, though: Rising labor costs and a desire to avoid U.S.-China tensions is sending some firms elsewhere. ?? Here's what people are saying.

? NEW: Editors' Picks: Must-read articles

Each week, editors at LinkedIn will select thought-provoking articles that are sparking discussion among financial services professionals on the platform. Join the conversation by reading and commenting on them here.

—With Cate Chapman, Alexander Besant, Laura Lorenzetti, Brian Xu, Jake Perez, Pieter Cranenbroek, Kelli Nguyen, Jordyn Dahl, Lynn Chouman, and Scott Olster.

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