93 Million: The Emissions KKR Didn’t Disclose
If the private equity megafirm KKR became the country’s 51st state, its carbon emissions would be greater than the individual energy generation-related emissions of 34 of its peers. That’s about 93 million metric tons of CO2 equivalent. KKR, however, won’t admit to it, according to a new report from Americans for Financial Reform Education Fund and Global Energy Monitor of the Private Equity Climate Risks Consortium.
Pinch yourself and remember that KKR isn’t a state – it’s the second-largest private equity firm in the world, with half a trillion dollars in assets under management. The firm has long been known as the “barbarians at the gate” for their role in buying up, gutting and spitting out businesses to enrich investors at the expense of vulnerable workers and communities. Like their purchase of Toys ‘R’ Us, which later left 33,000 unemployed. Or the firm’s ownership of BrightSpring Health Services, under which disabled adults suffered “abuse and neglect.”
The report found:
KKR owned 188 fossil fuel assets in 21 different countries by the end of 2023, pumping out an estimated 93 million metric tons of CO2e in that year.
KKR only disclosed 14,342 metric tons of CO2e in its latest sustainability report, 6,500 times less than their actual emissions.
The firm’s portfolio companies are involved in at least six carbon-bomb-linked projects, each expected to emit over a gigaton of carbon over their lifetimes. That includes sourcing coal for power generation and a broad portfolio of oil and gas assets.
The firm is still invested in projects with demonstrated records of community harm, like the Colonial Pipeline in the United States and the Coastal GasLink Pipeline cutting across indigenous land in Canada, featured in the Consortium’s 2023 report.
Said AFREF’s Dustin Duong:
“KKR’s behavior is a classic example of greenwashing. Outwardly, KKR portrays itself as a climate-friendly business but our research finds that KKR is doing the exact opposite. KKR actively pursues and pours money into fossil fuel assets, and fails to disclose the full emissions footprint of its portfolio. KKR will be allowed to keep obscuring the true impact of their activities on investors and the public if regulators and Congress choose to overlook this ballooning risk and cease to take any meaningful action on disclosures.”
Related: PG&E, California’s largest utility provider, wants to sell part of its power generation business to KKR. Advocacy organizations like Public Citizen decried PG&E’s bid to sell last year.
BANKING AND FINANCIAL STABILITY: Regional Stress – Bank Loans for Nonbanks – Republic First
CONSUMER: Credit Card Late Fees – Public Banking – Med Debt – Colorado vs. Predatory Lenders – Weird Prices = Higher Costs – Trying to SAVE Borrowers – Health Savings Accounts – block
CAPITAL MARKETS: Annuities and Fiduciaries
PRIVATE MARKETS: The (Monetary) Value of a Human Life – PE and Healthcare – PE and Seafood – Other Private Markets News
CRYPTO: Stablecoins and Stability – Binance – Consensys
HOUSING: Racial Equity, Language Access and Fair Lending – Wall Street on Your Street – Bypassing Title Insurance – Housing and the Election
POLITICS AND MONEY: Crypto Wants Washington
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
Regional Stress.
Klaros Group, a financial services advisory firm, analyzed 4,000 small and regional banks and found that 282 of them face challenges due to commercial real estate loans and losses due to high interest rates. A co-founder of the group told CNBC: “Most of these banks aren’t insolvent or even close to insolvent. They’re just stressed.”
Bank Loans for Nonbanks.
Some banks are selling loans from their portfolios to private credit funds. The reasoning behind offloading these assets to a less-regulated corner of the financial sector, they suggest: incoming Basel III capital rules. The rules would ultimately shore up the financial system by directing the nation’s largest financial institutions to fund their operations with more equity, but banks have already taken steps to offset what they view as onerous requirements. Said AFR’s Andrew Park:
“The major driver of the growth in private credit has always been to get around regulations. The answer is not loosening bank regulations but rather properly monitoring and containing the risks in the private-credit market.”
Republic First.
No, not that bank. About a week ago, Philadelphia state banking regulators seized Republic First Bancorp and placed it in the hands of the FDIC in order to “protect depositors.” Republic First, with $6bn in assets and $4bn in deposits, was then sold to Fulton Bank to create an institution with $8.6bn in deposits combined. BisNow highlights the $1.7bn in commercial real estate loans the regional bank had on its books at the time of its demise. Reuters calls the bank 2024's “first casualty” of the banking crisis born last year, with a $667mn hit to the deposit insurance fund. Last Wednesday marked a year since a bank with a similar name, First Republic, failed in 2023 on the heels of Silicon Valley Bank.
CONSUMER
Credit Card Late Fees.
The industry groups suing the CFPB over its $8 credit card late fee cap have requested the Fifth Circuit issue an injunction to block its implementation. The Fifth Circuit also rejected CFPB’s bid for a rehearing the case in the DC Circuit.
Public Banking.
Reps. Tlaib and Ocasio-Cortez introduced the Public Banking Act, looking to facilitate “the creation of state and local public banks.” The bill would also create a federal regulatory framework to promote the success of these banks. The bill further mandates minimum standards for environmental justice, tenant protections, labor standards, democratic governance, and consumer data privacy. The goal is to provide an alternative to Wall Street banks.
Med Debt.
The CFPB found that 15 million Americans still have medical debt on their credit reports, despite moves by the big three credit agencies to remove certain medical bills from reporting. Fewer people overall carry medical debt, but the median balance increased from $2,000 to over $3,000 between March 2022 and June 2023, concentrated especially in the South and in low-income communities. The National Consumer Law Center says the CFPB report underscores the fact that credit reporting of medical debt is a racial justice issue, as many of the 15 million Americans in question are more likely to live in predominantly Black and Hispanic census tracts.
Colorado vs. Predatory Lenders.
The Colorado lawsuit seeking to crack down on high-cost consumer lending has received the backing of the FDIC, which argued in a court filing that Colorado can cap interest rates on state-chartered banks headquartered outside Colorado. A law, which would take effect July 1, would prevent banks who moved out of state to get around interest caps from imposing them has been the subject of an industry interest group lawsuit.
Weird Prices = Higher Costs.
Part of the agency’s work against junk fees, a CFPB report found that higher “price complexity” – like when full prices are separated into multiple fees – often led to consumers paying more. Complex pricing structures, found in products like credit cards, checking accounts, mortgages and auto loans, can make comparing prices more difficult and result in higher total prices overall.
Trying to SAVE Borrowers.
The Department of Education allows income-driven repayment, where student loan borrowers under a certain income threshold only pay a percentage of their income they can afford each month for 20-25 years, when the debt is then wiped. The Biden administration raised the income threshold under their Saving on a Valuable Education (SAVE) plan, allowing more people to get relief from their debt, among other provisions. SAVE is under threat from lawsuits by Republican attorneys general, claiming administration overreach and that their states won’t get to collect as much tax dollars from borrowers.
Health Savings Accounts.
Health Savings Accounts (HSAs) are tax-advantaged deposit accounts that often come with a high-deductible health insurance plan. By 2023, 36 million HSAs held over $116bn across the country. The CFPB found that many “suffer from low interest rate yields and junk fees to switch.” Abusive junk fee structures keep consumers trapped earning rates that can be as low as 0%.
Block.
Federal prosecutors are scrutinizing financial transactions at Block, parent company of payment processors Cash App and Square, for allowing thousands of transactions involving economically sanctioned countries and allegedly processing crypto transactions for designated terrorist groups.
CAPITAL MARKETS
Annuities and Fiduciaries.
Sen. Warren wants to know why annuity companies take issue with a new Department of Labor rule that pushes financial advisers for retirement savers to act in their customers’ best interest. An investigation by the senator’s office discovered kickbacks from companies to advisers who promoted their products, even if they were less beneficial to their clients. Advisers who gave in to these conflicts of interest could receive Caribbean getaways, cash bonuses totaling tens of thousands of dollars, European river cruises, and more.
PRIVATE MARKETS
The (Monetary) Value of a Human Life.
A new lawsuit accuses the private equity megafirm Apollo of taking out illegal life insurance policies on senior citizens and using fake entities to claim payouts. The complaint originated from the estate of Martha Barotz, whose life insurance policy paid out $5mn on her death in 2018. But in 2006, the complaint alleges, Barotz agreed to let a company called Life Accumulation Trust III (LATIII) take out the policy in exchange for 3% off the top, securitizing the so-called stranger-originated policy into a portfolio to obscure the details. LATIII sold the policy to Financial Credit Investment, an Apollo-owned company that holds a portfolio of life insurance policies worth around $20bn.
PE and Healthcare.
A California bill looking to keep private equity out of healthcare is dividing doctors and hospitals in the state. The bill would give the state attorney general (who introduced the bill) oversight of PE and hedge fund acquisitions in health care. The California Hospital Association (CHA) claims the bill is too much, claiming that PE is sometimes key to saving struggling health institutions. The CHA’s claims are backed by the CA Chamber of Commerce and PE groups. Doctors and their lobbying groups, plus their unions, are behind the bill, as well as Health Access California, a consumer advocacy group. The bill’s fate is unclear.
PE and Seafood.
Don’t blame Endless Shrimp for Red Lobster’s bankruptcy. Blame Wall Street: Business Insider highlights the seafood chain’s ownership by PE firm Golden Gate Capital, which saddled Red Lobster’s sites with additional rent expenses. On its purchase, Golden Gate sold some of the restaurants’ real estate to American Realty Capital Properties and immediately leased it back, in a classic asset-stripping move straight out of the PE playbook.
Other Private Markets News.
Carlyle Sells. Carlyle’s Q1 2024 exits held up ballooning profits but decreased the firm’s assets under management, including fee-earning assets.
Sandwiches. Federal regulators have approved private equity firm Roark Capital’s plan to acquire the sandwich chain Subway.
I.P.-No. The U.S IPO market is looking healthier, but private equity-backed companies haven’t seen the benefit so far. In 2021, the PE sector saw 110 IPOs over $100mn. In 2023, ten IPOs. So far, in 2024, only two. In Q1 2024, global PE divestments “sank to their lowest quarterly total in more than three years.”
CRYPTO
Stablecoins and Stability.
Stablecoins – crypto assets typically pegged to fiat currency or other assets – are worming their way into the shadow banking sector. Regulators fear that “one day they will have to bail the market out.” The closest the system has come to that was when Silicon Valley Bank collapsed. The stablecoin platform Circle, SVB’s largest depositor, had $3.3bn in reserves stashed at the ailing bank. During the banking crisis, Circle’s stablecoin, USDC, de-pegged. The crisis was averted when the Fed stepped in to guarantee SVB deposits.
Binance.
Last week, former Binance CEO Changpeng Zhao was sentenced to four months in prison for his role in the crypto exchange’s involvement in money laundering, some months after the company paid a $4.4bn settlement for allegedly enabling terrorism and human and narcotics trafficking, and violating sanctions.
Consensys.
The decentralized software company Consensys recently sued the SEC over its regulation of the Ethereum blockchain, alleging a jurisdictional overstep.
HOUSING
Racial Equity, Language Access and Fair Lending.
The Federal Housing Finance Agency took a major step in ensuring fair housing, lending, and financing for communities of color. A new rule codifies fair lending oversight, establishes supervision authority for deceptive practices, and formalizes a requirement for lenders to report borrower language preference. The FHFA is also establishing a new Division of Public Interest Examination, which will be responsible for supervising firms on affordable housing, community development, diversity and inclusion, consumer protection, and fair lending.
Wall Street on Your Street.
Corporations and investors spent billions on homes during the pandemic and have driven up housing costs. Lawmakers of both parties are now stepping up to help homebuyers by proposing bills forcing sales to family buyers and preventing Wall Street from buying homes in the future. Some legislation would also target smaller investors, who may currently own as many as 100 homes, by capping them at a lower number, depending on what a state decides.
Bypassing Title Insurance.
As part of the Biden administration’s attempt to lower closing costs, Freddie Mac will allow mortgage loans purchased by Freddie Mac to use attorney opinion letters instead of title insurance, the latter having previously been identified as a possible junk fee in the homebuying process. But a new bill, H.R. 5837, would require title insurance on loans bought by government-run mortgage financiers like Freddie.
Housing and the Election.
A survey from the real estate company Redfin found that a majority of homeowners and renters said that housing affordability impacts who they plan to vote for in the presidential election. The survey also found that two-thirds felt more negative about the economy due to housing costs. The Biden administration has recently begun a push to tackle housing through mortgage relief credit, down payment assistance for first generation homeowners, and crackdowns on rental junk fees, among other programs.
POLITICS and MONEY
Crypto Wants Washington.
The crypto industry is backing a plethora of candidates who have fared well during primary elections, and it is continuing to try and expand its influence in Washington. Dark money groups are running ads such as one calling for Senator Sherrod Brown to oppose SEC Chair Gary Gensler, who has taken steps to regulate the industry.