February 27th, 2008 Alex Jurshevski
Yes, folks the US Labor Department announced today that the January PPI moved up by the most in any one month since 1981. Prior to that the inflation records were being smashed in the 1970’s: the age of Watergate, platform shoes and disco balls. Of small comfort is that the core PPI, which excludes food and energy prices, rose 0.4%, driven by higher drug and car prices. Year over year, the PPI is up 7.4% — also the fastest pace since 1981.
The bottom line in all of this is that the Fed’s contention that inflation is under control is looking more and more like science fiction than economic fact. It will therefore be interesting to hear what Ben Bernanke has to say tomorrow at the Humphrey Hawkins testimony that he is obliged to deliver to Congress twice-yearly.
Read the rest of this entry »
Posted in Uncategorized | No Comments »
September 9th, 2007 Alex Jurshevski
US bank failures could rise above “historical norms” as a weakening economy puts pressure on badly underwritten loans, particularly in commercial real estate, according to a bank regulator.
In an interview with the Financial Times, John Dugan, who oversees about 1,700 national banks as comptroller of the currency, said the growing problems for lenders follow a period of almost four years in which no institution regulated by his agency had failed.
We’re going to have some more bank failures that will come back more to historical norms and may go above that with time,” he said. “That is a natural consequence of the economy going from historically exceptionally benign credit conditions to something that is more normal to something you would get in a downturn.”
Read the rest of this entry »
Posted in Uncategorized | No Comments »
August 10th, 2007 Alex Jurshevski
If you are a distressed investor or restructuring professional, the last few years of waiting for default rates to begin creeping up so that you can start paying the rent have been akin to praying for WWII US supply planes to resume dropping shipments of Military supplies onto the coral sands. Of course, the planes never returned after the close of hostilities. Nevertheless cargo cults persisted until well into the sixties in the South Pacific. So much for perseverance.
Fortunately, the last several weeks of market activity have provided enough evidence to conclude that the credit cycle has not been repealed. The sub-prime crisis – itself the offspring of the Fed-engineered liquidity bubble – has blossomed into a worrying portent of what the future might hold for the credit markets. Key market players have been badly mauled – loss estimates on the Street alone run well over $100 billion; the list of transactions that have become non-bankable has exploded – leading to fears of a 25-50% decline in investment banking business over the remainder of the year; over $200 billion of buyout deals are said to be weighing on investment banks’ balance sheets; and the financial battlefield is being littered with the carcasses of lenders brave (or desperate) enough to have lent to highly risky borrowers, along with their investors and leveraged hedge fund players.
To underscore the “new” Global nature of the markets, the pain of the US sub-prime crisis has been felt as far afield as Australia, South East Asia, the UK and South America. At this moment earnest risk managers in financial businesses are poring over their credit reports intending to reduce exposure to shaky borrowers and high volatility business lines.
Will their actions be enough to contain the spreading malaise or will stronger (central bank) medicine be needed to further forestall the ultimate day of reckoning? Stay tuned.
Posted in Uncategorized | No Comments »
June 14th, 2007 Alex Jurshevski
Although the recent quarterly financial releases for the largest Canadian Banks show that although in aggregate, gross impaired loans and provisions for credit losses have increased somewhat year over year, most of this can be traced to an acquisition by CIBC. The dominant trend for loan losses in Canada is benign, reflecting a general absence of credit stresses. New issue volume is at record levels, and market liquidity continues to be strong, fed by sizable new sources, including cross-border flows. And Moody’s reports that at the end of the first quarter of 2007 the U.S. speculative-grade corporate default rate fell to its lowest level since April 1997….. For the time being, let the good times roll.
The success of the current market is however accompanied by a potentially troubling pattern, while the supply of ‘B’ and ‘CCC’ rated new issue volume new all-time highs in traded leveraged credit markets, credit spreads have remained flat or have declined. While the significance of this has yet to play out, it is worthwhile noting that in both the US and in Europe, banks have recorded significant increases in the size of their loan loss provisions.
Read the rest of this entry »
Posted in Uncategorized | No Comments »
March 12th, 2007 Alex Jurshevski
Today’s question is this: Are we looking at a gathering credit storm of Katrina-like proportions or merely another peaceful sunset in this never-ending credit cycle?
Although the recent quarterly financial releases for the largest Canadian Banks show that in aggregate, gross impaired loans and provisions for credit losses have increased somewhat year over year, 2006 must nevertheless be regarded as the most successful year by most commercial standards for the leveraged debt markets. New issue volume is at record levels, defaults remain low by historical measures, and market liquidity continues to be strong, fed by sizable new sources, including cross-border flows.
The success of the current market is however accompanied by a potentially troubling pattern, while the supply of ‘B’ and ‘CCC’ rated new issue volume new all-time highs in traded leveraged credit markets. ($131 billion in 2006, up sharply up from $87 billion in 2005) credit spreads have remained flat or have declined. While the significance of this has yet to play out, it is worthwhile noting that in both the US and in Europe, banks have recorded significant increases in the size of their loan loss provisions.
Read the rest of this entry »
Posted in Uncategorized | No Comments »
January 10th, 2007 Alex Jurshevski
In Canada, the share price performance of the major banks belies the influences of global monetary tightening, higher energy prices, a stronger Canadian dollar and weakness in the US auto and housing sectors. Moreover, the threats posed by the US fiscal and trade deficits continue to cast long shadows over the markets. The Q4 Bank financial releases show that these effects are starting to be reflected in rising commercial and corporate loan loss experience.
We anticipate that Loan Loss experience in North America and Canada will continue to deteriorate. We are not alone in this view:
- Default rates are currently at about a tenth of the average of the last 20 years . Alchemy Partners ’s Jon Moulton has said that he believes default levels are set to soar in the coming years. “The debt markets have been very loose and low on credit standards.”
- While default rates may be relatively low now, 76% of those responding to a recent Turnaround Management Association survey believe there will be a significant increase in the debt default rate by the end of 2007.
- U.S. corporate bankruptcies will rise by 17 percent in 2007 after falling an estimated 20 percent in 2006, Global Insight, a financial forecasting firm, predicts.
- Noted Investor Wilbur Ross expects default rates to rise as high as 7% or 8% in 2008, and many restructuring experts agree. “I think when [a correction] comes, and it is coming, it’s going to be a big one,” says Jay Goffman, a partner in the corporate restructuring department at law firm Skadden Arps.
- S&P warned in December that “the average debt payment burden on LBO’s is four times above the normal safe level.” In house credit strategist, Blaise Ganguin, said: “There is very little margin for error. Any hiccup, whether in currencies, commodity prices, or wage settlements could push these companies over the brink.”
Posted in Uncategorized | No Comments »
February 2nd, 2006 Alex Jurshevski
If you would like a copy of this post please email us at info@recoverypartners.biz
Posted in Uncategorized | No Comments »
December 27th, 2005 Alex Jurshevski
If you would like a copy of this post please email info@recoverypartners.biz.
Posted in Uncategorized | No Comments »
Get our newsfeed