Bonds

UK credit system looks unsound

25 Oct 2007

In its Financial Stability Report the Bank of England warns the credit crunch may not be over. Let s hope it s wrong. The UK has hardly been tested and yet has failed, almost allowing a bank with apparently sound assets to fail. But what if bank assets fall in value?

Bank of America needs to fish or cut bait

25 Oct 2007

Tapping a novice to run investment banking and slashing a host of jobs in that group increases doubts about the future of the business. It may show investors that Ken Lewis won t tolerate losses. But if he doesn t show real commitment to the business, it will always be a struggling alsoran.

Cookie-cutter credit structures mixed blessing for ratings agencies

24 Oct 2007

Moody s thinks the structured credit markets rebound depends on greater standardization. That makes sense. Consistency and familiarity should boost liquidity. But ratings agencies have profited from everincreasing complexity. A return to basics could hurt their profits.

Citi joins UBS with Q3 blow-up

1 Oct 2007

But unlike his Swiss rival, the US megabank s boss Chuck Prince isn t proposing a shakeup in the wake of $3.3bn of credit losses. This can only reinforce investor concerns about the Citigroup model, and its management.

Bank of England auction attracts only embarrassment

26 Sep 2007

Attracting no bids at all after a public Uturn last week to supply the market with liquidity is another slap in the face for the Bank. Fear of exposure probably deterred financial institutions from turning to the Old Lady. Again King looks out of touch with the market.

Next European bankruptcy wave will be bloody

19 Sep 2007

The LBO bubble has complicated balance sheets with exotic instruments while fragmenting the creditor body. Europe s bankruptcy laws aren t well attuned for producing negotiated settlements. The credit crunch will therefore produce bitter fights.

Infrastructure leverage boom may haunt investors

17 Sep 2007

Investments in assets like toll roads and bridges are said to be safe because of the stability of their cash flows. But easy debt markets fuelled leverageladen deals and have left them little room for a hiccup in growth. This could spell trouble.

US credit card debt might be next big problem

7 Sep 2007

Americans owe $900bn on plastic, a subprimesized debt load. With house prices no longer rising, they ll have trouble paying it back. Losses could be large for loans without collateral. But a meltdown might have a good effect: rethinking this highrate highloss business.

The wonky world of credit ratings needs a shake-up

7 Sep 2007

Credit ratings are sanctified by US laws and international bank capital rules. So investors rely on ratings, often more than they should. Rating agencies probably take more flak than they deserve. Breakingviews offers a few wacky ideas to shield them from blame.

Bondholders still fear LBO risk

4 Sep 2007

The stalled leveraged buyout market hasn t stymied demand for poison put protection on highgrade bonds. In fact, it seems to be growing. And it might not just be a delay in investors reaction to the slump. Some borrowers will be punished if they pile on debt without an LBO.

How far will run on non-banks spread?

3 Sep 2007

As yet, the credit squeeze is just a headache for banks. But a loss of confidence is creating real losses in nonbank finance. The banks' headache could get larger, since they have $500bn of deals to place. But the great danger is that fear hits the financial centre.

Lehman makes subprime exit look easy

22 Aug 2007

That's because the Wall Street firm got into the mortgage business cheaply and early. So it s not costing too much to throw in the towel. But others like Merrill Lynch and Cerberus shelled out a fair whack for their lending platforms. Scaling back would be much more painful.

LBO underwriters should bite the bullet

21 Aug 2007

Banks that are on the hook to provide $330bn of debt for pending leveraged buyouts don t want to sell it at firesale prices. But while taking a quick hit to move the debt off their books would slash bonuses, it might cauterise a potentially greater wound.

KKR Financial smart to launch rights offering

20 Aug 2007

It s often a sign of distress. But this one, along with a private placement, leaves the LBO firm s credit investing unit well protected. KKR Financial now has enough cash to cover any margin calls and to snap up distressed assets.

Nestle’s downgrade could mark end of credit trend

16 Aug 2007

The Swiss food company has lost its AAA rating leaving only six European and US nonfinancial groups sporting the top credit badge. The number of AAA companies has shrunk by 90% over 25 years. Yet credit market indigestion suggests the pendulum may soon swing back.

Credit spectre haunts bond insurers

16 Aug 2007

The market has pummelled stocks of firms like MBIA and Ambac on fears of big losses on the CDOs they have insured. That s possible, although they ve weathered credit storms before. More troubling may be what the crunch means for their access to capital.

Where are the subprime vultures?

3 Aug 2007

Still circling, evidently. Rapid price declines haven t attracted the same carrioneaters that pounce on troubled corporate bonds. A few, like Marathon and Prudential, are dipping a beak in. But with the bottom nowhere in sight, most remain hugging the sidelines.

Main LBO lenders face double whammy

25 Jul 2007

Wall Street is turning the screws on CLOs, the biggest lenders to buyouts. It wants more collateral from hedge funds that invest in them. And it s said to be restricting CLO managers ability to make loans in the first place. That could really crimp buyout financing.

Accounting-driven convertibles may lose lustre

23 Jul 2007

About $90bn worth of convertibles that settle in cash, rather than stock, have been issued over the past several years. They re designed to flatter issuers earnings per share. But US accounting rulesetters may soon pull the plug on the market.

Moody’s CMBS call puts it in a quandary

19 Jul 2007

It s putting principle before profit by tightening its commercial mortgage bond rating standards. That s smart for now. But if the subprime fiasco doesn t spread to CMBS, investors are unlikely to follow its lead. Then Moody s might have to eat its own words