Credit

Cool credit markets could be own undoing

10 Jul 2017

Corporate bonds shrugged off the recent “taper tantrum” that hit government debt and equities. Investors may be betting that central banks will only slowly tighten policy, supporting demand for riskier assets. Yet unruffled markets may only hasten policymakers’ rush for the exit.

Beijing’s reversal on credit scores is ominous

5 Jul 2017

China's central bank no longer wants to let private outfits like Alibaba assess consumer creditworthiness, Reuters says. That’s doubly unwelcome. Borrowers need better credit scoring. And this will concentrate even more power in the state’s Orwellian “social credit” system.

Bank of England tries surrogate rate hike

27 Jun 2017

The central bank’s bubble-pricking committee is raising the minimum capital ratio for UK banks by up to a full percentage point. The surgical tool may help to rein in frothy consumer lending. But the blunt instrument of higher policy rates cannot be delayed forever.

Popular wipeout leaves CoCo bonds on drawing board

7 Jun 2017

The Spanish bank’s failure did not provide the expected test for bonds which convert into equity under stress. The securities were wiped out before they could be triggered. The good news is that losses did not trigger contagion. But it’s still unclear whether CoCo bonds work.

Banks hold key to Noble Group’s future

7 Jun 2017

The ailing trader wants to extend a $2 bln credit line, under which it has borrowed $620 mln in cash. It has the ability to repay the cash if needed. But losing the whole facility would hurt. Noble has to play for time if it is to avoid the restructuring that investors fear.

Europe is a fertile petri dish for GDP-linked debt

6 Jun 2017

Linking national debt payments to economic performance could help countries cope with downturns. There are many obstacles. Bad governments might fiddle statistics; good ones may be reluctant to pay a premium for flexibility. Even so, the euro zone is a good place to test the idea.

Car debt adds horns to UK’s Brexit vulnerability

31 May 2017

Britons’ non-mortgage debt has been growing at a 10 pct annual clip, of which half the growth is car financing. The risk for that lies not with banks or borrowers but car companies. If they pull back, a post-Brexit Britain could end up with less consumption – and less employment.

Italy’s latest bank mess allows EU to act tough

25 May 2017

For a variety of reasons, the European Commission hasn't forced losses on Monte dei Paschi senior creditors. Tumbling bond prices of the smaller Veneto banks suggest they will be an easier target. Robust action would partially restore the credibility of Europe’s bail-in regime.

“Too big to fail” trade backfires in Baku

24 May 2017

International Bank of Azerbaijan is restructuring $3.3 bln of foreign debt after loan and currency losses. Bondholders had counted on the Caucasus state to prop up the lender, despite weaker finances. The hunt for yield in emerging markets is bound to throw up other nasty shocks.

ECB snared by bond-buying ambiguity

19 May 2017

European lawmakers have called for more transparency from the European Central Bank over its corporate bond purchases. The demands are flawed: the ECB discloses quite a lot and clarity can backfire. Yet it’s a reminder of the risks from central banks meddling in private credit.

Euro zone bonds are taboo worth breaking

17 May 2017

Spain wants the bloc’s 19 governments to pool their debt. That idea is likely to be shunned by Germany. Yet mutualisation is happening anyway through bailouts and central bank largesse, and countries are less profligate than they were. Common bonds needn’t mean wayward spending.

German bonds are caught between Mario and Macron

12 May 2017

Euro zone yields have risen in anticipation of tighter policy from ECB President Mario Draghi. But the euro zone’s fragility puts a cap on long-term rates. Changing that would require the kind of common fiscal policy imagined by new French President Emmanuel Macron.

Markets snooze their way to Le Pen showdown

5 Apr 2017

French government bond prices suggest a lower probability of far-right Marine Le Pen winning the presidential election than bookies do. Markets may be too calm about the disruptive potential of voter apathy, or a left-wing alliance. That limits their ability to reassure.

New risks begin at home for China’s big banks

31 Mar 2017

Bad debt problems are easing at ICBC, AgBank and others. Their soured loan figures always look suspiciously low. But commodity prices and industrial profits are up, so state borrowers may actually be recovering. Now, lending heavily into a housing boom may create fresh trouble.

Bad bank is poor solution for Europe’s dud loans

14 Mar 2017

Policymakers have called for a pan-European fund to soak up the region’s dud assets. But the record for such schemes is mixed, and hard to tailor to Europe’s diverse problems. The risk is that it becomes a backdoor bailout. Governments would be better off fixing bankruptcy laws.

Breakdown: China swaps bad debt for faint hope

24 Feb 2017

The People's Republic is trying to ease its huge corporate debt burden by letting some state-owned groups switch bank loans for equity. Over 300 billion yuan has already been exchanged. Breakingviews explains how, if the companies cannot be saved, taxpayers will still be on the hook.

French corporate debt immunity to Le Pen will fade

15 Feb 2017

Even the slim possibility that far-right leader Marine Le Pen might lead France out of the euro zone has pushed up government bond yields. By contrast, corporate debt has suffered relatively little damage. Savvy investors will make this anomaly disappear soon.

UK watchdog trolls EU with City Brexit manifesto

14 Feb 2017

European bankers often fear a post-EU Britain will become an offshore casino. The FCA’s consultation on the UK’s listing regime mostly focuses on worthy goals like tech financing. But some proposals – like laxer listing standards for foreign companies – could feed the paranoia.

UK student debt sale is a third-class idea

9 Feb 2017

The government is selling 12 bln pounds of student loans. If wage growth motors, the sale price could wind up looking cheap. Given its reluctance to sell RBS shares that are depressed in value, and the reduced imperative to balance the budget by 2020, it's a needless risk to run.

Banco Popular creditors get a shareholder airbag

3 Feb 2017

The Spanish bank's stock fell after it took bigger than expected losses. Yet it took steps to protect hybrid debtholders from losing their coupons. Bondholders have an edge over banks: even if it's possible to inflict losses on them, the pain may be more bother than the gain.