Debt

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.

Bank of Japan can hold out as Western yields rise

7 Jul 2017

The central bank underlined its determination to keep 10-year yields close to zero by offering to buy unlimited bonds. The BOJ has the tools, market dominance and motivation to hold firm. Tighter policy in the West should help Japan by weakening the yen and importing inflation.

India’s bond market deserves a good whipping

7 Jul 2017

The securities regulator is cracking down on the fast-growing corporate bond market. With a large chunk of new issues coming from firms in dubious financial health with too generous ratings, it is a good time to force companies and rating agencies alike to raise their standards.

Italy’s final bank bailout not as bad as it looks

5 Jul 2017

Taxpayers pumping 5.4 bln euros into Banca Monte dei Paschi di Siena is a backward step for dealing with troubled European lenders. However, junior creditors and employees are probably getting a worse deal than if they had avoided the bailout. And the state could make a profit.

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.

China underscores new hard line on outbound M&A

22 Jun 2017

The banking regulator is probing loans made to serial acquirers Anbang, Fosun, HNA and Wanda, reports say. Following the detention of Anbang's chairman, the message is clear: bold foreign M&A is out of bounds. The puzzle is why the authorities let the splurge last for so long.

Italy tests EU’s bank bail-in regime to the limit

19 Jun 2017

European regulators will block Rome’s plan to rescue two small lenders, according to a report. A scheme to save Monte dei Paschi has also run into trouble. Spain’s example of winding down failing banks is hard to follow. The government may yet have to help in any solution.

Dana Gas is the tip of Islamic bond iceberg

15 Jun 2017

The Abu Dhabi-listed company wants to restructure $700 mln of Sharia-compliant bonds, claiming they no longer conform to Islamic law. Creditors have a slim chance of recovering their cash. The arbitrary change exposes the hidden risks in this rapidly growing corner of finance.

Chinese firms are running short on funding options

15 Jun 2017

A regulatory crackdown on the rapid surge of shadow banking is bearing fruit, central bank data shows. Yet corporate bond issuance has also plummeted, and regulators are slowing IPO approvals. The economy risks overdependence on bank lending once again.

Germany’s euro-bond allergy will be hard to cure

13 Jun 2017

France’s pro-European president, Emmanuel Macron, has given new hope to advocates of joint euro zone debt. But expect Teutonic resistance. Europe’s biggest economy is loath to give an implicit bailout guarantee to its own regions so will hardly extend one to other countries.

Mining debt junkies in danger of $100 bln relapse

13 Jun 2017

Glencore’s return to big dealmaking could signal a renewal of mining groups’ appetite for risk. The likes of BHP, Anglo American and Rio Tinto have also cut back their borrowings since the last boom. Now with lots of room to gear up again, they risk falling back into bad habits.

Europe’s next bank rescue may be Italian fudge

8 Jun 2017

Italy’s big banks may pump 1.2 bln euros into small lenders to help enable a government rescue. The banks see a bailout as the least bad option. Yet after the failure and resolution of Spain’s Banco Popular, it’s a backward step that punishes good banks for the sins of others.

Spanish bank rescue poses several big questions

8 Jun 2017

Seizing Banco Popular and selling it to Santander averted a panic without a bailout. But it’s not clear how regulators calculated the hole on the lender’s balance sheet, or why they previously deemed it solvent. Investors need answers to have faith in Europe’s resolution regime.

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.

Santander picks up Europe’s regulatory roadkill

7 Jun 2017

Europe’s resolution board wound Banco Popular down and sold it to the Spanish lender for one euro. It’s a neat solution that avoids taxpayer support or financial chaos. While Banco Popular may be a unique case, this will leave creditors and other weak banks feeling anxious.

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.

Spanish bank mess could make or break CoCos

1 Jun 2017

Banco Popular’s contingent capital bonds have collapsed in price, for fear they will be converted into equity. If they do so without causing chaos, it would show that CoCos are a viable instrument in a real-world bank rescue. A failure to trigger would confirm the opposite.

China’s growth obsession fosters collateral fraud

1 Jun 2017

A Reuters report lays bare how loans are often backed by fake holdings of land or metals. It’s not surprising: the system deliberately enables corner-cutting to boost economic activity. But a lack of trust in asset values could prove traumatic if prices start to fall.

Bain’s bad debt foray into China will tempt others

1 Jun 2017

The U.S. private equity firm bought $200 mln of bad loans. That's a drop in an ocean of distressed Chinese debt, but it signals Beijing’s willingness to open up the market. As regulators push banks to clean up balance sheets, expect more overseas investors sniffing around.

Euro zone “safe” bonds would be anything but

31 May 2017

The European Commission has suggested creating low-risk securities by pooling sovereign bonds. The idea is to reduce banks’ exposure to governments. But risks would still be interconnected. Without a common tax base and joint liability, no pan-euro zone debt can be truly secure.