Debt

Germany should buy into Italy’s bad bank

21 Apr 2016

If the government reforms, Italy’s Atlante fund for banks’ bad debt could be a money spinner. German insurers and pensioners earn nothing on Bunds, and are already exposed to Italy anyway through ECB money printing. Atlante would be a better investment—and good politics.

When Mario Draghi buys, it’s time to sell

21 Apr 2016

The European Central Bank president’s promise to buy bonds has caused corporate funding costs to fall. It is also causing distortions in derivative markets. That may be a sign the programme is helping companies and investors, but history suggests the easy money has been made.

Puerto Rico moral-hazard critique is wide of mark

20 Apr 2016

A bill allowing the U.S. territory to restructure $70 bln of debt has stalled, with critics arguing imprudent states might try to follow suit. Yet relief for the island would come with pain. And a process which forces a haircut on creditors could be just what the market needs.

Congress may be shamed into reviving housing reform

20 Apr 2016

Hedge funds and DC are still fighting in court about Fannie and Freddie’s $187 bln crisis bailout. Overhauling them is more important, but has stalled. A loss forcing either housing agency to tap the government well again may be the jolt lawmakers need. It may not be far off.

Saudi U.S. selloff threat not to be trifled with

20 Apr 2016

The kingdom has told lawmakers it would dump some $750 bln of assets should Congress pass a bill allowing 9/11 victims to sue. These funds are its last line of defense to lower oil prices. That the alternative - having assets frozen - is an even worse outcome is scarier still. 

Bondholder hunt for pixie dust heads to Argentina

19 Apr 2016

Buyers hungry for yield and novelty had a feeding frenzy over the $16.5 bln of debt sold in the country’s first global offer since a 2001 default. It’s a big win for President Macri, whose reforms added to the deal’s appeal. But such giddiness may miss the challenges he faces.

Time for banks to go cold turkey on sovereign fix

18 Apr 2016

Europe is considering tightening rules that make it easy for lenders to own government debt. Banks addicted to sovereign punts would suffer, and governments lose wiggle room. Yet reform could hasten euro area integration, while ECB bond-buying makes it a less scary prospect.

Chancellor: Pensions are a bubble waiting to burst

15 Apr 2016

Bubbles are essentially illusions of wealth. So look no further than the gap between what pensioners have been promised and the assumptions about returns on their inadequate savings for a glimpse into the next source of financial fragility.

Euro zone bond bonanza: waste not, want not

12 Apr 2016

The average yield on German debt has hit zero and France is locking in low borrowing costs for decades. How governments use such cheap funding matters. Berlin’s migrant spending may reap more benefits than French handouts to students. Public investment would be even better.

Mallya offer too good for Indian banks to ignore

1 Apr 2016

Liquor baron Vijay Mallya is offering to repay lenders, most state-backed, at least 43 cents on the dollar to settle dues worth $1.4 bln. That is almost double the average recovery rate for Indian creditors. They should make a deal, even if the tycoon may be able to pay more.

China’s credit hose leaves many firms parched

29 Mar 2016

Though banks doled out $540 billion of new loans in January and February, companies are saving cash by delaying paying bills. Surveys show the credit drought is worst for small businesses. Extra liquidity is not reaching the parts of the economy that create the most jobs.

China’s debt mountain will get even bigger

21 Mar 2016

Total borrowing reached about 250 pct of GDP last year. The state could take some of the burden from stretched corporations and local governments. But pressure to meet unrealistic growth targets means monetary policy remains loose and overall leverage is likely to keep rising.

The bright side of India’s bad-debt witch hunt

16 Mar 2016

Liquor baron Vijay Mallya’s exploits have triggered wider scrutiny of the country’s tycoons and those who enabled their excessive lending. Auditor Grant Thornton is the latest target. Though the sudden frenzy seems arbitrary, the result may be a faster cleanup of balance sheets.

Watchdogs’ mortgage spat stems from bigger DC fail

14 Mar 2016

Fannie and Freddie’s regulator and the U.S. Treasury disagree about whether the home-loan agencies’ minuscule capital buffers are a problem. Money is available for another bailout. But that a debate exists at all is a reminder lawmakers have flunked fixing mortgage finance.

China debt swap could leave banks in capital hole

11 Mar 2016

A new rule will allow banks to exchange loans for equity. If used on a large scale it would ease pressure on ailing companies. But lenders would also have to recognize losses, hitting their capital ratios. As the banks’ major shareholder, Beijing will end up footing the bill.

Liquor baron is India’s bad debt poster boy

11 Mar 2016

Lenders are chasing Vijay Mallya’s $75 mln payout from distiller Diageo as they try to recover debt from his defunct airline. India’s new tough stand on errant borrowers comes too late to fix the country’s bad debt problem. But it offers hope that past mistakes won’t be repeated.

Spanish debt hangover easing but still painful

7 Mar 2016

Private debt has been falling since 2010 but is still high at 175 pct of GDP. Over-indebted companies are finally cleaning up balance sheets. Lenders may soon be able to increase net lending, which would be good for their earnings – though maybe not for a still-leveraged economy.

Petrobras may be swapping debt for bigger problems

18 Feb 2016

The troubled Brazilian oil giant could get some relief from state banks, which are considering converting up to $22 bln of its bonds into stock. The move would dilute current owners’ holdings, but the greater worry is a de facto renationalization by an erratic government.

Banks’ hybrid hissy fit is no disaster

18 Feb 2016

Fears that Deutsche Bank may stop coupons on hybrid debt took the bank to crisis. That will be seen as proof that hybrids are no match for real equity. Yet the mess was caused by vague regulators and lazy investors. Without these obstacles, hybrids can still play a role.

German CDS imply bank doom loop is unbroken

10 Feb 2016

Market turbulence has led investors to snap up safe German bonds, yet the cost of insuring against a Teutonic default is up. Blame a rout in Deutsche Bank shares. Until Europe’s banking union is complete, governments are the ultimate backstop if big lenders get into trouble.