Articles

Global rating agencies are not exhibiting enthusiasm for Deutsche Bank’s restructuring plan. I certainly am not. The perennially troubled bank needs to show credible restructuring, risk management, and liquidity plans, as well as raise capital to sustain unexpected losses.

Deutsche Bank’s significant opacity means that we do not know how much counterparty risk banks, non-banks, corporations, sovereigns, central banks, and municipalities around the world have to the troubled bank. Bank regulators have the power to require banks to measure their exposure to Deutsche.

Zombie companies could endanger financial stability as the global economic downturn is deeper than expected. One of the biggest signs of overheating in the global economy is the level of below investment grade corporate debt and the $3 trillion dollars of leveraged loans.  As prolonged trade tensions impede corporations’ ability to plan for the future, geopolitical tensions intensify, and the Chinese continue to deleverage, any of these factors could trigger a significant recession in multiple countries.

On the eve of the ten year anniversary of the G-20 Pittsburgh Summit, Financial Stability Chair Randal Quarles reports on progress made with important financial reforms. He also warned of important vulnerabilities in the global financial system.

Before establishing your asset allocation strategy, it is important to analyze what types of risks you are exposed to and to define your financial objectives. Paul Aris explains important ways to transfer your risks and gives advice on meeting your financial and retirement objectives.

Big technology companies (big techs), especially in Asia-Pacific and North America, have been moving into a wide range of financial services globally at a very rapid pace. Big techs such as Alibaba, Amazon, Apple, Baidu, Facebook, Google and Tencent have an incredible amount of data about our everyday purchases, daily habits, and interactions with others. These companies are already participants in financial services through asset management, insurance, and lending.

Nothing says ‘Happy Father’s Day’ to the men and women who work at Deutsche Bank in the U.S. like finding out today that they or their loved ones might soon be out of a job. According to the Financial Times “Deutsche’s equity and rates trading businesses outside continental Europe will be severely shrunk or closed entirely as part of the revamp.”  Because Deutsche Bank is a significant derivatives and securities trader in the U.S., this shrinkage or closure will hurt U.S. residents employed by the perennially troubled German bank.  According to the FT, Deutsche Bank CEO Christian Sewing, “is likely to announce the changes with the bank’s half-year results in late-July.”

2019 could equal or even top the record year of 2018 in political contributions from the financial institutions, insurance, and real estate sectors. In the first quarter of 2019, these institutions contributed over $120 million to legislators in Washington.  If interest rates decrease and the equity market goes up, financial institutions will have even more room to continue their political contributions.

The majority of collateralized loan obligations (CLOs) are held by a wide array of non-banks such as insurance companies, pension funds, open-ended funds (i.e. mutual funds and exchange traded funds), structured credit funds, and separately managed accounts.  According to the Bank of England, there are about $750 billion in CLOs outstanding globally; one-third are held by banks in the U.S., Europe, and Japan; the remainder are held by non-banks.

Democrats are right to keep pushing for more information and data about leveraged loans and collaterialized loan obligations(CLOs). Tuesday’s hearing was a very good start to what is likely to be a lengthy fact finding mission.  Leveraged loan and CLO markets are very opaque. In order to figure out how much banks are holding in these two financial products, you have to look at each bank’s financial statements or regulatory call reports. And to figure out the risk weighting of their securitizations, such as CLOs, you have to analyze banks’ Basel III Pillar III disclosures.

To date, the Financial Stability Board has not identified “material and persistent negative effects on SME [small-medium enterprise] financing in general” due to Basel III “although there is some differentiation across jurisdictions.” Banks are the primary providers of external SME financing, hence the reforms that are most relevant and have been implemented to date are the initial Basel III capital, leverage, and liquidity requirements agreed upon in 2010.

I thought the point of a congressional hearing is to HEAR from the invited witnesses not to berate them. I could not help but notice that Congressman Andy Barr read from a prepared script where he often stumbled over words and figures. Who wrote the speech for him? Someone in the financial industry?

Illinois’ 4th congressional district lies very far from Wall Street and its originations leveraged lending and securitizations, such as collateralized loan obligations (CLOs). Yet, those are terms that the constituents in that district are likely to hear more and more. The district’s representative and a member of the House’s Financial Services Committee is Jesús García, known by his nickname Chuy.

At the beginning of 2007, leveraged loans were 37% of the total outstanding with high yield bonds being 67%. As of a few days ago on May 31st, leveraged loans are now 45% and high yield bonds are 55%.  With 80% of leveraged loans being covenant lite, and a rising amount of below investment grade bonds, there is plenty that legislators and regulators should be analyzing.

Democratic New York Congressman Gregory Meeks and Chair of the Subcommittee on Consumer Protection and Financial Institutions, is holding a hearing, “Emerging Threats to Stability: Considering the Systemic Risk of Leveraged Lending,” on June 4 at 2:00 pm.  The very rapid rise of leveraged loan volumes, rightly has Congressman Meeks and other Democratic legislators concerned enough to call for a public discussion about leveraged loan risks, and how they could cause a significant market disruption in an economic downturn, or at worst, could pose a financial systemic threat.

Pobre México. Tan lejos de Dios, tan cerca de los Estados Unidos. Poor Mexico. So far from God, so close to the United States, has been a lamentation oft repeated by Mexicans to describe their fate of being intertwined with the United States. Stock and currency markets reacted negatively to Trump’s threat of imposing 5% tariffs, and possibly more, on Mexican goods imported into the United States.