To the delight of the Federal Reserve, bank lending has been growing. However, loans are growing at the slowest pace since 2014, and business loans are growing at the slowest rate in almost 6 years, which suggests rising interest rates and lower appetite for borrowing might dampen efforts to spur the economy.
With February the busiest month ever for repricing and refinancing of leveraged loans, the first quarter will end with more than $200 billion of such activity. That's near the last peak of such volume, at $245 billion in the second quarter of 2013.
Investment-grade US companies are on pace for the biggest first quarter of debt sales this century, and the Federal Reserve's plans for further rate increases are not expected to slow things much. Favorable factors include corporate earnings, low borrowing costs and a robust economy and stock market.
Managers of leading "unconstrained" bond funds are beginning to lose faith in an extended rally as the Federal Reserve signals further rate boosts and the excitement over the Trump administration fades. As a result, these funds are trimming their corporate bond holdings, also reasoning that US companies repatriating funds under planned corporate tax breaks would face little pressure to repurchase their own debt in a low rate environment.
The leveraged-loan market has been hungry for new mega-deals, and now two are on the way. Debt financing totaling $6 billion is backing Vista Equity Partners' acquisition of Canadian fintech DH Corp., and lenders are set for a $5.5 billion-equivalent leveraged backing UK software company Micro Focus International's acquisition of Hewlett Packard Enterprise's software business.
The Federal Reserve has lifted its restriction on bank mergers that would result in an institution worth $25 billion and raised it to $100 billion, handing the banks more freedom to contemplate merging. Financial bodies have widely welcomed the revision after the Fed deemed that newly created entities "with less than $100 billion in total assets, are generally not likely to create institutions that pose systemic risks."
The Group of 20 leading economies has stressed its commitment to the Basel III capital framework despite the US administration's known preference for a loosening of regulations. The announcement has eased concerns that the US might be more forceful in opposing Basel III, thus provoking a possible conflict with European regulators.
Banks are said to be searching for alternative ways to finance their exposure to short-term risk as the tightened rules on ratios and balances, imposed by Basel III, begin to take effect. With the commonly used repo market now becoming less favorable, some banks are reportedly turning to sovereign bonds.
A Basel Committee on Banking Supervision meeting, tentatively scheduled for next week to give final approval to a revised operational-risk capital framework, is expected to be postponed a second time. The move likely delays introduction of a standardized measurement approach to operational risk calculation, a measure that has provoked widespread debate.
Either life entails courage, or it ceases to be life.
E.M. Forster, writer
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