A new Treasury report on capital markets includes a qualified risk-retention exemption for the Collateralized Loan Obligation market that's winning plaudits from managers. The exemption appears to respond to industry arguments that requiring fund managers to hold 5% of their deals isn't fair as it imposes the same restraint on CLO funds as those applied to other products implicated in the financial crisis.
Investors are balking at repricing efforts by better-quality issuers of leveraged loans, and some borrowers are stepping back. The market resistance is due in part to the high volume of repricings by comparison with new money deals.
With oil prices stabilizing around $50 a barrel, a wave of debt issuance has arisen as energy firms seek to refinance. "Bankers are calling any company that they can that has a need to refinance right now, when the market is strong and covenant protections are weakening," says Scott Roberts, Invesco's head of high-yield investments.
German Finance Minister Wolfgang Schaeuble, who soon will be president of the Bundestag, is warning about the possibility of another global financial crisis. "Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt," he said.
A lack of market liquidity will be at the heart of the next financial crisis, says Marko Kolanovic, global head of macro, derivatives and quantitative strategies at JPMorgan Chase. A shift to passive and momentum strategies from active strategies, as well as increased investment in real estate, private equity and illiquid credit holdings, which has decreased market volatility, will fuel a liquidity crunch, Kolanovic says.
The Basel Committee on Bank Supervision is giving national regulators broad flexibility in how they apply the net stable funding ratio to derivatives liabilities. Specifically, the committee has said national regulators may lower a 20% gross derivatives liabilities add-on, with a floor of 5%.
The US Treasury released a report that outlines 91 technical fixes aimed at boosting the financial markets. Rather than proposing legislative changes, the report notes the Commodity Futures Trading Commission and the Securities and Exchange Commission could simply tweak existing rules and not endorse international rules unless they meet domestic objectives.
Implementation of the Current Expected Credit Loss Standard should be delayed, a group of House lawmakers argue in a letter to the Securities and Exchange Commission and Financial Accounting Standards Board. They call for a study to examine the rule's possible effect on the cost of credit and its availability, noting that banks' balance sheets might also be subject to greater volatility.
Enforcement of guidelines established after the financial crisis to rein in leveraged debt is being weakened under the Trump administration, and Goldman Sachs is among the first to take advantage. Advocates and critics of the rules both acknowledge the new environment, with critics noting that under the rules banks have lost business to unregulated non-bank lenders and credit funds.
Italian lawmaker Matteo Renzi warns that the European Central Bank's proposal for banks to hold collateral on nonperforming loans could spark a credit crisis and damage economic growth. "Some European officials in the banking sector ignore that their duty is to AVOID credit crises, not CREATE them," Renzi wrote in a tweet.
The Federal Reserve may publish model-implied losses for hypothetical portfolios to provide greater transparency on the credit risk of various assets for the central bank's annual Comprehensive Capital Analysis and Review. "Showing the world indicative loss rates on these hypothetical portfolios would provide even more information on how different risk characteristics impact our model," said Timothy Clark, deputy director of supervision and regulation at the Federal Reserve Board.
The one-day comprehensive Educational Seminar on Credit Portfolio Management will take place on Monday, November 6 at The Westin Philadelphia. The Seminar, taught by practicing professionals, provides sessions on all key aspects of Credit Portfolio Management.
CPM in a Changing Environment
Business Models for Portfolio Management
Active Credit Portfolio Management Techniques and Toolkit
Setting a Concentrations and Limits Framework: Implementing CPM in Practice
How to Manage a Credit Portfolio: A hands-on simulation exercise
Group discounts can be obtained by contacting Dani Gelband. For more information on this or the two-day Fall Conference and to view the agenda, visit www.iacpm.org.
The IACPM is an industry association established to further the practice of credit exposure management by providing an active forum for its member institutions to exchange ideas on topics of common interest. Learn more at