Bank of Canada flags growing risk in corporate debt | Japanese banks pursue LBO lending | Survey: Investors prepare to ride out stock market downturn
May 21, 2019
IACPM SmartBrief
Credit Markets
Bank of Canada flags growing risk in corporate debt
The Bank of Canada is singling out corporate debt as a leading risk to the nation's economy, noting that non-financial corporate debt was 315% of income at the end of last year. Also higher than average is the share of outstanding debt for companies with poor debt-service capacity and few liquid assets.
Bloomberg (tiered subscription model) (5/16) 
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Japanese banks pursue LBO lending
Leveraged buyout lending has reached a 10-year high in Japan, driven primarily by Japanese rather than international banks. Over $10 billion in deals have closed in 2019.
Reuters (5/17) 
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Survey: Investors prepare to ride out stock market downturn
Major investors are taking positions aimed at riding out a sharp decline in equities over the next 90 days, a Bank of America Merrill Lynch survey finds.
Financial Times (subscription required) (5/14) 
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Report: FDI in emerging markets dries up
Emerging markets are receiving the lowest foreign direct investment in 20 years, with little hope of improvement amid US-Chinese trade tensions, according to a report by the Institute of International Finance. Low interest rates have sent a "wall of money" to emerging markets during the past decade "so that there is now a positioning overhang," the report notes.
Reuters (5/16) 
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Regulatory and Accounting Issues
ECB review finds issues with banks' risk modeling
A European Central Bank study of about 30 eurozone banks' market-risk modeling practices has found an average of 32 issues with each firm's value-at-risk calculation methodology.
Risk (subscription required) (5/15) 
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Regulators: Leveraged-loan market should be closely watched
Corporate borrowing levels in the leveraged-loan market are a credit risk that requires closer scrutiny, US regulators told a Senate committee. Companies are taking on higher levels of debt relative to their earnings, with few covenants to protect lenders and increasingly relaxed repayment terms, Comptroller of the Currency Joseph Otting said.
Reuters/Loan Pricing Corp. (5/15),  Bloomberg (tiered subscription model) (5/15) 
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Commentary: Is the leverage ratio doing its job?
The leverage ratio conceived after the financial crisis as a sensible way to prevent banks from artificially lowering their required capital levels has instead hardened into a binding requirement for many banks, writes Louie Woodall. That plus different interpretations of the ratio by different national regulators tend to "undermine its original purpose as a universal capital backstop" and call into question its very purpose.
Risk (subscription required) (5/10) 
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Rep. Sherman: Congress should intervene on bank loan loss rules
Congress should take action if the Financial Accounting Standards Board moves forward with new loan loss standards for banks, said Rep. Brad Sherman, D-Calif. The rules are scheduled to take effect in 2020, but Sherman is calling for a delay.
Bloomberg Tax (subscription required) (5/16) 
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Banks eye fund-linked trades warily ahead of new Basel rules
With new Basel rules projected to take effect in 2023, some banks are backing away from structured products that are linked to funds. Others are charging more for such products, and still others are considering what to do.
Risk (subscription required) (5/17) 
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Annual Spring Conference in Berlin, Germany -- Presentations are available!
The IACPM thanks the IACPM Spring Conference Program Committee and all of the speakers who participated in last week's IACPM Annual Spring Conference. Conference participants have received an email with instruction how to access conference presentations. For questions, please contact
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