Opportunities seen if US-China trade war spreads to capital markets | "Add-backs" contribute to murky leveraged loan landscape | Credit worries send CLOs down as stocks rise
November 12, 2019
IACPM SmartBrief
Credit Markets
Opportunities seen if US-China trade war spreads to capital markets
Capital markets may be the next big front in the trade war between China and the US if more Chinese companies elect to switch their listings from the US to China. Such moves, which could be accelerated by a proposed US ban on listings from foreign companies that reject US oversight, could create vast new opportunities for lenders abroad.
Reuters (11/8) 
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"Add-backs" contribute to murky leveraged loan landscape
Short-term earnings hits are not being punished by ratings agencies in certain corners of the leveraged loan market. The ratings agencies are allowing companies to maintain higher debt-to-earnings ratios than their performance deserves on the premise that increased earnings in the future will overshadow near-term earnings troubles.
Financial Times (subscription required) (11/8) 
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Credit worries send CLOs down as stocks rise
Collateralized loan obligations lost 5% of their value in October, at a time when stock market indexes were reaching record highs. Disappearing appetite for CLOs could be a sign high-yield bonds are losing appeal.
The Wall Street Journal (tiered subscription model) (11/11) 
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Banks reportedly looking to sell, insure "CECL hogs"
Ahead of the Jan. 1 implementation of the Current Expected Credit Losses accounting standard, some banks are keen to sell loans with high expected losses. The loans, which some are referring to as "CECL hogs," are seen as a potential drag on loan-loss reserves.
Risk (subscription required) (11/11) 
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EBA: Nonperforming loans drop by half in 4 years
A European Banking Authority analysis of 150 banks has found nonperforming loans decreased to €636 billion in June from €1.15 trillion in June 2015. The EBA cites political willingness to tackle the issue.
Reuters (11/8) 
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Fed analysis: US G-SIBs' UK exposure down since 2016 Brexit vote
A Federal Reserve analysis shows US global systemically important banks have reduced exposure to UK private-sector loans and derivatives claims by 37%, to $295 billion, since the 2016 Brexit referendum.
Risk (subscription required) (11/6) 
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Regulatory and Accounting Issues
Fed must consider climate change risk, governor says
The Federal Reserve must look at what has to be done to preserve the resilience of the financial system in the face of climate change risk, Governor Lael Brainard says. "It will be important for the Federal Reserve to take into account the effects of climate change and associated policies in setting monetary policy to achieve our objectives of maximum employment and price stability," she says.
Reuters (11/8) 
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European Commission weighs climate-risk stress test
The European Commission might increase scrutiny of how financial firms manage climate and environmental risk beyond voluntary policies, financial-services chief Valdis Dombrovskis says. The commission will consider ways "to integrate sustainability risks into financial-stability monitoring and supervision mechanisms, like stress testing and scenario analysis," he says.
Reuters (11/6) 
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PRA move to drop credit risk insurance payout proposal gains support
Banks are expressing support for the Prudential Regulation Authority's decision to drop a proposal that credit risk insurance payouts happen in days instead of months. Banks were concerned that the proposal would have eliminated the capital breaks they receive from using credit risk insurance.
Risk (subscription required) (11/6) 
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Trends in CPM
N.Y. Fed official warns banks against isolated risk controls
Banks often end up with less effective and sometimes duplicative risk controls when they take an ad hoc approach to safeguards across different units, says Joshua Rosenberg, chief risk officer at the Federal Reserve Bank of New York. "Controls created in isolation and added incrementally can create unexpected results," Rosenberg says.
Risk (subscription required) (11/6) 
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IACPM Annual Fall Conference online registration ongoing until Nov. 13!
The IACPM will keep online registration open for both the one-day Educational Seminar taking place on Wednesday, Nov. 20, and the two-day Annual Fall Conference which takes place on Nov. 121-22. Online registration closes EOD Nov. 13.

For information regarding both meetings and to view detailed agendas, the IACPM suggests you visit their website at www.iacpm.org. You may also contact Dara Fine at +1 (646) 583-0839 or dara@icapm.org for more information or for help with registrations.
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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 www.iacpm.org.

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