|Bid||201.57 x 1000|
|Ask||201.64 x 900|
|Day's Range||200.80 - 204.99|
|52 Week Range||129.26 - 206.09|
|Beta (3Y Monthly)||1.45|
|PE Ratio (TTM)||29.77|
|Forward Dividend & Yield||2.00 (0.98%)|
|1y Target Est||N/A|
American Express (AXP) earnings should benefit from increase in revenues driven by higher spending, and lending and service fees.
Moody's Corp. said Tuesday it has agreed to sell its Moody's Analytics Knowledge Services business to Equistone Partners Europe Ltd, a private-equity firm. Moody's did not disclose terms, but said it expects the deal to shave up to 20 cents off 2019 per-share earnings. The deal is expected to close later this year. The unit offer research and analytical support to organizations across the globe, including banks, asset managers and consulting firms. Moody's will use the proceeds of the deal to repurchase about $300 million of its shares. Shares were not active premarket, but have gained 46.4% in 2019, while the S&P 500 has gained 20.2%.
(Bloomberg Opinion) -- In 1960, South Korea had a total fertility rate of more than six children per woman, high enough to cause a population explosion. But as the country developed, this number dropped decade by decade:A country needs a fertility rate of about 2.1 -- a little more than one child per parent -- to maintain long-term population stability. South Korea’s fertility is now about half that number. And it’s still falling. The country’s statistics office reported that in 2018, the fertility rate fell to a record low of 0.98 -- much lower even than in countries such as Japan, whose rate is above 1.4.This means that South Korea is headed for a demographic crash. Although the country’s population has been rising due to higher birth rates in earlier generations -- an effect known as population momentum -- this is set to reverse as early as next year. During the next half-century, unless something changes, the population of 51 million could fall by a third.The question is whether this rapid shrinkage will hurt South Korea’s economy. Mathematically, it’s possible for countries to endure population decline while growing richer on a per-capita basis. This has been the experience of Japan, whose population has been shrinking since 2008:So if people can continue to get richer, why does total population size matter? The answer, in short, is because population aging tends to make countries less productive. Old people retire, meaning they no longer contribute much to economic production, slowing the growth of per-capita output. And as the ratio of retirees to workers grows, each worker has to spend more money, time and effort supporting the growing legion of the elderly.Falling population can also affect how much companies want to invest in a country. Companies want to produce goods and services near to where their customers live, so when the absolute size of a national market begins to shrink, it reduces the incentive to build new offices and factories there. As recently as the late 1990s, Japan invested about 30 percent of its gross domestic product, but that number is now down to about 24 percent. Although some investment can be wasteful, lower investment often precedes a reduced capital stock and a lower living standard in the long run.An aging population can also reduce productivity growth. Once workers are past their mid-40s, their productivity starts to decline -- possibly because they’re slower to adapt to changing business conditions. A 2016 paper by economists at the International Monetary Fund suggested that aging could be a reason for the productivity slowdown in Europe. Another recent paper, by economists Nicole Maestas, Kathleen Mullen and David Powell, found that U.S. states with more elderly populations experience slower growth in per-capita GDP. Economists at Moody’s Analytics found similar results.So a graying world will also be one where living standards grow more slowly. Unfortunately, there are no known policies that can raise birth rates substantially. As economist Lyman Stone has documented, offering financial incentives for childbirth and providing free child care has only a modest effect.That leaves immigration as the main option for population stability. In theory, South Korea could offset population decline by taking immigrants from neighboring China or other nations. For countries with fertility only slightly below replacement rates, such as the U.S. or France, this strategy is feasible. But for South Korea, the amount of immigration needed to maintain a stable population would be staggering -- as much as a third of the country’s entire population would have to be either immigrants or their descendants five decades hence. It’s not at all clear that the native-born population would tolerate such a rapid increase in diversity, especially in a country that has little history of immigration.There’s a more fundamental problem with the immigration strategy -- it can’t work for the entire world. Fertility rates are falling in most countries. China, which could serve as the main source of immigration for South Korea, is seeing its working-age population fall by millions every year. India’s will follow. Even in Africa, which is expected to supply most of the world’s population growth during the next century, a transition to low fertility is underway:In the long run, this means the supply of potential immigrants will dry up. And in the short run, population growth in poor countries and population shrinkage in rich ones will slow the decline in global poverty rates.So unless new and effective policies to raise birth rates are discovered, population in many nations will age dwindle, with countries such as South Korea leading the way. This means a new age of slow growth and increased dependency burdens is in the offing. Governments, economists and businesspeople need to start planning for a graying world. They need to devise ways to utilize the elderly’s talents more effectively, increase automation, provide services for old people more efficiently, reduce medical costs and redesign pension systems to make them financially sustainable. The gray wave probably can’t be stopped, but the human race will have to find ways to cope.To contact the author of this story: Noah Smith at email@example.comTo contact the editor responsible for this story: James Greiff at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Is Moody's Corporation (NYSE:MCO) a good dividend stock? How can we tell? Dividend paying companies with growing...
(Bloomberg Opinion) -- After seven months of laboriously convincing the international markets that he can be trusted with the presidency of Mexico, Andres Manuel Lopez Obrador risks seeing all his work undone by tweet. The sudden resignation of Carlos Urzua as his finance minister, and the resignation letter he posted on Twitter are deeply damaging. In combination, they are almost exactly what investors were worried could happen when they sold off Mexican assets ahead of AMLO’s inauguration last December.This is partly because of the importance of the finance minister in Mexican politics. The Finance Ministry, known as Hacienda, has a strong tradition of independence and continuity, which has remained intact over the last two decades as Mexico has gingerly embarked on democracy. It has a deep bench of economists with excellent U.S.-trained academic credentials, who usually alternate between the treasury and the central bank. Since Mexico’s last major devaluation crisis in 1994, Hacienda has maintained rigid fiscal orthodoxy. While it hasn’t managed to widen the tax base in a way that politicians of all sides have hoped, the ministry has strengthened its reputation with foreign investors. Thanks to Hacienda, Mexico’s credit has been rated investment grade since 2002, and the country is regarded as so safe that it can even launch bonds that won’t be repaid for a century. In a country of weak institutions, then, the Finance Ministry is a vital exception. To use a popular soccer analogy, Hacienda is the goalie of Mexican politics. Other politicians slip and fall and allow all kinds of attacks to penetrate the country’s defense – but Hacienda is always there to make the save at the last minute. Mexico may not win, but it can avert disaster.Urzua’s resignation now puts that institutional strength to the test. The president was wise to replace him immediately with his deputy, Arturo Herrera. An economist with a doctorate from New York University, Herrera has spent most of his career at the World Bank, and is thus exactly the kind of career technocrat that international investors want to see in charge of the budget.But Herrera’s freedom of movement will be limited, because Urzua’s resignation also calls the entire AMLO approach to government into question. A U.S.-educated economist, Urzua spent three years as AMLO’s head of finance when he was the mayor of Mexico City. At that point, AMLO surprised critics by running the city relatively conservatively, and also by juggling finances in such a way as to create the funds for him to pay small but symbolic “pensions” to the city’s elderly. It is very damaging that a man who has been so closely involved in the AMLO project, and who played an important role in his success, should have decided to quit.His public reasons are even more damaging. According to Urzua, he had to contend with “the imposition of functionaries with no knowledge of Hacienda,” thanks to people with influence over the government who had a “blatant conflict of interest.” He also alleged that there was no reflection in the government for his belief that “all economic policies must be based on evidence, guarding against the diverse impacts they might have, and free of all extremism, be it of the left or right.” From a close colleague of AMLO, and addressed to an audience worried that the new president is an extremist prone to appointing cronies who might want to weaken the orthodox hold over Hacienda, this is as damaging an allegation as Urzua could possibly have made.Ultimately, AMLO knows that he is answerable to international capital markets, like his predecessors. A run on the peso or a steep hike in borrowing costs would render his more ambitious plans moot. And the credit-rating companies loom large. Years of hard work have left Mexico with a rating comfortably within investment grade, according to all the main rating firms. It can withstand one downgrade without much difficulty. But the signal of lost confidence would be powerful, and both S&P and Moody’s Investors Service have the country on negative outlook. Even with the swift appointment of Herrera, downgrades must now be very likely.AMLO’s administration has finally done exactly what the markets and the agencies feared it would. Now the question is whether the credit-rating companies and markets will do what the left in Mexico had always feared – and render impossible the kind of social change and public investment that AMLO wanted to achieve.To contact the author of this story: John Authers at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- The Mexican peso plunged by the most since a tariff standoff with the U.S. in late May after Finance Minister Carlos Urzua abruptly resigned, casting doubt on the government’s ability to stave off economic and financial challenges.Urzua announced his decision on Twitter, citing conflicts of interest and policy disagreements within Andres Manuel Lopez Obrador’s administration. The peso fell by as much as 2.3%, before trimming losses when Arturo Herrera, the deputy finance minister, was named as Urzua’s replacement. The iShares MSCI Mexico ETF tumbled and the yield on the nation’s dollar bonds due in 2026 rose to 3.7%.“This is a very bad sign,” said Benito Berber, the chief economist at Natixis in New York. Still, Berber said Herrera will help calm markets and offer some continuity: “Urzua and Herrera gave credibility to economic policy.”Here’s what other investors and analysts had to say:Ilya Gofshteyn, senior emerging markets macro strategist at Standard Chartered Plc.“The market is right to take this seriously. Urzua was seen as ‘the adult in the room’ in the AMLO administration, someone who lent credibility to an otherwise economically heterodox administration”“This was unexpected and while MXN is attractive from a carry standpoint, there’s a reason real rates are as high as they are in Mexico”“Tactically bullish MXN views are all good and well, but on any given day a development of this sort can creep up and force position liquidation. Given how heavily subscribed MXN remains among the global investor community, those squeezes tend to be especially painful”Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. in New York“The resignation letter is unconventional and direct: it expresses clear dissatisfaction with internal policy and personnel dynamics within the AMLO administration”“This is an unexpected and negative development for it suggests: (1) significant policy and inter-personal frictions within the AMLO administration and (2) that economic policy decisions may be guided and informed by non-economic/financial criteria and led by policy makers without the required and relevant credentials to define policy and manage the fiscal accounts”Shamaila Khan, director of emerging-market debt at AllianceBernstein in New York“Herrera has interacted with investors extensively, so he is not a concern. It’s really the government policies that are a concern and are unlikely to change as a result of the resignation”Christian Lawrence, a New York-based strategist at Rabobank who was last quarter’s top peso forecaster“Given that fiscal slippage and Pemex are big concerns, the reaction is not surprising. Remember, Fitch downgraded Mexico to one notch above junk on Pemex concerns and the Moody’s outlook was moved to negative”Claudia Ceja, a strategist at BBVA in Mexico City“The Herrera nomination is positive, but even so, the criticism from Urzua is very strong”“Even if the government is able to assign another market friendly minister, the fact that Urzua is openly criticizing the decision making is certainly negative”\--With assistance from Justin Villamil and Karina Montoya.To contact the reporters on this story: Ben Bartenstein in New York at email@example.com;George Lei in New York at firstname.lastname@example.org;Sydney Maki in New York at email@example.comTo contact the editors responsible for this story: Julia Leite at firstname.lastname@example.org, Alec D.B. McCabeFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Sterling fell as much as 0.4 per cent to $1.246 on Tuesday. , the frontrunner in the battle to replace Theresa May as Conservative leader and prime minister, has said Britain should part with the EU on October 31 “come what may”. Jeremy Hunt, the other contender in the leadership fight, has also been forced to take a similar tack.
Moody's Corp NYSE:MCOView full report here! Summary * Bearish sentiment is low * Economic output for the sector is expanding but at a slower rate Bearish sentimentShort interest | PositiveShort interest is extremely low for MCO with fewer than 1% of shares on loan. This could indicate that investors who seek to profit from falling equity prices are not currently targeting MCO. Money flowETF/Index ownership | NeutralETF activity is neutral. The net inflows of $5.39 billion over the last one-month into ETFs that hold MCO are not among the highest of the last year and have been slowing. Economic sentimentPMI by IHS Markit | NegativeAccording to the latest IHS Markit Purchasing Managers' Index (PMI) data, output in the Financials sector is rising. The rate of growth is weak relative to the trend shown over the past year, however, and is easing. Credit worthinessCredit default swapCDS data is not available for this security.Please send all inquiries related to the report to email@example.com.Charts and report PDFs will only be available for 30 days after publishing.This document has been produced for information purposes only and is not to be relied upon or as construed as investment advice. To the fullest extent permitted by law, IHS Markit disclaims any responsibility or liability, whether in contract, tort (including, without limitation, negligence), equity or otherwise, for any loss or damage arising from any reliance on or the use of this material in any way. Please view the full legal disclaimer and methodology information on pages 2-3 of the full report.
(Bloomberg Opinion) -- More than a decade after the 2008 financial crisis, the U.S. is finally on the verge of adopting a much-needed reform designed to make the system more resilient.Note to Congress: Please don’t get in the way.The reform involves an accounting rule that played a big role in making the crisis worse than it needed to be. It effectively prevented banks from recognizing bad loans until losses were “probable” — meaning that payments were already well past due. This left banks’ books out of touch with reality, to the consternation of regulators, investors and even the banks’ own executives. The losses ultimately came all at once, impairing financial institutions’ capacity to make new loans when the economy needed it most.After that debacle, the Group of 20 developed and developing nations tasked accounting standard-setters with developing a better approach. Their solution: Require lenders to look forward, building provisions based on how much they expect to lose over the lifetime of a loan. Under the new standard, loans with risky features such as low down payments or weak investor protections require larger provisions upfront, even if the borrowers are paying on time. Companies must also publish added information on their loan portfolios and the models they use to forecast performance.This approach has several advantages. It can smooth the financial cycle by encouraging institutions to provision more in good times, leaving them better prepared for bad times. It restrains irrational exuberance by making lenders think harder about risks at the outset. And it applies to all kinds of lenders, so it sheds light and imposes discipline beyond the traditional banking system — where the most aggressive mortgage and corporate lending is often concentrated.There’s one big downside: Earlier provisioning limits payouts to shareholders, because it cuts into initial profits and can require added capital. Hence, financial industry lobbyists have long opposed it, arguing in part that it could lead to undesirable swings in provisions as economic projections alternate between excessive optimism and pessimism. And in recent months, they’ve garnered some support in Congress: Legislators have introduced bills in both the House and Senate that would block the standard and order regulators to prepare an in-depth study of its potential effect on lending.It’s hard to see what further study would achieve, other than further delay. Much of the world adopted the new standard last year, with little difficulty. The Financial Accounting Standards Board took several years to develop its version, holding dozens of meetings with the relevant parties, reviewing more than 3,000 comment letters, and making alterations designed to ease the burden on smaller banks. The “Current Expected Credit Loss” rule was finally completed in 2016. If it starts to go into effect as planned next year, all the affected companies will have had more than three years to prepare.True, provisions will depend on the forecasts lenders use. But a study by Moody’s Analytics found that even with a typically imperfect economic forecasting model, the rule would have worked as intended if it had been in place during the 2008 crisis: Thanks to the smoother profile of provisions, credit would have been tighter during the boom and easier during the bust than under the old rule.Scuttling the reform at the last minute would leave the U.S. out of sync with the rest of the world and the make the financial system more vulnerable to the next downturn — just as the Trump administration is weakening other protections. Legislators should let the new rule stand.—Editors: Mark Whitehouse, Clive Crook.To contact the senior editor responsible for Bloomberg Opinion’s editorials: David Shipley at firstname.lastname@example.org, .Editorials are written by the Bloomberg Opinion editorial board.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- Sovereign bonds in India extended the best weekly advance since May after a government official said that the nation could raise as much as $10 billion offshore, a move which may help shift a chunk of the borrowing away from the domestic market.“In terms of risk management I don’t see it exceeding 10-15% of the total borrowing, which makes it roughly about $10 billion,” Economic Affairs Secretary Subhash Garg said in an interview on Saturday. There’s huge appetite overseas for Indian debt, he said.Bonds rallied on Friday after the government surprised traders by trimming its fiscal deficit target to 3.3% of gross domestic product from 3.4% projected in February, and by announcing plans to tap the offshore debt markets for the first time. Investors have been concerned about Prime Minister Narendra Modi’s plans to borrow a record 7.1 trillion rupees locally this fiscal year.“There was some confusion on the quantum of the USD borrowing,” said Naveen Singh, head of fixed-income trading at ICICI Securities Primary Dealership in Mumbai. “The figure being close to $10 billion may potentially reduce fiscal second-half borrowing.”The yield on the benchmark 10-year bond declined 12 basis points to 6.58% on Monday, extending Friday’s five-basis point drop. Yields have slid more than 70 basis points since the end of April. The rupee slid 0.5% against the dollar.Indonesia, which has the same Baa2 rating from Moody’s Investors Service as India, priced a 10-year bond at 3.45% last month. State Bank of India -- a proxy for the government in the debt markets -- sold a 5-year note at a 185 basis-point yield premium earlier this year.With about a quarter of global debt having a negative yield, investors are expected to lap up an offering from a high-yielding emerging market sovereign like India at a time when the nation’s central bank is also reducing borrowing costs.“This rally is set to last for a while,” said R.K. Gurumurthy, head of treasury at Lakshmi Vilas Bank in Mumbai. “We may soon start discussing the probability of another rate cut in the August monetary policy committee.”(Adds Indonesia comparison in sixth paragraph.)\--With assistance from Ragini Saxena.To contact the reporter on this story: Subhadip Sircar in Mumbai at email@example.comTo contact the editors responsible for this story: Tan Hwee Ann at firstname.lastname@example.org, Ravil ShirodkarFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
(Bloomberg) -- The American jobs engine revived in June as hiring topped all economists’ estimates, relieving pressure on the Federal Reserve to slash interest rates this month while leaving it room to make a small reduction if it wants.Nonfarm payrolls climbed a solid 224,000 last month, the most since January, after a disappointing 72,000 May advance, a Labor Department report showed Friday. At the same time, the jobless rate ticked up to 3.7% from a half-century low of 3.6% and average hourly earnings increased a less-than-projected 3.1% from a year earlier.Against a backdrop of subdued inflationary pressures, the wage and unemployment-rate data keep open the possibility of a quarter-point cut in the Fed’s benchmark interest rate, either at the end of this month or later. Traders trimmed bets on rate reductions after the report though still see a 25-basis-point cut in July, and President Donald Trump’s top economic adviser kept pressure on the central bank to act.“We’ve always seen a more notable deceleration in employment ahead of a cut,” said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce, who projected a 205,000 gain in June payrolls. “I’m not as convinced as the market that the Fed has to move in July. Rate cuts are likely coming but the Fed has to be very careful to not be seen as pushed by the market and the White House.”Trump tweeted “JOBS, JOBS, JOBS!” after the report and has repeatedly boasted that the world’s largest economy is in the best shape ever. Despite that, he’s made repeated calls for Fed Chairman Jerome Powell to cut interest rates as the record expansion shows other signs of slowing -- just as the 2020 campaign begins.What Our Economists SayWhile the Fed dropped “patient” from its policy guidance at its June meeting, the strength in the pace of hiring will enable the FOMC to delay the onset of a mini-easing cycle until September; but the central bank will still need to cut in order to steepen the yield curve.-- Carl Riccadonna and Yelena Shulyatyeva, economistsClick here for the full note.Larry Kudlow, director of the White House National Economic Council, said on Bloomberg Television Friday that the Fed should “take back the interest-rate hike.” The central bank raised rates four times last year, though it was the fourth increase, in December, that’s proved the most controversial.Though companies still face the uncertainty of trade tensions and inflation remains below the Fed’s goal, the broad hiring gains in June provide a solid backdrop for consumer spending -- the biggest part of the economy. Job growth in manufacturing was the strongest in five months, despite concerns about tariffs, while employment was solid in business services, health care, construction and transportation.“It’s a really, really strong report across the board,” Torsten Slok, Deutsche Bank chief economist, said on Bloomberg TV. “If the Fed is thinking about making insurance cuts, you think about what they are insuring themselves against?”At the same time, wage growth appears to be flattening out, albeit at a still-strong level. Average hourly earnings rose 0.2% from the prior month, missing estimates, following an upwardly revised 0.3% gain, while annual wage gains held at 3.1%.The participation rate, or share of working-age people in the labor force, increased to 62.9% following 62.8% as steady wage gains pulled more Americans from the sidelines and into the workforce. The average workweek was unchanged at 34.4 hours.“A 25-basis-point cut is still on the table,” but the report removes the chance of a 50-basis-point reduction, said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. “It makes the debate for a cut more lively. This job number eases their concerns that the labor market was slowing more abruptly than they anticipated, but the trend is that it’s still moderating.”(Adds Trump tweet.)\--With assistance from Chris Middleton, Sophie Caronello, Ryan Haar and Katia Dmitrieva.To contact the reporters on this story: Reade Pickert in Washington at email@example.com;Jeff Kearns in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Scott Lanman at email@example.com, Vince GolleFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The list of scary things that can happen to lenders is long, and after years of issuers having the leverage in debt markets, that list has never been worse. Now, those lenders are starting to push back.
(Bloomberg) -- Sign up for Next China, a weekly dispatch on where the country stands now and where it's going next.The respite from defaults in China’s onshore bond market isn’t seen lasting as risks to the country’s economy grow.While the number of defaults in China’s $13 trillion bond market slid for a second straight quarter, down from a record high last year, June saw a resurgence as borrowing costs rose and liquidity tightened. Analysts and investors expect debt failures to rise in the months ahead, in tandem with slowing economic growth.New bond defaults dipped to this year’s low in May amid China’s targeted support measures to shield the economy from a U.S. trade war. But, the number of both defaulted bonds and new defaulters rebounded the following month, coinciding with weak manufacturing data, indicating that the economic recovery in the first half has lost steam.“We’ll see an uptick in default rates but from a low base,” said Alaa Bushehri, head of emerging markets corporate debt at BNP Paribas Asset Management. “We don’t expect a name which is doing fundamentally well to suddenly surprise us with poor fundamentals. We expect whatever is weak to be the weak links and trends of deterioration to continue to deteriorate.”READ: China Defaults Hit Record in 2018. 2019 Pace Is Triple ThatThe tally of first-time defaulters climbed to five in June from one in May, according to data compiled by Bloomberg.No SurprisesDefaults are seen picking up over the rest of the year, albeit at a gradual pace, said Harvey Bradley, a fixed income portfolio manager at Insight Investment, an affiliate of BNY Mellon Investment Management.“This increase is likely to be driven by funding cost pressures, a weaker domestic economy and slightly more risk averse investors,” he said. “We would continue to expect default rates in the onshore Chinese bond market to creep up in the second half of the year - but nothing too concerning.”READ: At Least 56 Chinese Companies Face Debt Repayment PressureChina has a relatively short history of bond defaults and only saw the first local note failure in 2014. While delinquencies have climbed since then, they’re still not at levels seen in developed markets such as the U.S.Liquidity jittersLiquidity levels after the surprise takeover of Baoshang Bank Co. are still fueling some funding disquiet among some smaller banks and non-bank financial institutions, despite an injection of fiscal and monetary relief from Chinese authorities."After the Baoshang takeover, investors have more reservations about implicit government support and have become more risk averse," said Ivan Chung, head of greater China credit research and analysis at Moody’s Investors Service. This would put pressure on weaker issuers looking to refinance debt, he said.A Bloomberg survey conducted this month showed most of the 36 fixed-income analysts and investors believe the spread between lower-rated corporate bonds and risk-free yield will fluctuate slightly, or get wider in the third quarter.“We see tight liquidity for the non-bank loan situation -- hence we are very cautious on private companies, the smaller SMEs and their ability to refinance their bonds,” says Tiansi Wang, a senior credit analyst for fixed income at Robeco. “They will face challenges because there’s less liquidity available to them and it’s at a much higher cost,” she said, identifying liquidity as “the big driver” of increased defaults in the second half.(Adds Moody’s comment in 10th paragraph.)To contact Bloomberg News staff for this story: Rebecca Choong Wilkins in Hong Kong at firstname.lastname@example.org;Tongjian Dong in Shanghai at email@example.com;Molly Dai in Singapore at firstname.lastname@example.org;Xize Kang in Beijing at email@example.com;Ling Zeng in Shanghai at firstname.lastname@example.orgTo contact the editors responsible for this story: Neha D'silva at email@example.com, Chan Tien Hin, Lianting TuFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Moody's Corporation (Moody's)a financial services company that provides credit ratings, research, tools and analysis that contribute to transparent and integrated financial marketshas today announced the appointment of Mariano Andrade as Country Leader and Head of Operations for its Lithuanian business. Mr. Andrade will be responsible for planning and implementing projects that support growth in the region, providing leadership and oversight across all Moody's roles in Vilnius and instilling a strong culture aligned with Moody's values.
(Bloomberg Opinion) -- Joe Mysak, Bloomberg News’s foremost expert on the $3.8 trillion municipal-bond market, has a saying about Puerto Rico: It was technically “in” the market for state and local government debt, but not “of” it. That is to say, for a number of reasons, it has always been considered an outlier.Indeed, munis are off to a blistering pace in 2019, with mutual and exchange-traded funds focused on the debt on track to pull in a record amount of cash this year. Investors are buying even though a closely watched gauge of relative value would suggest the bonds are a screaming sell. Never mind that at the start of the year, a federal oversight board argued that more than $6 billion of Puerto Rico’s general-obligation bonds should be declared null and void because issuing them in the first place breached the island’s constitutional debt limit. It’s just an outlier, after all.Or is it?John Tillman, the CEO of conservative think tank Illinois Policy Institute, and Warlander Asset Management’s Eric Cole, a protege of Appaloosa Management’s David Tepper, are teaming up in an effort to invalidate a whopping $14.3 billion of Illinois debt on the grounds that the state’s pension bond sale in 2003 and securities issued in 2017 to pay a backlog of unpaid bills were in fact deficit-financing transactions prohibited by the constitution. Some pertinent details from Bloomberg News’s Martin Z. Braun: The group said the goal of the debt limits in the state constitution is to ensure the state acts in a financially responsible manner. But they claim “the state’s elected officials have done just the opposite. They have mortgaged the state’s future to pay for the present.” ...Article nine, section nine of the Illinois Constitution says the state may issue long-term debt only to finance “specific purposes” if approved by three-fifths of the legislature or by popular referendum. ...Using bond money to cover general expenses, speculate in the market, or pay past-due bills isn’t a “specific purpose,” for incurring state debt, but rather another name for deficit financing, the complaint said.It’s still very early days, especially for this type of fundamental challenge to a state’s ability to finance itself. Illinois general obligations have long been considered to have some of the strongest legal protections among states. And most crucially, it’s not Illinois looking to invalidate its own debt but rather a hedge fund and Tillman, who has been at the forefront of legal challenges to public employee unions and progressive taxation. Even if they prevail, the state could very well repay investors entirely.Illinois Comptroller Susana Mendoza, for her part, dismissed the lawsuit as “nothing more than garbage” and expects it to be “laughed out of court.”Still, it looks to be the first significant ripple on the mainland from Puerto Rico’s unprecedented restructuring. As always, it raises the question of whether this is the final straw that will shake investors’ confidence in the market’s underpinnings.Illinois is the natural starting place for this sort of reverberation. It’s the worst-rated U.S. state, clinging to the lowest investment grades from S&P Global Ratings and Moody’s Investors Service. The state’s unfunded pension liability is huge, about $168 billion, according to the complaint, and it struggled for years to pass a budget when the Republican governor at the time, Bruce Rauner, and the Democratic legislature couldn’t reach agreement. An effort in 2014 to increase revenue by replacing the state’s flat income tax with a progressive one was defeated, thanks in part to the Illinois Policy Institute. So, yes, Illinois definitely has problems. But are they bad enough to wipe out a large chunk of bondholders? In theory, the move would free up billions of dollars in the coming years to fund pensions,(1)but those savings could be wiped out by whatever extra yield investors would require to buy the state’s bonds in future offerings. It’s in Illinois’s best interest to make sure bondholders are repaid, even if this challenge isn’t struck down. It’s not nearly at the point yet at which it cares to risk the ire of the municipal market. Investors seem to get that, judging by Monday’s bond trading.Puerto Rico, on the other hand, saw the writing on the wall years ago that its $70 billion debt load was unpayable. It was reeling from mass population exodus and high levels of poverty and joblessness, even before it was devastated by Hurricane Maria. It also had virtually no money left to pay pensioners.There was no way out other than to have the oversight board created by Congress take drastic steps. In addition to attempting to nullify earlier bond sales, the board also sued dozens of banks and bondholders in May to claw back more than $1 billion in fees and interest payments. Two months earlier, an appeals court affirmed that Puerto Rico’s highway agency can tap tolls and other fees dedicated to bondholders until the bankruptcy is settled. That casts a pall over the rest of the market for revenue bonds sold for highways, airports and transit systems.Braun noted in May that this isn’t the first time investors have fretted about precedent-setting events in the muni market, only to see their worst fears fail to materialize. Detroit’s bankruptcy, for one, has had no obvious long-term implications — in fact, the city easily issued $135 million of bonds in December, all with yields of less than 5%. Jefferson County, Alabama, which filed a then-record bankruptcy in 2011, had its credit rating raised to investment grade just four years later.These examples suggest the muni market can withstand outliers. But compare the language in Illinois with that used in Puerto Rico. “The burden of servicing this unconstitutional debt falls on the taxpayers of Illinois, including Plaintiff John Tillman,” the complaint argued. Matthias Rieker, a spokesman for Puerto Rico’s oversight board, said in May with regards to invalidating bonds that “it is neither fair nor legal to burden Puerto Rico’s residents with that against which their Constitution protects them.”The idea of pitting taxpayers against bondholders is one thing in an underdeveloped Florida community development district or a Missouri county that wants to be off the hook for a struggling retail project. It’s quite another at the level of the sixth-most-populous state. Illinois has options — dwindling ones, to be sure — to turn itself around without simply following in Puerto Rico’s footsteps. The same goes for Connecticut and New Jersey.It might be too soon to say that Puerto Rico has opened up the muni market’s Pandora’s box. But this lawsuit against Illinois Governor J.B. Pritzker shows it’s at least cracked a little. It doesn’t truly matter if the challenge is coming from an oversight board, a hedge fund or the issuer itself. Either way, it reflects a threat to the core tenets of the market that no individual investor wants to see.(1) Specifically, according to the complaint, if the state ceases making principal and interest payments on the debt, it could contribute an additional $13 billion to its pensions over the next 14 years.To contact the author of this story: Brian Chappatta at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Iron Mountain's (IRM) rating outlook revised from negative to stable by Moody's Investors Service. The company's existing senior and subordinate debt are being maintained at Ba3 and B2.
In a new Patrick O’Shaughnessy’s Invest Like The Best episode, a renowned investor, Chuch Akre, shared his wisdom with a wide audience. The founder of Akre Capital Management, a hedge fund with around $10 billion in asset under management, talked about his investment principles, explaining his famous “three-legged stool” investment approach to publicly traded companies. […]
(Bloomberg Opinion) -- So much for deleveraging. China’s biggest shadow lenders are back.On the surface, it may look like regulators have managed to shrink the role of trust companies, after a wide-ranging, months-long crackdown on China’s financial underbelly. Assets under management at these lightly regulated non-bank financial firms – a hybrid of private equity, asset management and lending – posted their first annual decline last year. Business revenue in the first quarter fell 5% from a year earlier. Broad shadow-banking assets fell 1.2 trillion yuan ($170 billion) in the first three months of this year.But in reality, trust companies are still in business: Monthly flows of their lending rose more than 90 billion yuan in the first five months of the year. While trust assets in the first quarter fell 0.7% from the previous period, they still stand at a staggering 22.54 trillion yuan. Trust companies’ fee income as a percentage of total assets under management rose for the first time in a decade in 2018, according to UBS Group AG’s Jason Bedford. Total profits in the first quarter rose 10.3% from a year earlier.Trust companies are lending directly to parts of the real economy that need it most, beyond bank balance sheets. Financing using trust assets climbed 4.4% in the first quarter, after dropping in the previous three quarters. As this figure rises, the quality of trust assets has deteriorated: The proportion prone to default and repayment risks climbed to a record high of 90% from a year earlier, according to Moody’s Investors Service. With more complex credit products under regulatory scrutiny, income from so-called actively managed trust assets with higher fees (i.e. loans and other investments) is ticking up. That means firms have even more incentive to push these businesses. In the past, shadow lenders leveraged such investments to juice returns; with the central bank artificially suppressing interbank rates, that could happen again. Analysts have already started discussing whether officials will shift toward even looser monetary conditions in the aftermath of money-market stresses.The resurgence of trust companies raises two questions: How dependent is China on shadow lenders, and can regulators even get their arms around the 60 trillion yuan ($8.7 trillion) of shadow-banking assets (on paper) – equivalent to 66% of gross domestic product – without kicking off another buildup? For now, Beijing doesn’t appear to have many options: The fact that activity is picking up even as officials attempt to calm nerves in the interbank funding market shows the economy’s deeply rooted, steadfast reliance on these institutions for credit, especially when banks are flinching.For years, trust companies worked alongside China’s banks to keep credit flowing in the system. The headline drop in their assets under management has largely come from a decline in trust beneficiary rights products. These are loans put in a trust special-purpose vehicle, which effectively allows banks to reclassify souring debts. Trust companies have also acted as agents between companies lending to each other. Together, so-called entrusted loans and trust loans stood at 20.1 trillion yuan at the end of the first quarter.Most of trust-backed products are concentrated at regional lenders – the likes of Baoshang Bank Co., which was recently taken over by regulators. In the early part of 2017, such products, in the form of investment receivables, increased between 10% and 40% at smaller banks. At Baoshang, they rose close to 15% and stood at 153 billion yuan, or a quarter of its assets, according to its latest financials. In theory, this tangle of financing can be unwound. But markets are signaling that there isn’t much tolerance for a bumpy ride. Meanwhile, a sudden hit to credit growth has wider implications that Beijing isn’t prepared to deal with, especially in the short term. Whether officials can maintain calm as they attempt to clean up a sprawling and opaque financial system is beside the point. What’s clear is that China needs its shadow banks now more than ever.To contact the author of this story: Anjani Trivedi at firstname.lastname@example.orgTo contact the editor responsible for this story: Rachel Rosenthal at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
Moody's reiterates BankUnited's (BKU) ratings, courtesy of the efforts to develop direct banking franchise organically, and improvement in its loan portfolio.
(Bloomberg Opinion) -- After more than a decade, it appears green bonds are finally taking root.So far this year, countries, companies and local governments across the globe have sold about $89 billion of bonds to fund projects that are good for the environment, data compiled by Bloomberg show. Bloomberg Intelligence analyst Jaimin Patel estimates the current run rate will put global non-asset-backed green bond issuance at more than $182 billion for the year, which would easily top 2018’s $133 billion and 2017’s $128 billion. More important, it looks as if the market is returning to steeper growth after last year’s stagnation.To be clear, the Climate Bonds Initiative’s stated goal of $1 trillion in yearly green-bond issuance remains a ways off. But 2019 has brought signs that it’s not just a pipe dream. May’s $23.8 billion was the second-highest monthly volume on record. Those who borrowed last month included the Netherlands, whose 5.98 billion euro ($6.7 billion) deal represented the first sovereign green bond ever sold by a triple-A rated country, according to Moody’s Investors Service. And it’s not just that issuers are stepping up — investors are, too. The Netherlands’ order book swelled to 21.2 billion euros in less than two hours.Nor is the green-bond wave showing any signs of cresting. Just this week, issuers on three continents laid out plans to borrow: Chile brought a 30-year green deal to market, Korea Electric Power Corp. priced $500 million of five-year securities, and EDP Finance B.V., a Portuguese issuer with ratings one step above junk, set up investor calls for its green-bond debut. And that doesn’t even include Connecticut, which plans to issue $250 million of top-rated green bonds for water and wastewater projects.Speaking of Connecticut, its two U.S. senators, Chris Murphy and Richard Blumenthal, are among the five Democrats who last month introduced legislation that would create a United States Green Bank. They would capitalize it “with up to $50 billion as a wholly-owned corporation of the United States government, under the direction of the Secretary of the Treasury.” It would “finance clean energy projects by capitalizing regional, state and local intermediary institutions (e.g. state Green Banks), which then directly finance eligible projects.”The likelihood that proposal goes anywhere, given the current makeup of Washington, is probably slim at best. But it speaks to a broader feeling that green bonds are more than just a clever marketing gimmick — they’re here for good, and investors and issuers alike ought to start planning accordingly. In one example, a panel of experts on sustainable financing appointed by the Canadian government released a report last week that said green bonds should have tax breaks like U.S. municipal debt to create a more well-functioning market.This sort of growth and widening acceptance was by no means inevitable. Just a year ago, I wrote that the green-bond market appeared to be stuck in infancy because of self-designating and a general lack of enforcement. And, indeed, last year’s offerings pointed toward a market that was plateauing even though the existential threat of climate change was put in stark relief by the United Nations.It’s not entirely clear what changed. Maybe countries and companies truly are reacting to the U.N.’s October report, which argued that the world has 12 years to avert catastrophic climate damage, and just needed time to get their financing in order. Regardless, the diversity of borrowers coming to market stands out as an important trend. About 39% of issuance in the first five months of 2019 came from countries other than China, France, the U.S., Germany, the Netherlands and Sweden, the most since at least 2014, Bloomberg data show. According to Patel, this is “important to ensuring the stability of longer-term growth in the green bond market, while limiting the impact of one-time spikes by established issuers.”Before declaring that bond investors are saving the world, remember that details matter in these deals. There’s still no catch-all for the green-bond market, which is clear from looking at the Climate Bonds Initiative’s website. As of June 17, it shows $90 billion of 2019 issuance, divided into $69.5 billion of “labeled green bonds aligned with CBI definitions” and $20.5 billion of “Certified Climate Bonds.” Excluded from that total is another $22.2 billion of “labeled green bonds not aligned with CBI definitions.”(1) It’s useful and transparent that the group breaks it out like that, but that’s still a sizable amount of debt that in some ways is green in name only.CBI’s own estimate for 2019 green-bond sales is $250 billion, or an almost 50% increase from last year. That’s impressive for a market that several years ago was little more than a novelty and represents a return to the rapid growth that characterized pretty much every period except 2018. My hunch is the steady drumbeat of climate change has become loud enough to persuade countries and companies to look beyond the short term when preparing to borrow. Yes, it’s extra work for issuers to verify every year that they adhere to a set of principles, but that’s likely the most onerous during the first go-round. For institutions with the largest amount of green bonds outstanding, like the European Investment Bank, France and KfW (the German state-owned development bank), economies of scale come into play.Call it a comeback for green bonds. The uptick in debut issuers, in particular, suggests that environmentally friendly financing might finally be sinking its roots into the global debt markets. (1) According to CBI, this has to do with guidelines from the People’s Bank of China on green bonds that don't conform with the Climate Bonds Initiative's taxonomy. It includes debt that funds upgrades to coal-fired power stations and large hydropower electricity generation, along with securities with more than 10% of proceeds allocated to "general corporate purposes."To contact the author of this story: Brian Chappatta at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.