20 September 2018 FT — Articles to Read

20 September 2018


Question: According to MSN: Money, what are three (3) milestones everyone should reach by age 30?


Financial Crisis – Pg. 7

–          Until the financial crisis, private equity investors hewed closely to the “buyout” playbook pioneered by Henry Kravis and George Roberts when they founded KKR in the 1970s.  Acquiring companies whole, they would cut costs and load them up with huge amounts of debt while paying the bank back at a low interest rate

–          Now the biggest firms have all but privoted from private equity to private debt, joining a new breed of lightly regulated asset managers that have filled the voice as banks are forced to retreat from risky deals

–          Unlike banks, which are dependent on deposits and other short-term funding, these funds raise money from long-term investors such as insurance companies and pension funds.  Many of the companies they lend  to are owned by other private equity investors.  The funds provide a crucial source of credit for companies that cannot tap the bond markets, …

–          Ten years after the crisis, the rapid expansion in private credit raises the question of whether risks have simply been transferred to a different, less regulators part of the market

–          …$12tn global nonfinancial corporate bond market which now accounts for one-fifth of borrowing by companies other than banks.  There, too, credit quality has been deteriorating; most of the growth in bond issuance has involved companies that are either on the lowest rung of the investment grade ratings or else firmly in junk territory

–          Three of the four biggest US private equity firms now manage more money in credit funds than in their private equity arms

–          Strong covenants were attached to fewer than 30% of the leveraged loans written in the US last year…leaving creditors with little power to intervene if management teams behave recklessly or a company’s profit heads south

–          ..the differences between banks and asset managers are subtle.  Funds that raise their money from public pension funds are capable of inflicting losses on powerful political constituencies, even if they cannot bring down the banking system.  And while asset managers are usually far less leveraged than banks – typically matching a dollar of equity with every dollar or two of debt, compared with the $20 or $30 that banks were borrowing ahead of the crisis – they often have far fewer safe assets such as US government bonds


UK regulators put pressure on bank chiefs over plans to shift from Libor – Pg. 19

–          UK authorities have stepped up efforts to wean markets off the tarnished Libor interest rate benchmark, asking chief executives of major banks and insurers for detailed plans to move to alternative rates

–          City regulators are trying to gradually push the financial system off Libor, an interest rate underpinning about $170tn in interest rate swaps, mortgages, consumer loans and credit card rates but which in recent years has been tarnished by a series of manipulation scandals

–          …the FCA will no longer require banks to submit rates that are used in compiling Libor after 2021, it is leaving it up to banks and their customers to move to a new interest rate benchmark rate rather than mandating them to do so

–          In April, the UK began publishing an alternative sterling benchmark that has a reformation of an overnight rate called Sonia; it is based on transactions


Woman in Business – FT Special Report


Answer: (1) Have a fully loaded emergency fund; (2) Start building a nest egg; (3) Get free of credit card debt