Financial Times Blog

8 February 2019

 

Question: According to MSN: Money, what is the fastest-growing segment of renters?

 

BB&T-SunTrust’s $66bn merger set to reshape US bank landscape – Pg. 1

–        …BB&T to buy SunTrust Banks for roughly $28bn will create a new national player with $442bn in assets and $324bn in deposits, which will be able to rival US majors such as PNC, US Bankcorp and Capital One

–        Although the combined bank will be smaller than the six dominant players – its $301bn loan book will be about a third of the size of JPMorgan Chase and Wells Fargo – it would leapfrog the equity value of international banks such as France’s BNP Paribas and Japan’s Mizuho and will be worth more than Barclays and Deutsche Bank combined

–        The number of commercial banks insured by the FDIC has been in decline for decades, dropping more than 40% since 200 to just 4,774, but mergers have been concentrated among small banks

 

UK central bank joins global retreat from interest rate increases – Pg. 3

–        …signaling that UK interest rates would remain on hold following concerns that the economy was stumbling ahead of Britain leaving the EU

–        …the bank cut its forecast for UK growth this year from 1.7% to 1.2%

 

American faces a battle to find buyers for its bonds – Pg. 9

–        …American will need to sell an eye-popping $12tn of bonds in the coming decade, sharply more than it did in the past 10 years

–        …between May and November last year, China’s holdings of US Treasuries quietly shrank from $1.18tn to $1.12tn, well below the levels seen just three years ago, when China’s holdings topped $1.25tn

–        …the proportion of debt held by non-American entities slid to 36% last year, well below the level of nearly 45% a decade ago…

–        …by November last year, American households held nearly $2.3tn in Treasuries, up from $1.9tn in January.  That has helped to keep bond prices high, and yields remarkably low

–        …in five years’ time the Treasury will need to sell bonds equivalent to 25% of GDP, up from 15% now.  This level of debt has occurred just twice in the past 120 years, first during the second world war and then again during the 2008 financial crisis

–        The first time, the US government forced private domestic savers to buy its debt via a patriotic propaganda campaign and financial controls.  The second time it relieve on its central bank’s balance sheet via quantitative easing

–        …the US Federal Reserve is now trying to unwind QE and those 1940s financial controls are no longer in place

 

Mideast investors shun commercial property – Pg. 15

–        Middle Eastern investment into western commercial property fell more than a third last year as lower oil prices and concerns over Brexit stifled demand

–        Europe attracted 68% of outbound commercial real estate investment, with the US at 31% and Asia less than 1%

 

Answer: “Rich people”; those earning $150,000 or greater (Prof Note: Keeping powder dry for a down-turn?)

7 February 2019

 

Question: According to MSN: Money, what are six (6) ways to keep a stellar credit score in retirement?

 

Past five years hottest on record worldwide – Pg. 4

–        Global warming has made the past five years the hottest on record, with 2018 being the fourth-warmest since modern records began,…

–        …forecast that 2019 would be warmer than last year, and that the next five years would form part of the warmest decade on record

–        In the US, there were 14 “billion-dollar disasters” last year including Hurricane Florence and Hurricane Michael…

–        The earth has already warmed up by about 1C since pre-industrial times, and almost all the countries in the world have pledged to limit global warming to less than 2C – a level that would require drastically cutting back on carbon dioxide emissions

 

Litigation – Pg. 7

–        Under the common law system in the US, Britain and several other countries, the validity of legal arguments depends heavily on precedent

–        The march towards data-driven justice has one big flaw: most of the data are missing.  The vast majority of civil litigation, possibly 90%, is dropped or settled out of court, which means the documents from the case are never made public.  The reasons is financial…

 

Answer: (1) Have a least one credit card; (2) Separate your credit accounts if you are divorcing; (3) Guard your cards; (4) Refuse to co-sign (Prof Note: Contingent liabilities are DANGEROUS!  Be very careful and remember the adage, “No good deed goes unpunished”); (5) Be vigilant for ID theft; (6) Don’t overdo it

5 February 2019

 

Question: What percentage of senior citizens are forced into taking social security sooner than planned according to Voya Financial?

 

Year of the pig – Pg. 1

–        Chinese begin lunar holiday

 

Gross bows out as investors take flight from former ‘bond king’ – Pg. 1

–        ….managed nearly $300bn at his peak and co-founded bond-investing powerhouse Pimco

–        Mr Gross, 74, is quitting Janus Henderson, the asset manager he joined four years ago after an acrimonious split with Pimco.  The fund he managed fell below $1bn this year following poor performance and client withdrawals.  He will instead focus on his personal assets and $390m charitable foundation

–        In 2016, he warned that the unprecedented bond-buying programmes pursued by central banks after the financial crisis had created a “supernova that will explode one day”

–        Aggressive reduction in benchmark interest rates below zero, combined with quantitative easing and investors’ ravenous appetite for bonds, resulted in yields on more than $10tn of sovereign debt sinking into negative territory

 

Name and shame…Chinese app exposes debtor living next door – Pg. 4

–        The “deadbeat map” app with WeChat, China’s popular social media service, claims it can reveal all bad debtors residing within 500 metres of the phone.  It was launched just before the Lunar New Year holiday, when people are supposed to have discharged debts to begin the year with a clean slate

–        The app will name and shame people who have not paid up…

–        For now, the app works only for claims recognized by the Hebei court

–        (Prof Note: This, if omnipresent, will have drastic consequences.  I remember when I first became a CFO.  As payroll fell underneath me I knew everyone that had court-ordered payments for child and/or spousal support.  My initial, uninformed, reaction was, “these people are deadbeats!”  While I later understood that, yes they could be “deadbeats”, the separation could have been so acrimonious that this was the solution by the parties and may not have resulted from an unwillingness to pay by the employee.  My point, the existence of debt without ALL information is just that, i.e. the existence of debt.  Best to keep opinions quiet as ALL information is rarely known.)

 

Notice of Class Action Settlement – Pg. 5

–        If you transacted in Euribor Products between June 1, 2005 and March 31, 2011, inclusive (“Class Period”), then your rights will be affected and you may be entitled to a benefit (Prof Note: Worth reading the page)

 

Non-bank lending surge stirs painful subprime memories – Pg. 19

–        There is no clear definition for so-called private debt, which is often also called direct lending or mid-market lending.  It broadly consists of bespoke loans made by specialized lenders such as fund managers, insurers and tax-advantaged vehicles known as “business development companies”

–        Unlike leveraged loans, private debt is tyupically not widely traded, and unlike bonds, the market is largely unregulated and opaque

–        The US market has swelled from about $300bn in 2010 to about $700bn by the end of last year

–        Demand has two drivers: the falling returns on offer from more mainstream parts of the debt market, and the desire to diversify into new assets classes that are – in theory, at least – less correlated to the undulations of stocks and bonds

–        KKR estimates that the average private debt yield has fallen 6-8%, down from the low teens a few years ago

 

Answer: 60%