Just as tensions over regional banks in the United States showed signs of easing, the First Republic Bank problem again became more urgent, and concerns about a banking system crisis reignited.
of banks through the Emergency Loan Facility of the US Federal ReserveBorrowing balances rose for the second week in a row, signaling that the system continues to be under stress.New York Fed in AprilreportHe indicated that the financial environment in the district had deteriorated significantly.
Under these circumstances, concerns have resurfaced that a credit crunch is looming. At this week’s Federal Open Market Committee (FOMC) meeting, it will be even more difficult for officials to weigh tighter funding conditions against persistently high inflation.
Multiple charts show that the borrowing environment is deteriorating in the United States.
“U.S. bank lending is expected to decline over the next few quarters,” said Amanda Lynam, head of macrocredit research at BlackRock Financial Management, in a report on April 27. Bank bond spreads have underperformed non-financial bonds amid headwinds, he said.
The money supply is also shrinking. It’s a sign that interest rate hikes are draining money out of the banking system, leaving less money for lending. Monetarist economists say this could lead to asset price crashes and deflation.
The bank, which reported results in April, said it had increased its loan loss reserves on consumer loans to levels not seen since the early days of the coronavirus crisis. Capital One Financial, for example, more than quadrupled its credit card-related provisions from the same period last year.
Provisions Piling Up Again
Banks are writing off bad debt and setting aside additional reserves amid worsening macroeconomic conditions
Source: Bloomberg data
The company also increased provisions for office loans. Office vacancy rates are rising due to the spread of telecommuting. Morgan Stanley estimated that office property values could fall by as much as 40% from peak to trough, raising default risk.
Regional and Local Banks Are Big Lenders to Retail and Offices
The lenders are the biggest credit provider in each real estate category
Source: MSCI
The leveraged loan market is also a risk factor. Businesses that borrow at floating rates have been hit hard by rising interest rates.
The balance of loans trading at distressed levels (less than 80% of face value) has risen 26% since the end of February to $127 billion, according to data compiled by Bloomberg. . Bonds will only grow by 10%.
“The loan market has historically had lower default rates than the high-yield bond market, but the reverse is happening this cycle,” said Amen Panosian and Daniel Pori, managing directors of Oaktree Capital Management.
Spreads Signal Higher Default Rate In US
Strategists expect defaults to rise especially in leveraged loan market
Sources: Moody’s Investors Service, Bloomberg
Data compiled by Bloomberg show that executives around the world are referring to credit in conference calls at the highest rate since the pandemic. Evercore Chief Executive Officer John Weinberg said the company has seen more work related to restructuring and liability management, while Carla Kimley, vice president of investor relations at Peabody Energy, said the company is He said he is positioning himself to avoid volatile credit markets.
Bosses Are Talking About Credit Like They Did at Start of Pandemic
Source: Bloomberg analysis of calls including earnings, sales and M&A
Original title:Signs Are Mounting That a Debt Crunch is Looming: Credit Weekly(excerpt)
2023-04-30 02:46:19
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