News

North America Leads First Post-Crisis Jump in Global Insolvencies - Wall Street Journal

Corporate insolvencies are expected to rise globally for the first time in 10 years, with North America leading the trend, due to a more challenging economic environment and heightened uncertainty surrounding trade policy, according to a new research report, WSJ Pro Bankruptcy reported. The first annual upturn in corporate insolvencies in advanced markets since the global financial crisis in 2008 and 2009 comes as the worldwide economy slows down, business investment growth remains subdued and financing risks rise due to ongoing trade tensions, according to a report released yesterday by Dutch trade finance insurer Atradius NV. Business failures globally are expected to grow 2.8 percent this year and increase slightly again by 1.2 percent in 2020, Atradius said. The higher forecast for corporate insolvencies is primarily due to worse-than-expected insolvency developments in North America. Atradius has “a built-in warning system” that requires its insurance customers to report to the company late payments of more than 60 to 90 days from their buyers of services or commodities, said David Huey, president and regional director of U.S., Canada and Mexico for Atradius. The region is forecast to see the highest insolvency growth among all regions, with a 3.2 percent increase in 2019 and 1.7 percent in 2020 as economic momentum dwindles and companies increasingly face the costs of rising trade tensions, Atradius said in the report.


Manufacturing Sector Contracted for the First Time Since 2009, Data Show - ABI

The prolonged trade war between the United States and China is taking a toll on the manufacturing sector, which contracted for the first time since 2009, data show, the Washington Post reported. The U.S. manufacturing purchasing managers’ index (PMI) fell to 49.9 in August from 50.4 in July, according to IHS Markit. It is the first time the closely watched indicator has fallen below 50 since September 2009. The decline is a sign that manufacturers are starting to feel the effects of the ongoing trade war. Sales of U.S. exports decreased at the fastest pace since August 2009, according to the report. When exports fall, manufacturers typically respond by reducing inventories and cutting production. Over time, that gloominess could lead manufacturers to trim jobs. “Manufacturing companies continued to feel the impact of slowing global economic conditions,” Tim Moore, associate director of economics for IHS Markit, said in a statement. “The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.” A contraction in manufacturing can have large ripple effects across the economy, said Mark Zandi, chief economist for Moody’s Analytics. Factories that produce fewer goods tend to cut back on shipping and distribution, which affects transportation companies, warehouses, seaports and airports, he said.



Trump Orders Student Loan Forgiveness for Disabled Veterans - ABI

President Trump signed a measure yesterday that seeks to remove the bureaucratic barriers for permanently disabled veterans to qualify for student loan forgiveness, which he said would save 25,000 wounded warriors an average of $30,000, the New York Times reported. “I am proud to announce that I am taking executive action to ensure that our wounded warriors are not saddled with mountains of student debt,” Trump said. The savings projected by the Trump administration represents a small fraction of about $1.6 trillion in overall student loan debt in the U.S., which has become a point of emphasis among many of the Democrats running for president.


FDIC Approves Volcker Rule Revamp - ABI

The Federal Deposit Insurance Corp. board voted 3-1 yesterday to give big banks more leeway to make risky short-term bets in financial markets by loosening a landmark but highly contentious regulation known as the Volcker rule, Politico reported. The FDIC and four other independent agencies have dropped their proposal to tie the rule to a strict accounting standard — a move that banks argued would have made it more burdensome by subjecting additional trades to heightened supervision. Instead, regulators will give banks the benefit of the doubt on a much wider range of trades, according to the text of the final rule. Democrats immediately slammed the Trump administration for loosening the rule, which was mandated by the 2010 Dodd-Frank Act in an effort to protect depositors' money from being used by banks to turn a quick profit on short-term price changes in stocks, bonds and other financial assets. The rewrite “will not only put the U.S. economy at risk of another devastating financial crisis, but it could potentially leave taxpayers at risk of having to once again foot the bill for unnecessary and burdensome bank bailouts,” said House Financial Services Chairwoman Maxine Waters (D-Calif.) The rewrite is an attempt to clarify the type of activity that would be exempt from the proprietary trading ban for market-making, hedging or underwriting purposes. Regulators aim to introduce a separate revamp of the covered-funds provision of the rule this fall. Comptroller of the Currency Joseph Otting yesterday signed the revised rule. Three other agencies — the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission — must still approve it.


Mortgage Market Reopens to Risky Borrowers - ABI

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode, the Wall Street Journal reported. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit. The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with post-crisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford. Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance, an industry research group. Such mortgages aren’t guaranteed by government agencies and typically charge higher interest rates than conventional loans. Proponents of unconventional loans argue that mortgages became too hard to get in the aftermath of the crisis and that their proliferation will open the housing market to sound borrowers who had been shut out of it. But some worry that the competition for customers could drive lenders to loosen standards too much.


Banking regulators move to loosen Volcker requirements - NAFCU

Yesterday, the FDIC and Office of the Comptroller of the Currency approved an interagency rule that would loosen Volcker rule requirements on big banks; three other banking regulators must still approve it. NAFCU had urged the agencies to withdraw their proposed rulemaking, arguing that relaxing the requirements could undermine financial stability.


Turning Point for Student Loans - Inside Higher Ed

The New York Fed this week presented an unsettling picture of how student loans stack up to other household debt.   Defaulted student loans have surpassed all other types of household debt classified as "severely derogatory," including mortgage and credit card debt, according to a report from New York Fed researchers.   Fed researchers defined severely derogatory debt as any kind of delinquent loan combined with a repossession, foreclosure, or charge off. The proportion of debt falling into that category in U.S. households has stayed fairly consistent for the past four years. But defaulted student loans now make up 35 percent of that debt.


A Dream or a Nightmare? Who pays in a world without student loans? - The National Law Review

Anyone who hasn’t heard about the “student loan crisis” in the U.S. hasn’t been paying attention. U.S. student loan debt is estimated to range from between $1.2 and $1.6 trillion with more than seven million borrowers in default. On an individual level, a graduate of a four-year college who took out a loan to get through currently owes, on average, $28,000. Average debt for a student who completed graduate school, as you would expect, is greater, and can range from $50,000 to more than $100,000. The figures are not exact, and depend on variables such as the degree and institution but specifics are hardly needed to understand that student loan debt is crushing many young (and aging) professionals and is now front and center in current national and political discussions.


College Still Pays Off, but Not for Everyone - ABI

Investing in a college degree still pays off for most students with higher salaries and greater wealth, but in recent years it has become riskier, splitting graduates more widely into haves and have-nots, the Wall Street Journal reported. “It just has not been the blanket guarantee of following the same path to prosperity that the earlier generations followed,” says economist William Emmons of the St. Louis Federal Reserve. There are three related shifts causing economists to re-examine the returns of college. First, the wages of college graduates have remained mostly flat this century, after inflation. Second, the cost of attending college has soared. Third, even with higher salaries, significant numbers of college graduates in recent years are failing to build the kind of wealth that previous generations did. The question of higher education’s value has gained urgency because so many more Americans are going to college than before, and because they are paying far more to do so. The share of Americans between ages 25 and 29 with a bachelor’s degree rose to 37 percent last year from 29 percent in 2000, Education Department data show. College and graduate-school tuition has risen at triple the rate of inflation this century, according to Labor Department data. Students who borrowed now leave college with more than $30,000 in debt, on average, and a small but growing number is carrying $50,000 and beyond, according to a report last year by the Brookings Institution. College graduates still earn far more than those who never got an education beyond high school. Americans with a bachelor’s degree — but not a graduate degree — earned an average $77,239, nearly $32,000 more than the average earnings of workers with only a high-school diploma, according to the New York Federal Reserve.