Record Leverage in Property Bonds Gives Moody’s
Crisis Flashback - (www.bloomberg.com) Bond
buyers have been warned, again. Moody’s Investors Service is
cautioning for at least the second time this year that investors are at risk
from potential defaults in newly issued
U.S. commercial mortgage bonds, as record real-estate prices
push a measure of leverage in the market past a pre-financial-crisis high. One
problem is that loan originators’ appraisals don’t take into account peaking
commercial property prices, Tad Philipp, the rating company’s head CMBS
analyst, wrote in a note Thursday. That echoes the way lenders measured
loan-to-value ratios in the run-up to the collapse of Lehman Brothers Holdings
Inc. in 2007. “This history has largely been repeated,” Philipp said via
e-mail. That method of underwriting masks risks, which now necessitate a
“significant cushion” to protect against potential losses in new bonds, Moody’s
said. It was joined by Fitch Ratings last month in warning that slipping
standards in new deals aren’t being matched with corresponding rises in credit
protection. Both bond graders have strongly suggested that newer rating companies are being too
lenient in their criteria.
Pension Funds Burn Cities as $1 Trillion
Shortfall Set to Grow - (www.bloomberg.com) The
cost to American cities for their cash-strapped pension funds is starting to
look a lot worse, and it’s not because the stock-market rally may be losing
steam. Houston was warned by Moody’s Investors Service this month that it may
be downgraded because of mounting retirement bills, the latest municipality put
on notice as the company ignores bookkeeping gimmicks that let cities mask the
size of their debt for years. The approach foreshadows accounting rules for
even top-rated issuers that are poised to cause pension shortfalls to swell as
new financial reports are released. “If you’re AAA or AA rated and you’ve got
significant and visible unfunded pension obligations, you’ve only got one
direction to go in terms of rating, and that’s potentially down,” said Jeff
Lipton, head of municipal research in New York at Oppenheimer & Co. “It’s
the presentation on the balance sheet that is now going to drive urgency.” Cities
that shortchanged pensions for years are under growing pressure to boost their
contributions, even after windfalls from a stock market that’s tripled since
early 2009. Janney Montgomery Scott has said growing retirement costs are “the
largest cloud overhanging” the $3.6 trillion municipal-bond market, where
investors are demanding higher yields from borrowers under the greatest strain.
China’s
biggest state banks recruited into stock market rescue - (www.ft.com) The
Shanghai Composite index lost more than a third of its value in roughly three weeks, dropping from a
seven-year high in mid-June to hit a low point on July 9. Markets have since
rebounded, recovering by 17 per cent. But the magnitude of state support casts
doubt on whether the rally is sustainable without government support. According
to the latest revelations, the big state-owned banks have lent a combined
Rmb1.3tn ($209bn) in recent weeks to the China Securities Finance Corp, for lending on to brokerages to finance their
investment in shares and to purchase mutual funds directly. The operation
echoes a move by the Hong Kong authorities in 1998 to prop up the local stock
market by buying 11 per cent of the Hang Seng, funded by drawing on foreign
currency reserves. The CSF was established in 2011 to lend to securities
brokerages to support margin lending to stock investors. Amid the tumble in
equities, however, the government has deployed CSF as a conduit for injecting
rescue funds into the stock market. The
latest reports reveal that the country’s big commercial lenders have been a
major funding source for CSF.
California
reduces lawn size for new construction - (www.dailynews.com) California
extended its drought-inspired purge of idyllic emerald lawns from new developments,
with state officials voting Wednesday to adopt more stringent water limits on
landscapes for new homes and businesses. The rules approved by the California
Water Commission would essentially eliminate grass from new office and
commercial buildings and reduce turf at new homes from a third of landscaped
area to a quarter. The rest of the landscapes can feature rocks, shrubs or low
water-using plants such as lavender and jasmine. The Department of Water
Resources estimates future residential and commercial lawns will use nearly a
third less water under the new standards. New subdivisions and homes won’t
necessarily be devoid of lawns, however. Developers of traditional-looking
landscapes can comply if the homes or businesses are hooked up to recycled water
from showers and toilets. Californians won’t have to rip out existing lawns
unless they are going through major home renovation that requires government
permits.
China Unleashes $483 Billion to Stem the Market
Rout - (www.bloomberg.com) China
has created what amounts to a state-run margin trader with $483 billion of
firepower, its latest effort to end a stock-market rout that threatens to drag
down economic growth and erode confidence in President Xi Jinping’s government.
China Securities Finance Corp. can access as much as 3 trillion yuan of
borrowed funds from sources including the central bank and commercial lenders,
according to people familiar with the matter. The money may be used to buy
shares and provide liquidity to brokerages, the people said, asking not to be
named because the information wasn’t public. While it’s unclear how much CSF
will ultimately deploy into China’s $6.6 trillion equity market, the financing
is up to 25 times bigger than the support fund started by Chinese brokerages
earlier this month. That’s probably enough to restore confidence among China’s
90 million individual investors, says Bocom International Holdings Co. The
Shanghai Composite Index jumped 3.5 percent on Friday, capping a two-week rally
that’s turned it into one of the world’s best-performing equity gauges.
Housing Starts in U.S. Surge to Second-Highest Level Since 2007 - (www.bloomberg.com)
Oil Heads for Longest Weekly Losing Streak Since January on Glut - (www.bloomberg.com)
China Gold Reserves Top Russia in First Disclosure Since ’09 - (www.bloomberg.com)
Grexit Still on the Table Even With EU’s Latest Band-Aid - (www.bloomberg.com)
Analysis-Counting the Cost for Greece and Europe - (www.reuters.com)
These Online Lenders Could Be China's Next Big Trouble Spot - (www.bloomberg.com)
Germany’s Tone Grows Sharper in Greek Debt Crisis - (www.nytimes.com)
Why Argentina Consistently, and Unapologetically, Refuses to Pay Its Debts - (www.bloomberg.com)
Japan Moves to Allow Military Combat for First Time in 70 Years - (www.nytimes.com)
Japan military chief says South China Sea surveillance possible - (www.reuters.com)
The Freakish Year in Broken Climate Records - (www.bloomberg.com)
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