KeNo's Housing and Economic Portal: Monday March 28 2016 Housing and Economic stories

Sunday, March 27, 2016

Monday March 28 2016 Housing and Economic stories

TOP STORIES:

New Jersey's Credit Rating Outlook Revised to Negative by S&P - (www.bloomberg.com) New Jersey’s credit-rating outlook was revised to negative from stable by Standard & Poor’s, which cited the “significant long-term pressures” the state is under from employee benefit liabilities and the risk the situation will worsen. At the same time, S&P affirmed its A rating on New Jersey’s general-obligation bonds, its A- rating on the state’s appropriation-backed debt, and its BBB rating on the state’s moral obligation debt. The state plans to sell $142 million in general-obligation bonds and $97 million in appropriation debt on Wednesday to refinance existing securities. "The outlook revision reflects our view of the significant long-term pressures the state is under related to its post-employment benefits and the potential for New Jersey’s situation to worsen over the next year or two based on current litigation and proposed legislation," John Sugden, an S&P analyst, said in a statement. "It also reflects weakened pension funded levels due to pension underfunding and lower-than-assumed rates of return," he added.

Exorbitant privilege and the cost of renting America’s balance sheet - (www.ft.com) Bankers are blaming tensions in the repo world on the increasing cost of renting out their balance sheets. As we’ve broken down already, leverage and liquidity requirements make it harder than in the past for banks to borrow cheaply to buy (mostly) riskless and lend those same assets on at higher rates than they have to pay to their own creditors. Which is another way of saying…new guys in the investment scheme don’t get to accrue the same rate of return from new asset purchases the early guys do unless the assets massively outperform, and hence are much more likely to run if and when these assets are priced below par value or start to outperform. Bitcoiners will, of course, know this as “early adopter syndrome”. For everyone else it amounts to the dynamics which drive debt overhang constraints.

Moody’s warns bond managers over Valeant - (www.ft.com) Investors in bonds backed by risky loans remain broadly positive on deals that include the debt of pharmaceutical company Valeant, despite this week’s warning from Moody’s. The New York rating agency cautioned that roughly a third of the group’s loans had been packaged into collateralised loan obligations, securities in which loans are pooled together into bonds and sold to investors. Moody’s estimated $3.4bn worth of loans had been purchased by CLOs, including those managed by hedge funds Anchorage and Apollo, as well as Oak Hill Advisors and Silvermine, which are among the largest exposed. “In aggregate, there is a risk because it is such a widely held name,” said Chris Acito, chief executive of Gapstow Capital Partners. “That said, the most recent loan pricing I’ve seen indicates that the market doesn’t view this loan as a distressed name.” Moody’s said that 696 of the roughly 800 CLOs it rates contain Valeant debt.

Brexit Meltdown at the Bank of England - (www.wolfstreet.com) Project Fear — the massive PR campaign aimed at sowing and watering the seeds of dread about the potential consequences of a YES vote in the upcoming referendum on a British exit from the EU — is in full bloom. In the event of a wrong answer, all manner of biblical disasters can be expected to befall the nation, the British public is constantly being warned. The country’s national income will shrink, hundreds of thousands if not millions of jobs will vanish, the City of London’s core industry — financial engineering — will migrate across the channel, the currency will collapse, house prices will plummet, European firms will stop selling products to Brits, the U.S. government will impose massive tariffs on British imports, and even Britain’s already dismal climate will get worse.

Credit Suisse CEO Blindsided as Bank Added to Risky Positions - (www.bloomberg.com) Credit Suisse Group AG Chief Executive Officer Tidjane Thiam said the firm’s traders had ramped up holdings of distressed debt and other illiquid positions without many senior leaders’ knowledge, helping lead to a first-quarter loss in the markets business. “This wasn’t clear to me, it wasn’t clear to my CFO and to many people inside the bank” when the firm laid out a strategy in October, Thiam, 53, said Wednesday in a Bloomberg Television interview. “There needs to be a cultural change because it’s completely unacceptable,” adding that there had been “consequences” for some employees. The Zurich-based lender’s holdings of distressed debts, leveraged loans and securitized products, including collateralized loan obligations, triggered $258 million of writedowns this year through March 11, after $495 million of losses in the fourth quarter, according to a presentation.

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