The appeal of credit cards is making a purchase now and settling up the bill later. Capital One Financial’s $80 billion merger with rival Discover Financial Services offers a similar benefit. The deal perks will be huge, if and when they can be redeemed. Combined, the two companies would be the biggest U.S. plastic purveyor, with $250 billion of the country’s $1.3 trillion credit-card debts, overtaking JPMorgan’s $211 billion at the end of 2023. Yet customers of the bank led by Jamie Dimon spend more, giving Capital One CEO Rich Fairbank a plausible argument that the deal increases competition rather than squashing

The US equity market has had a surprising rebound this summer; rallying more than 17% between mid-June to mid-August. The narrative for the first half of the year had been focused on a pending recession, given that a sustained decline in economic output tends to correspond to falling capital values. This narrative has been supported by two quarters of negative real GDP growth, which was inevitable given how high inflation had risen. Despite the fall in real GDP, the growth in nominal wages and nominal output remains robust while inflation finally appears to be falling, as indicated in Exhibit 1.

Leveraged-finance bankers are nursing a headache after one hell of a party. Bank of America, JPMorgan, Goldman Sachs, Morgan Stanley, Credit Suisse and Deutsche Bank collectively took about $1.5 billion of writedowns in the second quarter on loans they made to highly indebted companies. The hit adds to the case for job cuts. Banks’ leveraged-finance desks make short-term loans to fund buyouts, typically for a 1% to 2% fee, which they sell on to investors like pension funds after a few months. The trouble starts when markets plunge before banks shift the risk, forcing them to write down the loans

Leveraged buyouts can’t live up to their name if they can’t find lenders. That’s becoming a growing threat as volatility in debt markets is causing deals to be repriced or cancelled. Enter Blackstone, Apollo Global Management and other private equity shops that have raised massive credit funds, allowing them to have their cake and eat it, too. Private equity firms have more than $3.4 trillion of dry powder, according to Bain & Co., and they have been waiting for a moment like this to spend it. Equity prices have fallen since the beginning of the year, with the S&P 500 down 6% and

Western leaders are giving Vladimir Putin a rational default card. Sanctions give the Russian president more reason to renege on at least some of his $200 billion of sovereign debt. The fallout could leave creditors stuck for years. Judging by its balance sheet, Russia isn’t an obvious default candidate. When the country last reneged in 1998, its borrowings exceeded 130% of annual output. Last year they were less than 20%, only a fifth of which was in foreign currency. That gives Putin a cushion to cope with a collapsing currency and shrinking economy. The spiking crude price will also help

The yield on Sri Lanka’s ten-year government bonds rose by 430 basis points last year and concern is mounting regarding the sovereign’s solvency. Yields above 12% are not unusual for the island nation, but a 7 percentage point spread over the policy rate reflects an increased pricing in of risk. The answer to the question of whether Sri Lanka will ultimately be forced to default on its debt is finely balanced. Fathom’s Financial Vulnerability Indicator (FVI) is flashing red for a number of countries around the world. This note explains the factors specific to Sri Lanka and assesses the reasons

China’s population ageing is occurring at much lower income levels than is typical in much of the rest of the world and also with very high levels of debt. This begs the question: can China get rich before it gets old? Refresh this chart in your browser | Edit the chart in Datastream   The 2020 census and China’s sharply falling birth rate have heightened the government’s concerns about the nation’s worsening demographics. Births fell from around 18 million in 2016 to just 12 million in 2020 — the lowest since 1961 when the population was less than half its current size.

It may be the worst of times for shadow lenders. But for some, it could also be the best. Private debt – including direct lending, distressed debt and mezzanine financing – has exploded since 2010, with assets under management more than doubling to over $800 billion. The number of managers has also doubled in the past five years. The Covid-19 crisis will cause many to struggle, but firms with plenty of ready cash to deploy, like Blackstone’s GSO Capital Partners, Ares Management and Oaktree Capital Management, could hit payday. The current virus-induced downturn is trial by fire for these less

A traditionally defensive sector for U.S. investors is looking less so. Power companies will need to keep producing even as the Covid-19 pandemic causes other industries and locales to shut down. And while customers will be less able to pay their bills if unemployment spikes, the need for investment will persist. PG&E’s return from bankruptcy illustrates this dilemma. A sharp rise in joblessness is coming. An NPR/Marist poll last week reported 18% of households already had one laid off member. That is likely to have two effects on power suppliers: bills going unpaid, and regulators not allowing price hikes. Already,

PG&E faces a brownout of its own – but this one is in court. The California utility has been powering down customers across its territory to avoid more fire-related losses as the wildfire season intensifies. Meanwhile on Wednesday, the judge overseeing its bankruptcy opened the door for creditors to file their own restructuring plan. Losing power over the process could be costly for the company, which helps explain why its shares lost another 30% of their value on Thursday morning. Simplifying a complex exercise, the basic thrust of the two plans is this. PG&E wants to raise $34 billion of

Refresh the chart in your browser | Edit chart in Datastream In response to rising financial stress in China — as evidenced by rising bond defaults, increasing numbers of non-performing loans and rumours of yet another bank bailout over the weekend — the People’s Bank of China has stepped into action. Since 2016, when we believe policymakers threw in the towel on their half-hearted attempt to rebalance, instead doubling down on the increasingly inefficient old growth model, the stock of assets held by the PBoC against other depository corporations has almost quadrupled. If such lending is done to encourage banks to purchase

Fathom’s measure of economic activity in China, the China Momentum Indicator (CMI), slowed to 4.9% in April, down from 5.1% in the twelve months to March, hitting a new two-and-a-half-year low. As highlighted in the chart, this has resulted in a widening of the gap between Fathom’s measure of growth and the official measure, which was a steady 6.4% in the first quarter of the year. Refresh the chart in your browser | Edit chart in Datastream Based on Fathom’s measure, trend growth is lower than officially stated, as it has been since 2011, and that is despite financial conditions being looser