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BofA CEO says leveraged-loan stress could ripple through economy – BNNBloomberg.ca

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Bank of America Corp., which tops the league table for U.S. leveraged-loan issuance, is watching that market closely for signs of stress.

“The real concern is: Is there too much leverage in the system in certain companies, and if they have trouble, will that impact the economy?” Chief Executive Officer Brian Moynihan said in a Bloomberg Television interview. “We get concerned about that because it usually reverberates back” to banks.

The Charlotte, North Carolina-based lender manages that risk by focusing on debt-underwriting terms, client selection and diversifying its loan book, Moynihan said. In June, he warned that potential “carnage” could ensue in the market that his bank has dominated for a decade.

Bank of America’s market share in U.S. leveraged-loan issuance has remained broadly stable at nearly 11%, even as issuance fell 33% on year. That comes at a time when commentators such as Fitch Ratings have flagged more loans of concern and the potential for an uptick in defaults going forward.

Direct lenders such as hedge funds and buyout firms are snatching business away from syndicated-debt players. Alternative asset managers have made inroads into the US$1.2 trillion leveraged-loan market by often offering speedier financing and more comprehensive structures than the public markets.

As private credit shops have also amassed massive amounts of capital — with US$296 billion of dry powder globally, according to London-based research firm Preqin — they’ve been able to finance larger and larger deals.

“For a given deal that they might do a structure, that might be a competitor, but they’re major clients of ours too,” Moynihan said. “On a given deal they may do a tranche of financing that we’d have done, but typically they’re doing a different tranche, honestly, and so we’re more focused on the shorter-term revolvers.”

Here are other takeaways from the interview:

  • Moynihan is pleased with the bank’s trading performance, alongside its efforts to revamp the investment bank.
  • The company plans to boost its ranks of relationship managers by 2%-3%.
  • He’s still optimistic about the U.S. economy, driven by strong consumer spending and a robust labor market.

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China’s Central Bank Cuts Key Short-Term Rate to Buoy Economy – Bloomberg

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China’s Central Bank Cuts Key Short-Term Rate to Buoy Economy  Bloomberg

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Economy

Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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