The next Great Depression

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Mayo Says Bank Loan Losses Will Exceed Great Depression Levels

By Nick Baker

April 6 (Bloomberg) -- Mike Mayo, who left Deutsche Bank AG to join Calyon Securities, assigned an “underweight” rating to banks on expectations that loan losses will exceed levels from the Great Depression.

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote in a report today. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

Mayo gave "sell" ratings to BB&T Corp., Fifth Third Bancorp, KeyCorp, SunTrust Banks Inc. and U.S. Bancorp, while "underperform" ratings were assigned to Bank of America Corp., Citigroup Inc., Comerica Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Wells Fargo & Co.

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Default Count Rises to Highest Since Great Depression

By John Glover

April 7 (Bloomberg) -- Thirty-five companies defaulted in March, the highest number in a single month since the Great Depression, according to Moody’s Investors Service.

The rate at which speculative-grade corporate borrowers worldwide failed to meet their obligations rose to 7 percent from 4.1 percent at the end of last year, Moody’s said in a report today. So far this year, 79 companies rated by Moody’s have defaulted, the New York-based ratings firm said.

Almost $1.3 trillion of losses and writedowns at financial institutions worldwide, combined with the deepest economic slowdown since World War II, have weakened companies’ finances, reducing their ability to pay debt. The global default rate will peak at 14.6 percent in the final quarter of this year, Moody’s predicted, lower than last month’s 15.3 percent forecast.

“There was a triangle of leverage between companies, banks and investors that was higher than at any time in history,” said Gary Jenkins, a strategist at Evolution Securities Ltd. in London. “It’s clear the default rate is going to be significant.”

In the U.S., the default rate at the end of the first quarter was 7.4 percent, up from 4.5 percent at the end of 2008, and in Europe it jumped to 4.8 percent from 2 percent.

European defaults are expected to peak at 21 percent in the fourth quarter, down from the 22.5 percent the ratings firm’s model calculated last month.

Defaults “will remain at an elevated rate,” the report said. The forecast for the peak rate has been reduced “in the last couple of months as high-yield bond spreads have declined moderately,” according to Moody’s.

In the leveraged loan market, 24 issuers rated by Moody’s defaulted in the first quarter of this year, all in North America, up from 11 a year earlier, according to the report. The rate was 4.5 percent, up from 3.5 percent at the end of the previous quarter and 1.5 percent a year ago, according to Moody’s.

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U.S. Economy: Leading Index Shows Recovery Many Months Away

By Bob Willis

April 20 (Bloomberg) -- The index of U.S. leading economic indicators fell more than forecast in March, signaling what may be the longest recession in the postwar era will extend into the second half of the year.

The Conference Board’s gauge, which points to the direction of the economy over the next three to six months, fell 0.3 percent after a 0.2 percent drop in February. The gauge hasn’t risen since June.

Rising unemployment and tight credit mean recent gains in consumer spending, the biggest part of the economy, will probably not be sustained. Stocks dropped as a report by Bank of America Corp. raised concern Americans will keep falling behind on loan payments.

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The recession that began in December 2007 already matches the longest since 1933, and the 6.3 percent decline in fourth- quarter GDP was the biggest since 1982. The downturn has cost 5.1 million jobs and economists surveyed by Bloomberg forecast the unemployment rate will rise to 9.5 percent by the end of the year.

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Global Crisis ‘Vastly Worse’ Than 1930s, Taleb Says

By Shiyin Chen and Netty Ismail

May 7 (Bloomberg) -- The current global crisis is “vastly worse” than the 1930s as financial systems and economies worldwide have become more interdependent, “Black Swan” author Nassim Nicholas Taleb said.

The global economy is heading into a “big deflation,” though the risks of inflation are increasing as governments print more money, Taleb said at a conference in Singapore today. Gold and copper may “rally massively” as a result, he added.

“The gravity of the situation is vastly worse than the thirties,” Taleb said. “Navigating the world is much harder than in the 1930s.”

The International Monetary Fund last month cut its world economic growth forecasts and said the global recession will be deeper and the recovery slower than previously predicted as financial markets take longer to stabilize. The world economy will contract 1.3 percent this year, the IMF said.

“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb told the conference organized by Bank of America-Merrill Lynch. “They had in the 1930s. Today they have no control.”

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