Structured Finance: Securitizations Principles

Many blamed the debacle and near crushing collapse of financial markets during the financial crisis of 2007-09 on the financial industry's addiction to securitization. Many know securitizations as an alphabet soup of finance. Special-purpose vehicles are set up by asset managers, some of which are banks; others might be other financial institutions. The same SPV entities issue bonds that have been best known by their acronyms or initials: CMOs, CMBSs, CLOs, CDOs, MBS, CBOs, etc. 

These SPVs bought loans of all kinds (mortgages, auto loans, commercial real estate loans, credit card receivables, and more). They funded such purchases by issuing tranches of bonds. Banks, other financial institutions, bond funds and broker/dealers bought the bonds. They held them or traded them or made markets in them.

In the euphoria of financial markets and frantic activity before 2008, their arrangers or investment banks (Lehman Brothers and Bear Stearns immediately come to mind) set up the SPVs, arranged and issued the bonds, collected their fees, and proceeded to set up other SPVs (partly to continue to collect more fees). 

To issue such bonds and get investors comfortable, SPV asset manager must arrange for rating agencies to rate the bonds, typically in tranches from AAA down to B. A AAA investor could invest in mortgage markets, earn reasonable returns without owning mortgages. Banks that originate the loans had a place to park them and allow the process to originate more. By selling into SPV structures, banks could transfer the credit risks to other parties and could generate liquidity or cash to deploy as they prefer. 

In the glory years before 2008, many institutions had swooned toward securitizations "on steroids." There were plain-vanila securitizations, but also re-securitizations (securitizing the BBB tranches of structured finance, or "CDO-squared"). There were securitizations of credit insurance (index-tranche credit-default swaps). There were institutions, like AIG, that sold credit insurance on securitized bonds. The objective might not have been (by mid-2007) to transfer risk or structure properly managed portfolios of loans into highly rated securities, but to find a reason to create yet another SPV (to earn more asset-management fees).  

A problem arising from the crisis was the notion that an SPV could buy any form of credit asset (corporate loan, home loan, consumer loan, receivable, etc.) and use models to create investment-grade bonds (AAA, AA, e.g.). By 2007, non-investment-grade loans were used to create AAA bonds. Second-lien home mortgages and mortgages for which the borrowers had frighteningly low credit scores or needed only to make interest payments for a long term were funneled into structures funded by AAA or AA bonds. As long as the ratings were maintained at investment-grade levels, investor classes would be interested in purchasing these bonds or comfortable holding them. 

By mid-2007, the structures began to collapse. Borrowers in many asset classes couldn't pay as promised or couldn't pay with the levels of confidence asset managers and rating agencies projected. As borrowers defaulted, as SPVs collapsed, and as structured bonds defaulted, the financial crisis ensued.

In the years since, securitization and structured finance didn't disappear into finance history books. Regulators and bank supervisors didn't prohibit such structures or some of the practices and privileges of banks. Securitizations (the creation of AAA or AA bonds from loan portfolios of all kinds) continue today--but with a flock of new rules, restrictions and (for banks) capital requirements. 

Long lists exist today of what banks can and cannot do. Rating agencies are required to be more transparent and more conservative in determining how a AAA bond can fund a portfolio of BB corporate loans. And some banks, asset managers and institutions continue to be creative about the kinds of loans, leases or receivables that can be securitized (data-center leases, e.g.).

For data centers, the so-called SPV is de facto a data center that owns computer infrastructure (servers) and leases the assets to uses (including perhaps "hyperscalers" such as, say, Nvidia or Meta. The SPV's balance sheet will report net lease receivables. Lease income is netted for related data-center costs (cooling and power costs, e.g.). The net lease receivables are funded by the securities rated and issued. 

Yet occasionally, even since the financial crisis and the slate of corrective action taken by regulators, problems, a collapse or a unsettling event occurs. In the fall, 2025, financial markets and risk managers watched the failure of auto-dealer and lender TriColor, an institution that made auto loans to an uncreditworthy borrowing segment, sold some of them into temporary SPVs (called "warehouses"), which sold some of those into final SPV, which would issue long-term bonds to fund the purchase of the auto loans. 

As the auto loans began to default en masse (not a surprise for many), all related structures imploded, too. And lenders or investors to such SPVs are absorbing massive losses, while the original TriColor stumbled into the bankruptcy. As with the crisis of 2008, lessons are now being charted and culled with hopes that future crises in securitizations will be averted. 

Securitizations : the basics

Let's return to the basics. Debt (including loans, receivables, or leases) is purchased by the SPV and included in the SPV’s loan portfolio. An asset manager is responsible for identifying the assets to place into the SPV. The SPV may purchase loans from many originators (often other banks), but it requires funding to support such purchases.

Securitizations, therefore, mean the SPV has elected to issue tranches of bonds to fund the loan portfolio. To get investors comfortable, the SPV (or its asset manager) will seek credit ratings from the rating agencies. Asset managers seek to get the maximum amount funding from AAA-rated issued bonds, partly because AAA-rated bonds are easier to sell to the public and AAA-bonds imply cheap funding. Indeed, the SPV (like any financial institution) seeks to generate wide net-interest-earned spreads by keeping funding costs as low as possible and to permit equity holders (or "residuals," as they are sometimes called) to generate high returns. 

The types of loans or credit assets (or exposures) that are securitized may include home mortgages, credit-card receivables, auto loans, commercial real estate loans, corporate non-investment-grade loans, small-company loans, or export receivables. But assets can also range from equipment leases to royalties earned from holding music licenses. In recent periods, asset managers are interested in securitizing the lease payments tied to data centers. (Data-center companies lease the equipment to technology companies. Hence, imagine the demand or opportunity to create securities backed by lease payments on computer infrastructure that supports the rapid growth in AI.)

CLO structures purchase non-investment-grade loans (BB+ and lower) and have become as a sector the largest lending group in leveraged finance in the U.S. (and in other develped markets, too). CLOs fall within the broader segment of "private credit" because such public-like bonds fund the private loans and because most CLO structures are now managed by the stalwarts of private credit, names like Blackstone, KKR, Apollo and Ares.

Banks may not be permitted to structure and manage CLO SPVs (a regulatory fallout from the financial crisis), but are interested in investing in CLO bonds (A-rated or better), mostly because some of the highly rated issues are liquid and because the yields are often better than the returns from investing other A-rated-or-better bonds (including U.S. Government bonds). 

CMBS structures purchase commercial real-estate loans, often buying from well-established corporate real-estate banks. They purchase by "property types"--office space, multifamily housing, warehouses, etc. 

RMBS SPVs include family home mortgages and have been structured in countless ways, including portfolios with sub-prime loans and payouts to investors in "sequential" or "non-sequential" ways. "Private label" SPVs refer to structures that would not involve the federal agencies purchasing the mortgages or guaranteeing the debt in such SPV structures. 

In both CMBS and RMBS structures, many banks may originate the mortgages, sell them into these structures, but will happily agree to service them (collect the principal and interest from the underlying mortgages), of course for a fee throughout the long life of such mortgages. 

Credit-card structures are sometimes called "flow" structures because receivables run off, but run back on, too, because of the revolving natures of credit-card exposures. The SPVs account for the well known "minimum monthly payment" for credit cards in projecting the cash inflows. 

The portfolio and the risks accompanying it

The “loan portfolio” in a securitized structure is funded by the SPV issuing securities (bonds). The SPV may also have a small equity investment or “residual” (funded in part by the asset manager).  In many cases, to make the bonds more attractive or to conduct analysis on behalf of the bondholder, the SPV will likely need to call upon rating agencies to rate the top tranches of bonds (AAA, AA, A, BBB). It might be possible to sell tranches without ratings, but investors require an expert third party to analyze the extreme risks in the portfolio. 

To rate the tranches accurately, rating agencies use models to quantify portfolio risks, credit-risk deterioration, and worst-case scenarios. Portfolio models focus on expected loss and maximum probable loss in the portfolio. The projection of loss considers many factors and variables—including macro scenarios, correlation risks, concentration risks by loan type or region, recovery rates after loan defaults, etc.  Bond-holders among the highest tranches are collateralized by the loans in the portfolio. (The loans themselves are secured (commercial real estate, e.g.) or unsecured (credit-card receivables). 

Based on the outcome the models, the rating agency determines the amount of collateral cushion required to maintain a tranche rating (AAA, AA, A, BBB, etc.). This is referred to as “over collateralization.” For the most part, the AAA tranche will be collateralized by all assets in the portfolio. The over-collateralization amount is effectively the maximum loss on the SPV's balance sheet before the AAA tranche must absorb a default or loss. In many structures, the AAA loss cushion migh range from 25-35%. (The structure could lose 25% of total assets (from massive defaults in the portfolio) before the AAA investor risks not receiving interest and principal payments. 

Rating agencies perform the detailed stress tests, the scenario testing, sensitivity analysis and and loss analysis. They identify risks in the portfolio and outline the waterfall of payouts to investors (the receipt of principal and interest payments from the portfolio to fund the interest expense and principal payments to the bondholders (“waterfall”)).  The SPV’s asset manager manages defaults, cash-flow deficiencies, and other signs of deterioration in the portfolio.

The process of securitizing loans includes a period of warehousing, where a special SPV is set up to hold assets before they are sold to the final SPV that issues rated bonds. The warehouse SPV typically relies on short-term bank financing to hold the loans or “ramp up.” It was in warehouses where banks found trouble and a deluge of defaults in the Tri-Color case. Defaulting auto loans in the warehouse cannot be sold to the final SPV; hence, banks funding those warehouses absorbed losses. 

As straightforward as the structuring and process might appear, there have been collapses, crises and over-zealous asset managers and sometimes the failure of rating agencies to compute an adequate maximum probable loss. There are lessons learned for investors, participants, bank regulation and even rating agencies. Lessons learned led to new procedures and evolving structures in securitization and may have resulted in limiting the roles of banks.

Emerging markets around the world have have observed the advantages and disadvantages of securitizations and, of course, might benefit from lessons learned. They may see opportunities to expand in securitizations—partly to permit banks to transfer risk to accepting third parties or to sell off assets for liquidity purposes to be able to fund new loans.  

Emerging markets, as part of implementation or growth, will likely have adopted many of the lessons learned as they establish rules, procedures and what kinds of institutions can perform in various roles.  Sovereign governments and/or central banks set rules and expected practices for securitizations.  They also provide the legal framework to permit banks to sell loans to third parties and allow for the formation of SPVs.

Tracy Williams

Basel "Endgame": Agonizing, Inevitable

PNC Financial, headquartered in Pittsburgh, must brace itself for Basel "Endgame" and more restrictive regulatory requirements

Bank regulation (for big banks, small banks, community banks, and those banks "too big to fail) is always an ongoing thorn for those who lead banks. Most understand why regulation exists (e.g., protect consumer deposits, ensure adequate liquidity, corral banks' appetite for taking too much risk in lending and trading, and put handcuffs on banks that might jeopardize the existence of a financial system). 

Yet the "thorn" for bank leaders (CEOs, particularly, who must (a) understand the arcane rules and (b) ensure their banks remain comfortably in compliance) is that the rules change frequently. Most of the time, they get more complex and onerous. Some senior bankers complain that some rules are irrelevant, don't properly address the risks they aim for, or duplicate other rules. They express their concerns in annual-report presentations, in occasional comments to the media, and to shareholders in quarterly earnings discussions.

Now comes Basel "Endgame," a U.S. proposal of rules, led by U.S. bank regulators, that will increase requirements and make them more complex for banks with assets exceeding $100 billion. Until now, U.S. bank regulators imposed complicated rules, but conveniently simplified them for smaller banks--for banks with assets less than $700 billion and especially for community banks (less than $1 billion in assets). 

Basel "Endgame" is the U.S. version of a larger initiative globally. Basel, Switzerland, is the home of the global committee that provides guidance on banking regulation around the world. In the 1970s, sovereign leaders felt it necessary for banks across the world to be governed by a consistent set of rules. Over the decades, there had been Basel I, II, and III (for a moment, there was Basel 2.5 in the wake of the financial crisis). For the past few years, there was constant banter about when Basel IV would follow. 

Whenever there is a new banking crisis, one like the crisis we observed in liquidity and funding risks a year ago (the one that led to the disappearance of Silicon Valley and Credit Suisse), you can bet regulators huddle to figure what new regulation is necessary to prevent the next banking-system scare. After a series of bank failures, regulators, politicians and and business-school professors follow with "lessons learned." Lessons learned sometimes are reframed into another round of new rules for financial institutions.

In this case of 2023, the rapid disappearance of reputable banks (because of liquidity issues and deposit run-offs) and the concerns other banks would follow a similar route to insolvency spurred bank supervisors to get going with another round of restrictive regulatory requirements. Last year's first-quarter crisis (First Republic and Signature banks disappeared, too) led to a frightening period about confidence in bank deposits and a market guessing game of what other smaller banks were subject to the same liquidity pressures. 

Basel "Endgame" (or Basel "Finalization," which is what it is called in Switzerland) doesn't merely address the risks of lack of liquidity and raging deposit run-offs. It's across the board. 

In its basic form, bank regulation is generally categorized by risk forms and by whether the bank is properly managing each of those risk forms:  credit risk, market risk, operational risk, and liquidity risk. The first three conventionally require the bank to maintain a minimum amount of what is called loss-absorption capital. (Many investors and risk analysts are familiar with the tiers of capital banks have to comply with: Tier 1, Tier 2, T-LAC, etc.)

Regulators insist shareholders and subordinated-debt investors absorb bank losses before deposits are at risk. That makes sense. They are enjoy the upside of returns when the bank does well. They should suffer first when the bank stumbles through losses. 

Liquidity regulation generally requires the bank to have access to cash reserves to meet obligations or deposit withdrawals on any day. 

The thousands of pages of Basel III and, in the U.S., Dodd-Frank specify what is required and how banks should compute those requirements. 

So while the liquidity-risk upheavals in 2023 spurred bank supervisors to review requirements to ensure those events won't recur anytime soon, it becomes an opportunity to review just about everything. 

Basel "Endgame" toughens requirements in all risk forms. More important, where before, the most strenuous regulation applied to the largest U.S. banks (with assets above $700 billion and for those considered "too big to fail" (Globally Significantly Important Banks, GSIBs), "Endgame" requirements encompass more banks (banks with assets above $100 billion). 

"Endgame" is currently going through a request-for-comments period, and banks haven't hesitated to express points of view. (The rules would not be fully implemented for another four years.) Many such viewpoints are predictable and common: "Bank regulation discourages us from investing and supporting the community." "Bank regulation is too complex and difficult to compute." "Bank regulation gives non-banks too many advantages in financial markets." "Bank regulation requires unusual costs and investments to comply." 

Basel "Finalization" (from the BIS-Switzerland) had hoped to simplify the calculation of some requirements (credit-risk capital and operational-risk capital, e.g.), while still toughening and increasing capital requirements for similar levels of exposure or activity. 

(One example is the calculation of a capital charge for "CVA" (Credit Valuation Adjustment), the requirement that banks account for the expected loss from credit risks with their derivatives-trading counterparties. CVA computing may hardly be relevant to small- and medium-size banks, but it would be an obsession at Morgan Stanley and Goldman Sachs, because of the gigantic size of their derivatives trading books. If Morgan Stanley does interest-rate swaps (derivative) with JPMorgan, it has capital requirements to protect itself if JPMorgan deteriorates or if it fails. Today, the amounts computed cannot be done on the back of a napkin.)

Around the U.S. and across the globe over the past two years, with interest rates surging, bank investment portfolios, filled with fixed-income bonds of all kinds, suffered substantial market losses. All banks of all sizes, anywhere, have investment portfolios. They take deposits and invest excess cash into bonds, often government bonds or government-backed bonds. Bond values plummeted sharply in 2022-23, and bank losses in their portfolios have exceeded record levels. The question is how does the bank report the losses--at all times or only when they sell the bonds. That depends. 

In the U.S., unless the bank had assets above $700 billion, the unrealized losses in those portfolios (applicable to bonds not yet sold) were are not subtracted from bank equity capital. 

Basel "Endgame" wants to put an end to that. The losses on investment portfolios (those classified "available for sale") will reduce capital and make it harder for banks to show they have excess capital, if the bank has assets above $100 billion. 

Basel "Endgame," while at it, will force banks not subject to such rules to compute capital requirements for operational risks (the risks of loss from technology, systems, processes, misconduct and cybersecurity) and to include off-balance-sheet risks in maximum-leverage requirements ("supplementary leverage" ratios). 

Basel III (the non-U.S. version) always stipulated banks should have capital requirements for operational risks. In the U.S., to date, such a requirement is only applicable to the largest banks. With thousands of branches and assets exceeding $1 trillion and with activities in just about all imaginable types of bank activity, they have obvious operational risks (the risks of power outages, employee misconduct, systems failure, cybersecurity threats, etc.). 

It's conceivable going forward a bank with $98 billion in assets might decide to refrain from growth, if only not to be subject to the more restrictive regulatory rules. Many familiar U.S. banks toe the line with assets near $100 billion. A bank considering an acquisition or expansion or planning for loan and deposit growth must now assess the impact of new rules on capital requirements and ongoing capital compliance. (For example, Alabama-based bank Regions Financial has assets totaling about $160 billion. Rules not applicable before would apply going forward.)

In all, some industry analysts and bankers have estimated under the "Endgame" rules, bank capital requirements will increase by more than 15%. 

Implementing new rules is not as easy as it appears, especially for large banks. Just tweak the formulae and models that determine what's required, some legislators and supervisors might say. Bankers know to change rules is also to change a business and risk-management mindset--which might be the intent of bank supervisors. 

The same banks typically address required capital on an ongoing basis at all levels, for all risks, and for all entities. It's a necessary and routine part of managing the bank, managing the balance sheet, reviewing risks and transactions, reviewing new products and business activity. Bank strategic decisions are made following careful analysis of "allocated capital" and "returns on the same allocated capital." All new deals, new loan portfolios, new products, new investments and new trades are all subject to a capital-allocation review. A loan that could be rationalized before "Endgame," because capital required is less and return on capital is more, may not make sense going forward. A derivatives trade that was economically feasible before might be deemed unprofitable going forward. 

In some ways, Basel "Endgame" drafters pat themselves on the back for trying to simplify some rules (like capital required for the risks operational losses), even while imposing slightly requirements for similar levels of risk. 

The debates, disagreements and pleas to reduce the regulatory burden have begun. They have been and will be well-defined and passionately explained. Yet in the end, what we've observed the past 15 years or so, bank supervisors usually get most of what they unveil in a new round of rule-making. 

Tracy Williams

See also:

JPMorgan Acquires a Failing First Republic, 2023

Silicon Valley's Liquidity and Deposit-Runoff Nightmare, 2023

Banks Subject to the Federal Reserve Stress Test, 2020

Dodd-Frank Dismantled? 2017

Recovery and Resolution: "Living Wills," 2016

When Does a Bank Have Enough Capital? 2015

Financial Rumbles in Silicon Valley

Silicon Valley Bank is already relegated to the finance history books as a case of liquidity and funding mismanagement

Out of the blue in 2023 came the hearty rumbles from Silicon Valley. The shocks rippled around the globe and perhaps led to grave concern about the health of banks and the financial system from here to Switzerland. 

We all know and have heard about the demise of Silicon Valley Bank. We have, too, observed the countless critiques, observations and accounts of what happened. And we have watched the "blame game": What happened? Why? Was there incompetence among those responsible for managing liquidity risk and short-term funding at the bank?

There has arguably been as much analysis and second-guessing and finger-pointing in regards to Silicon Valley Bank as there were the number of people who were familiar with the bank before the FDIC stormed into Northern California. 

Silicon Valley Bank risk managers, in effect, under-estimated the risk of maintaining a concentrated deposit base (corporate deposits from technology companies and the venture capital funds and investors of many of those same companies). It mis-read the behavior of such depositors and overlooked the scenario that many of them would choose to withdraw funds en masse in a short time frame. It also mis-calculated the probability that it would need to sell off long-term U.S. Treasury (and Federal agency) bonds to meet such run-offs. 

It invested in such fixed-income bonds in the first place, because (most of the time) long-term bonds generate a higher yield (and higher earnings) than do shorter-term bonds. They intended to hold the bonds until maturity. The urgency to purchase such bonds was explained by a decade or so of low interest rates. Banks feel compelled to invest funds to achieve the highest returns on assets, whether the assets are consumer loans, corporate loans or investments in securities. 

With its surge in deposits (mostly from corporates, almost negligibly from consumers), it couldn't increase loans at the same pace. All that idle cash had to be invested somewhere. The bank was lured by the relatively higher yields on longer-term bonds. 

Students of fixed-income markets know--and Silicon Valley Bank risk managers probably knew--that when interest rates rise, as they have done so steadily the past year or so, the market value of such long-term fixed-rate bonds decline. 

The amount of the decline is a function of the maturity of the bonds. More specific, bond analysts, traders and investors compute the "(modified) duration" of such bonds, which more specifically suggest precisely how much the values of such bonds can decline if rates rise. 

"Modified duration" is not the same as the maturity of a bond, but it is a function of it. A 10-year U.S. Treasury bond paying a 2% coupon interest rate will have a duration of about 8.8. That implies that if interest rates rise by 100 basis points (1%), then the bond will lose about 8.8% in value.

Silicon Valley risk managers likely were aware of these basic bond principles. However, they naively presumed they would never be forced to sell long-term maturities suddenly and without warning.  They never addressed the scenario that it could lose over $2 billion and be forced to realize such losses after a sale of bonds.  

Banks around the world have experienced the same--banks from Citigroup and JPMorgan Chase to community banks in the neighborhood. Massive amounts of their similar investment portfolios in fixed-income securities have also been clobbered in value. 

Larger banks with more experience and competence in derivatives markets may have successfully hedged against interest-rate rises. (Some had reported booked "deferred interest-rate swaps" or "interest-rate swaptions," where losses in investment portfolios could be offset by marked-to-market gains in related derivatives activities.)

Regulators are aware of the same risks and examine banks closely to see if they understand the same risks and are managing them properly. For banks smaller than the top-tier systemically important banks (like the Goldmans and JPMorgans), losses in an investment portfolio are not deducted from capital until the bank has sold the investments or realized the losses in earnings. In some sense, the banks are granted earnings and capital relief under the premise that banks are investing idle funds and plan to hold them in these securities for long periods. They are not speculating and trading. The longer they hold the investments, the more likely they would recoup their unrealized losses. 

Unlike banks in the same regulatory segment (size) as Silicon Value Bank, the larger "globally systemically important banks" are required to deduct those losses in value in capital totals, especially the capital that counts as a regulatory cushion. And larger banks (those with assets that exceed $700 billion in assets) are subject to much greater scrutiny and liquidity requirements than those that fall below. Larger banks, too, as many have learned the past month, are subject to rigorous stress tests administered by the Federal Reserve. 

(The Federal Reserve's stress tests for 2023, naturally, will include a more rigorous test for deposit run-offs than it has done in previous years.)

Liquidity risk managers at Silicon Valley (or more formally, those who lead a bank's "Asset-Liability Committee") deserve the criticism they are receiving. But what happened at SVB could easily have happened at dozens (if not hundreds) of other banks in the U.S. SVB managers likely quantified the risks. Some report or some model would have showed that if interest rates rise by 100 basis points, then 10-year Government bonds would decline by 8% or more in market value. Regulators look for such models and report. 

SVB's big bet--the gamble that large corporate depositors would not likely withdraw funds all at once and they would not need to sell investments so quickly--went awry. 

The stories have also been well chronicled about the bank's concentration of deposits. Despite the legends of tales of retail depositors lining up to withdrawn funds from a bank rumored to be failing, most banks enjoy the "stickiness" of retail deposits. Large, familiar investment banks like Wells Fargo and Bank of America value small deposits when managing liquidity risks. (They may not like the operating costs and administrative attention sometimes required to maintain them.) History shows retail depositors are much less likely to run-off or run away if it appears a bank is in rapid decline. 

Of course, retail depositors are comforted by deposit insurance (the FDIC in the U.S., up to $250,000). And many consumers have administrative inertia when it comes to making large withdrawals and closing accounts--the time and expense involved in withdrawing all banking services from one bank and searching for another institution. 

Regulators examine historical run-offs based on past stress scenarios and observe empirically how classes of depositors behave during those periods. The Financial Crisis of 2008-09 is a best example. During this period when many were doubting the survival of the U.S. financial system, run-offs from retail depositors were insubstantial compared to massive run-offs from corporate and financial-institution depositors, many of which are have exposures far above FDIC guarantees. 

New Basel III and U.S. Dodd-Frank rules attempted to address these scenarios and penalize banks with substantial non-retail deposit bases. But those same rules were lightened years later and weren't applicable to Silicon Valley Bank.

Even with the awareness or knowledge that non-retail deposits would be unpredictable and whimsical, the bank doubled-down on its concentration of large deposits from the corporate motors that run Silicon Valley: technology companies, venture-capital firms, tech entrepreneurs and venture-capital partners. 

The story has been rehashed, re-told and reviewed non-stop about the "death spiral" that occurred when the bank began to sell investments it never intended and planned to sell at losses that began to approach billions. A "death spiral" starts when such an incestuous financial world (usually institutions that provide funding to other institutions) shares tales about the probable demise of a bank (or broker/dealer or hedge fund). That the demise may be, in fact, imminent is not as important as no lender wants to be caught with losses when there was an opportunity to get out. 

The sudden, unplanned run-offs force the bank to sell assets at losses to accommodate withdrawals. More withdrawals lead to further withdrawals and asset sales at a loss to meet payouts. 

For this bank, the circle of tech-company and venture-capital deposits pass the word among themselves until the bank ultimately becomes illiquid while sliding toward insolvency. The FDIC intervenes, the spiraling stops, but the game ends for the bank. 

The best-run banks would have prepared for such scenarios, even if the probability of occurrence is remote or near zero. Those banks have elaborate contingency plans and conduct stress scenarios that outline steps to take when depositors start to behave in such fashion. Such a contingency plan would ordinarily have been requested and reviewed by regulators. 

Silicon Valley likely had such a plan, if only because regulators would have requested to review it. The plan likely made pertinent assumptions about unexpected run-offs, but might have confidently assumed that the tech industry will embrace and support it during periods of stress. The bank might, too, have conducted stress tests covering the scenario that occurred (rising interest rates, devalued bonds, realized bond losses resulting from selling bonds it had not intended to do so). 

Could the bank have hedged against the losses that accumulated in the investment portfolio? It could have, but market risk managers there (if they had such) expected never to be forced to sell this portion of the securities portfolio. The investments were classified as "held to maturity" (by accounting and regulatory standards). If bonds issued by the U.S. Government or Federal agencies are indeed held to maturity, we ordinarily presume there is no market or credit risk. There would be no losses at maturity date. 

SVB could have still hedged against losses, if they were in what they thought was a worst-case scenario where they would be forced the sell the securities. Those hedges might include such products as interest-rate hedges (using such products as interest-rate swaps, Treasury futures, interest-rate swaptions, or deferred swaps). If properly constructed, such trades would offset the losses from being forced to sell long-term investments. 

Silicon Valley may have considered such hedges, but may have thought it didn't need to do so or didn't want to go through the administrative chores of managing the hedges or meeting ongoing requirements (fees, costs, margins, collateral, etc.) while maintaining hedges. 

When a U.S. bank and the FDIC intervenes, as it did with Silicon Valley, pundits and media observers exclaim how the Government has "bailed out" depositors or how taxpayers saved depositors and lenders to the bank. In practice, the FDIC is a Government organization and is an important regulator (standing alongside the OCC, the Federal Reserve and state examiners, but it effectively is an insurance company. Banks pay premiums for the privilege of having depositors "bailed out" when they falter. 

Long ago, the FDIC charged banks based on deposit levels. The percentage fee would change from year to year. The FDIC, at the beginning of the year, would announce whether fund resources were rising or sagging and levy fees based on such resources. In some years, if the FDIC felt it was fully funded, the fee would go to zero. Whatever the fee was, banks sometimes found ways to pass that cost to customers--even large corporates with deposits > $100,000 (at that time). They do that quietly and sometimes embed it in other fees. Some large depositors would try to negotiate that away.

Eventually the FDIC changed to a risk-based assessment. It charged the fee based on the riskiness of the assets of the bank; hence, all banks don't pay the same rate. 

Nonetheless, when the FDIC has determined that a bank is failing, it first tries to liquidate net assets of the bank before it taps into its own fund. Often it can do that successfully. Equity shareholders ("loss-absorption" capital is how regulators regard the capital base) get wiped out, but debt-holders and depositors have some meaningful recovery.

We all know now that in the Silicon Valley case, the FDIC intervened quickly in the way it does so conventionally. But after a few days, it decided to guarantee not only deposits below $250, 000, but deposits above that mark, as well. That might have sparked much of the banter of a Government bailout. 

It took this step to stabilize financial markets and the global financial system and minimize the contagion that seemed to spark run-offs at other similar banks around the country and the world during that week. 

After Silicon Valley imploded, markets panicked and wondered which bank could be next. Markets presume (sometimes rationally, often times irrationally) that factors that led to Silicon Valley's demise will also lead to failure elsewhere. In just days, there were rumblings that swamped First Republic Bank and Charles Schwab in the U.S. and Credit Suisse and Deutsche Bank abroad. 

Credit Suisse had already been labelled a troubled bank, not because of liquidity-risk mismanagement, but because of embarrassments and stumbles in its investment bank (including losses related to exposures to Archegos, the failed hedge fund). Yet asset losses of any kind can certainly lead to liquidity and funding challenges, as we observed with Silicon Valley Bank. 

UBS, days later, bought out Credit Suisse (at the urging of Swiss regulators) at a bargain-basement price, which reminded many of the swift sale of Bear Stearns to JPMorgan Chase in 2008 (at the urging of the U.S. Treasury). 

Over the past few weeks, regulators have mapped out and resolved what will happen at Silicon Valley. After its announcement to guarantee all deposits, the FDIC began the work-out of the bank's net assets. An East Coast financial institution agreed to purchase large amounts of the balance sheet, which includes much of the loan portfolio and depositors who remain. Shareholder value is erased, while the FDIC reduces the likelihood that it would need to tap its own funds to make depositors hold. Other assets are up for sale, too.

Before this type of resolution was unveiled, those with large, uninsured deposits had begun to speculate whether they could sell their stakes to distress investors eyeing a trading opportunity if there is still a possibility of recovery at a failed borrower. 

Hence, an existing lender or depositor with more than $250,000 of SVB exposure might be willing to sell that exposure to a third party at a discount. The buyer, of course, will assess how much recovery the FDIC could achieve as it goes through resolution. (Would the FDIC permit such transactions or sales?) A corporate depositor with, say, $2 million in SVB deposits would consider selling that deposit to a third party at, say, 25% discount. The third party might deduce that the ultimate loss is, say, 10%, instead of 25%. These potential transactions disappeared when the FDIC announced it would guarantee all deposits. 

In the end, in just a matter of three or four months, a brand-name bank that had carved out a special niche among technology companies and venture capitalists and that had exhibited astonishing growth in recent years has already been relegated to the finance history books, one of the prominent cases of failed liquidity risk and funding mismanagement. It joins the chapter that describes the mishaps and demise of Bear Stearns, Lehman Brothers, Long Term Capital and Washington Mutual. 

Tracy Williams 

See also:

Dodd-Frank Dismantled, 2017

Regulators Are Easing Up on Stress Tests, 2019

Deutsche Bank: Turmoil and Concern, 2016

Where Was the Risk Management Group, 2011

When Does a Bank Have Enough Capital? 2015

What Are Living Wills at Big Banks? 2016

Expectations, Insights for 2022

The year 2021 was marked by mania in SPACs and cryptocurrencies and by widespread concern about inflation. Yet volatile equity markets finished up in admirable fashion.

The year 2021 will likely not deserve a whole chapter in finance history books--as perhaps 1998, 2008, and 2020 did. For bankers, traders, investors, regulators, and corporate financial managers, it was still eventful. An evolving year, some might say, with new fads, trends, and tendencies.  A transitioning year, as markets, countries and economies continued to ward off the impact of CoViD 19 and all its variants. In 2021, think pandemic, Zoom, return to work, and recovery.  And in 2021, think also SPACS, crypto-everything, market volatility and interest-rate obsessing. 

Investors, traders and bankers will spend the new year content about the year behind us because markets progressed upward, deals flowed steadily, and regulators basically watched for now. 

As always, the year produced new jargon ("meme stocks" and "DeFi"), new products and flaming fads (SPACS, e.g.). Finance types enjoy crafting new language to spout and new things to sell, although what's new is often a variation of something already old. "SPACS" have been around for years, but the hoopla surrounding them in early 2021 was as if they had been newly discovered New Year's Eve a year ago. 

Jargon introduced a few years ago took off in 2021. One example is "ESG," although it is embedded in financial discourse mostly for good reason. A term that was hardly bantered about 15 years ago is spouted everyday and all the time. While it is imperative environmental, social and governance challenges be addressed and corporates and banks be held accountable, the term encompasses hundreds, if not thousands, of topics: investments, capital expenditures, business models, strategy, operations, accounting standards, disclosures, reporting, stakeholder objectives, etc. 

By late autumn, 2021, financial markets had become consumed by two variables: (a) another wave (the Omicron variant) of CoVid just as when most thought the pandemic was slowly disappearing and (b) clear signs of inflation. All of a sudden, the economy and markets returned to specific computations of the Consumer Price Index and watched the calculation rise above 2% for the first time in generations. 

Inflation Watch

The inflation focus was not only on the metric, but on the strategic steps and timetable of the Federal Reserve Bank. Is the inflation we observe and compute something temporary? Is it for real? Will it rise and continue into 2022? Economics and market strategests opined and debated. What will be its impact? And what will the Federal Reserve do? 

As the monthly computations of the CPI index inched higher, we acknowledged the presence of inflation and reviewed the impact on corporate operations, consumer spending, economic recovery, interest rates and the value of bond portfolios. "Fed watch" had become more than an occasional investor activity, but almost an obsession. The Federal Reserve has since announced tentative steps to increase interest rates in 2021. And away we go, assessing the influence of higher rates on economic recovery, GDP output, bond investments, bond positions, corporate borrowing rates, mortgage rates, and banks' bottom lines. 

Often markets react negatively not necessarily to higher interest rates, but to greater amounts of uncertainty. The prospect of high interest rates in 2021 hasn't caused equity markets to sink as some would think, because we know what's coming. 

SPACs

The hoopla surrounding SPACS ("Special Purpose Acquisition Company") has dimmed since it peaked in early 2021. A year or so ago, just as teens flocked from one phenomenon to another (from Snap to Tic-Toc), older adults swarmed toward what's hip in finance, even if they aren't professionals in business and finance. NBA all-stars, pop musicians and former politicians, all of a sudden, wanted to join what sounded like an extravaganza. 

SPACs are rationalized and advertised as a financial maneuver for private companies to go public without the lengthy process of doing an initial public offering, which requires a lengthy process to gain government approval. It also involves significant disclosure of performance and balance sheet and a detailed discussion of operational and legal risks (all those things that could go wrong and upend the value of the solicited investment). 

By late 2020 and early 2021, it had seemingly become a legal "get rich" scheme available to those in the right financial, business, social and entertainment circles. Many hurred to join "sponsorships," where the real money could be made with little initial investment and, for some, without much of a time commitment or even intimate knowledge of the structure. 

In theory, sponsors are supposed to examine opportunities to acquire the right private business based on the cash already provided by SPAC investors. For their toil (research, analysis, valuation, negotiation, and structuring), they would be rewarded with substantial returns (often shares allocated to them). 

Over the past two years, SPAC activity explains a sizeable chunk of the exponential upturn in IPO activity the past two years.  (By design, SPACs become public companies upon their birth and can do so without the lengthy, aforementioned SEC approval process. There is not much to analyze in a SPAC at formation, because there is no business operation. Only a pile of cash reserves looking for a target.)

Few, if anybody, are arguing SPACs should be closely, tightly regulated. Many just wonder whether the euphoria around the product could implode like the collapses we saw in junk bonds (the 1990s), dot-com public offerings (the 2000s), and mortgage-backed securities (the 2000s). A worst-case scenario involves the formation of SPACs, the timetable SPACs adhere to while searching for a target, and the plausible scenario where (with time running out) sponsors force the SPAC to acquire an under-performing, under-investigated, or even illegal business operation. 

Crypto-Mania

Perhaps the greatest uncertainty is the specific picture of finance in 10 years (or even five!), as cryptocurrencies  dominate the landscape. The fuss over cryptocurrencies is not just about the coins themselves, but also the related technology (often referred to as "distributed ledger technology" or the blockchain). 

Until the last year or two, cryptocurrency investing, trading, and payments had been a niche segment, mostly spurred by curiosity or participants' being enamored with Bitcoin's creator's mission to establish a currency not controlled by governments. Over the past few years, cryptocurrency mania has exploded because of profit opportunities--multimillionairs and billionaires being minted overnight. There are widely reported disclosures of Bitcoin traders, miners (market-makers), and investors who have accumulated massive amounts of digital wealth.

In finance, when the prospects of immediately attainable wealth increase, the herds flock to the segment and to reap gains before the masses get involved. 

The year 2021 was a pivotal point in cryptocurrency finance, perhaps a take-off point. It is no longer a mystical niche. It has stepped into the mainstream and attracted enormous amounts of capital, talent, and offshoot business models. There had been the core cryptocurrencies (Bitcoin, Ethereum, etc.). Nowadays there are opportunities in cryptocurrency exchanges, cryptocurrency futures at the major exchanges, and futures at the less-than-major exchanges (FTX.com, e.g.).

The investor, the trader or even the asset manager (who must now at least contemplate crypto as an asset class on behalf of clients) have multitudes of ways to "get in on the game." Buy the Bitcoin outright. Purchase assets at an exchange. Purchase futures contracts at government-approved exchange. Purchase futures contracts at an unregulated exchange. 

There is the offshoot to the offshoot: "DeFi," which stands for "Decentralized finance," but refers to the creation of a financial system based on cryptocurrencies. Within that system, participants not only can make payments in cryptocurrencies, but can borrow and lend to others. A company or institution can borrow in crypto, lend in crypto, or accept payments in crypto. 

This world claims any transaction that can be accomplished by the dollar or euro should eventually be accomplished by Bitcoin. The same world envisions corporate borrowers seeking to expand their business financing operations with another, perhaps better, more efficient alternative--borrowing in crypto markets and negotiating, executing and settling the transaction on an efficient blockchain. 

The new firm NYDIG is typical of new crypto ventures. It seeks to plug itself into many traditional areas of personal and institutional finance--but with a Bitcoin wrinkle. Insurance, investments, brokerage, and loan products--all involving Bitcoin. 

The big banks (JPMorgan Chase and Goldman Sachs, e.g.) that once avoided cryptocurrencies (because they had not figured out how to manage the legal and market risks related to this kind of non-government-sanctioned product) are now cautiously embracing the domain. 

Large banks applaud creativity in finance as a way to fend off competition and grow net revenues. In cryptocurrencies, heretofore they have treaded carefully if only because they had not yet addressed the unquantifiable levels of market risk, operational risk, and legal/regulatory risks. They had not yet figured how to sell the activity to shareholders, clients, depositors, and regulators 

Just like other business revolutions in the past (most notably, the Internet itself), ideas flourish today. Time will tell how such ideas will come to fruition and work themselves out. Finance history suggests ideas become more defined and concrete after some experimentation fails and results in colossal losses and a short-term threat to the financial system.  

Yet still in finance, creativity rules. The intent is that creativity spawns new products, and new products (without the influx of competition) lead to might returns. Over the past year in crypto, creators organized trading in digital images--now better known as "non-fungible tokens," or NFTs. Who knows where this is headed, although many are betting the barn that investments in computer images will be purposeful and fruitful. 

Because of the opportunities to make mind-boggling amounts of money, this expanding world of DeFi, crypto and Blockchains has begun to attract talent and expertise. The Stanford or MIT doctorate in computer science might be less interested in working for Google or Intel, less interested in working for Morgan Stanley or Goldman Sachs, more interested in linking up with a crypto operation. 

Meme Stocks, Short Sales, and Equity Swaps

From year to year, there always appears to be a trade, transaction or deal that defines the time or period. Often in such transaction, somebody makes huge amounts of money. A counterparty or the other side loses its entire capital base and becomes insolvent overnight. The next day, it liquidates or files for bankruptcy. The financial media scrambles to describe, explain and understand the trade. Critics and pundits point fingers.

In 2021, a pheneomenon, eventually described as trading in "meme" stocks, surged. A few years ago, the phrase "meme stock" would have meant nothing. Today, it describes equity trading where values are driven up artificially based on Internet banter, often uninformed and unexplained. GameStop, the gaming company, was arguably the "meme stock" of the year. 

GameStop's business model, on paper at least, appears to be something from the 1990s. Its prospects for revenue growth are suspect and uncertain. Yet random discussions gain momentum on the Internet; home-bound day-traders and basement-room analysts convince themselves the stock has intrinsic value and share their fleeting points of view in social media. 

This leads to buying pressures, and the stock price takes off. On the other side exists a hedge fund that has analyzed the prospects for low growth and few profit opportunities. It decides to put on a short-sale trade to profit from the decline in share value. (It must borrow the same stock from a financial institution and then sells it at the unjustiable high price with hopes of repurchasing it later at the rationalized lower price.) The meme brigade, however, has whipped up momentum to push the price to irrational levels. The hedge fund experiences unimaginable losses and eventually has its capital wiped out. 

The subplot to the GameStop tale involved the broker/dealer Robinhood, which couldn't handle the flood of volume of requested purchases of GameStop stock and which was required to halt brokering of such trades by its clearing counterparty (DTCC). The hedge-fund losses, the halt in trading in the stock, and the shut down by the broker/dealer provided many lessons to contemplate and learn in the basics of equity trading. 

The other notable trade that led to hundreds of millions in trading losses revolved around ViacomCBS stock. The hedge fund Archegos accumulated outsize positions in the stock. Archegos projected an upsurge in growth at the company and decided to bet the ranch. It do so via actual purchases of the stock and via derivatives with participating trading banks ("total-return swaps"). Notwithstanding Archegos' analysis and view, ViacomCBS could be a stock where the company's growth prospects are uncertain. Its business model, for many, like GameStop, appears dated. 

In early 2021, after its stock value had peaked, the ensuing plunge caused huge losses and insolvency for the fund. Yet the complexity of the derivatives also led to losses for the banks on the other side of the trades (Credit Suisse, MUFG, et.al.). 

The banks' derivatives positions required Archegos to pay them the losses Archegos accrued. As its capital imploded, there were no profits to pay banks for the gains they were entitled to. Archegos owed the banks cash in billions; the banks had to report losses on the receivables due to them.  For finance risk managers, this would be another lesson to address: How did the banks have that much confidence that Archegos could make these payments on losses? How could the banks have permitted the fund to accumulate these large positions (the same questions risk managers ask crisis after crisis)? (The lesson learned falls within the banking world's area of "counterparty derivatives credit risk.")

Fin-Techs

For much of the past decade, global finance has embraced financial technology in the same ways technology has wrapped itself around every other industry in the world. But early on, technology experts grasped for a role in finance. Should it be in consumer finance, lending, payments, market analysis, securities trading and settlement, and financial reporting.

The answer is all of the above, although it appears the public generally thinks apps for home lending and consumer payments when it sees references to "fin-tech." 

And within fin-tech, traditional players continue to figure out their roles--as partners? As investors? As competition? As researchers and developers? The answer again is all of the above. Large banks hire as many as specialists in technology today as they do for roles in banking, research and analysis. Technology is arguably embedded in every single process, delivery of service, product development, data aggregation, financial disclosure, and financial research and analysis. 

For a few years, boutique fin-tech firms believed they could supplant the role of traditional banking. In some ways, they can, but not necessarily because of their technology expertise or advantages. Often their advantages are related to less regulation and fewer capital and leverage requirements. But some fin-tech firms in some areas (including payments and lending) acknowledge they need banks as partners because they need banks' balance sheets and banks' experience in managing market and credit risks.  

Fin-tech is here forever. In fact, like the Internet two decades ago, there is no longer a debate over the role and purpose of fin-tech. The latest wrinkle, obviously, involves cryptocurrencies and Blockchains. 

Corporate Debt: Bonds, Loans, and Credit Spreads

In 2022, corporate debt markets might take differents turn because of expectations of interest rates will rise. That market includes bank lending, corporate bonds, private placements, mezzanine finance, convertible bonds, and high-yield debt. 

Examine this from the office of the CFO, as interest rates creep upward during the year. Corporate CFOs must contemplate whether to pay down some debt or defer some offerings as rates rise. History suggests investment-grade companies tend to ease down debt levels when rates increase incrementally.  For all the operating cash they generate, in a low-rate environment, they often consider stock buybacks and increases in dividend payments. With higher interest rates, the amended strategy is to consider de-leveraging the balance sheet. For banks, that could lead to lower levels of debt offerings--something debt markets have already begun to experience in the early days of 2022. 

Debt activity, nonetheless, is also influenced by corporate business strategy for expansion and growth. If the company plans an acquisition or major capital expenditure, it may make more sense to finance it with more debt than new equity issuances, since, in theory, the cost of debt is almost always cheaper than the cost of equity. And CFOs, along with CEOs, are always concerned about the equity-value dilution (lower earnings-per-share metrics) when they contemplate issuing new stock. 

In higher-yielding debt markets and leveraged finance, activity might be a function of other factor, too:  credit spreads (investors' views of the risks of issuers) and deal-making activity.  The continuing upturn in deal mergers, acquisitions, takeovers, and buy-outs influences non-investment grade debt markets.  M&A transactions must be financed. Low interest rates encourage debt financing. But the possibility of improved credit ratings and credit perceptions do, too. 

Deal-making surged in 2021, and signs don't show deal flow declining significantly in the periods to come. 

On the investors' side, activity for many years has been spurred by buyers chasing credit spreads.  With low U.S. Treasury rates, investors scout out for non-investment-grade issues (those rated BB+ and below) that deliver higher returns and appear not likely to default in the medium term.  

Bond theory, for example, might suggest some BB-rated-and-below names should result in bond yields of, say, 5.0-6.00%. But in practice, fixed-income investors who won't settle for 1.5-1.6% yields from Government bonds will tolerate higher risks, assume some well-known names (Tesla, Netflix, e.g.) won't default, and will bid up bond prices or bid down credit spreads. 

For much of 2021, credit spreads on non-investment grade portfolios gradually declined because investors "chase spreads" and because the worst days of the pandemic disappeared. Credit spreads for high-yield issues in late autum hovered in the 300-320 basis-points range (based on S&P and ICE BofA portfolios) had been on a steady, downward trends since Mar., 2020. 

Stocks: Upward Surge or Downward Correction?

Equity markets are a constant guessing game. Who knew back in Mar., 2020 the S&P indice would rise 27% in 2021? Some even suggested it would take years for stock prices to recover after they plummeted 20%-plus in the first quarter of the pandemic in 2020.

By the end of 2021, the sentiment among many watchers was there is little chance for share values to replicate 2021 and investors should watch for sultry returns in 2022. Many said the same a year ago. 

That's not to say 2021 was a smooth ride. Throughout, markets churned and fluctuated. They peaked in late summer, they dove downward in early fall, they rose and fell again in late fall, and they eased to a rising trend by yearend. (And they have choppy in the early days of Jan., 2022.) While projecting where the Dow index (or other major indices around the world) is almost a fruitless exercise, projections of intermittent volatility might be more accurate. 

Financial markets, of course, have an index to track expectations of volatility, and the bravest traders try to profit from such an index (the VIX index). That index, keep in mind, is not an index of current or historical volatility, but a gauge that measures how much traders think stocks will fluctuate going forward over the ensuing year.

That index, now at about 17.0, peaked at about 30.0 in early December.  Even the index that attempts to project volatility is similarly volatile. At 17.0, the VIX index implies there is 16% chance the portfolio of S&P stocks will fall about 17% in 2021. Yet the same index also implies there is a similar probability the portfolio will rise about 17%, too. 

Mergers and Acquisitions

The 2021 numbers are out and tell us bankers had a feast at the deal table last year with $5.63 trillion in consummated M&A deals around the globe ($2.61 trillion in the U.S.). The familiar names led league tables (Goldman Sachs, JPMorgan Chase, et.al.). Private-equity buy-outs account for almost a fifth of global totals. 

M&A activity is spurred by many factors. That might even include a company's CEO becoming so uninspired by current business strategy that the CEO initiates an acquisition at least to represent to board members and shareholders that management is doing something as markets evolve. 

In the periods as the pandemic spread around the globe, corporate strategies and buy-out companies surveyed the market to see if there were bargain-basement companies up for sale. Stronger companies with predictable cash flow, not impaired too much by the recession and with mounds of cash sitting on balance sheets, explored where they could pick-up discounted companies or companies with market values damaged by pandemic confusion. Private-equity firms combed through the marketplace with similar intent. 

Low interest rates also spark M&A activity. In 2020, rates declined to historical lows. Cheap debt financing makes it easy to expedite even some of the most complex takeovers. Occasionally a merger is rationalized by strategy, synergies and effective integration, but financing costs are too high or the increased leverage brings a frown to credit rating agencies. 

The M&A momentum should continue in 2022, even as rates creep up as scheduled.  

Investment and corporate bankers, corporate CEOs and CFOs, and even investors and traders in certain segments are all not frowing too much. 

Tracy Williams 

See also: 

CFN: M&A Amid CoVid, 2020

CFN: Understanding the "Fear Index," the CBOE VIX, 2018

CFN: Market Volatility: Can You Stand It? 2011

CFN:  Corporate Debt:  Analysis, Topics, 2021

CFN:  Corporate Bankruptcy Season, 2020

CFN:  Falling in Love With SPACs, 2021

Financial Analysis: Back of the Envelope

Often bankers, equity investors, traders, debt investors and business managers make quick, on-the-spot decisions about whether to pursue a new client or a new transaction, new trade, new loan, new investment. Decisions must be made quickly. Clients/borrowers/debt issuers want a bank response (yes or no) as early as yesterday.

In an event-filled year, 2020, decisions are tougher to make. Risks have increased in leaps and bound. But deals are getting done. Banks are extending loans to corporate borrowers large and small. Trades are being settled. Private-equity funds remain interested in finding the right investments. Fund providers are wrestling with risks and agonizing over the long-term impact of the pandemic on corporate performance.

Should we invest in the equity of a private company? Should we buy the stock of the mature business? Should we lead the syndication of a $1 billion loan? Should we protect ourselves by requiring collateral or imposing an array of financial restrictions (covenants)? Should sell the stock? Should we avoid exposure with the company? Should we not continue to provide working-capital funding?

How do we get comfortable quickly to determine whether the risk of an investment, trade, loan or debt offering is tolerable? 

How can we, therefore, perform "back of the envelope" analysis of a company when time presses? Or how can we perform a preliminary assessment of the company at least to determine whether it's worth  taking follow-up steps to investigate further?

What if you have just 30 minutes to understand the financial story of a company thoroughly (and get a sense of its future financial performance), based on access to a recent annual or interim report (10K, 10Q) or financial summaries prepared by Bloomberg or Yahoo Finance? 

What are the "go to" metrics that tell an essential story about historical performance and the company's ability to (a) manage debt obligations and (b) perhaps deliver shareholder value (in the form of promising future cash flow) to equity investors?

Performance Counts

First things first. Check historical performance: Earnings trends and patterns, ROE, NPAT, EBITDA.

Performance and trends dictate creditworthiness and prove insolvency, but they also influence management and board strategy (expansion, growth, downsize, sale of businesses, pursuit of acquisitions, willingness to be acquired, etc.). Is performance predictable? Is it erratic? Is it sustainable? 

What has the company done for investors, at least measured by returns on invested capital, if not measured by public stock prices, earnings per share, and price-earnings ratios (if it is indeed a public company)? 

The stock market rates a company everyday, although it is whimsical in how it absorbs bits and pieces of new information. The stock price, too, can be subject to exogenous factors (things not much related to the company, but to a macro-economy, industry or operating environment). 

ROE (or return on invested or deployed capital) can be calculated easily, swiftly. It shows whether it is meeting expectations of owners, shareholders, but it may also show how it is achieving the returns, if we check the components (ROE = ROS x ATO x ALEV). 

Effectively improvements in ROE are a result of (a) how the company manages costs, (b) how the company achieves productivity and revenue growth (given its current infrastructure), and (c) how the company adroitly uses the balance sheet and debt to achieve leverage returns. 

For analysis purposes, breaking ROE into components shows how the component is achieving returns or what strategy it is using to reach targets: Cost control? Revenue growth? Business efficiencies? Financial engineering (more leverage)? 

Many companies like to report (in financial presentations) returns on "invested capital"--which includes equity and long-term debt combined as "long-term capital." Some companies (typically financial institutions) will report and show trends in returns on "tangible capital" (by excluding intangible assets). 

A financial analyst can choose whatever returns ratio works. Sometimes that depends on the industry. The analyst can calculate ratios, of course, without company guidance. But when time is of the essence, choose the ratio that is appropriate to measure how well the company is using the capital long-term investors provide and whether the company is generating the returns they expect. 

Companies and bankers also examine the ratio to determine whether the company is achieving results that exceed the "cost of capital"--or cost of funding the balance sheet's long-term assets. 

Assessing the adequacy of investment returns (ROE) is important, too, because if targets are not met, management, boards of directors, and large-stake shareholders will consider taking action:  New management, new business strategies, spin-offs, business combinations, divestitures, mergers, etc. 

Back to the analysis. Dissecting returns on capital hints at the strategies companies have adopted to meet expectations. Is a company-wide cost-control campaign in place? Is the company pushing to increase revenues per facility, per warehouse, per branch, per square foot of retail space? 

Increasing leverage, too, can be a strategy. Company financial managers will consider increasing debt to take advantage of low interest rates. They certainly have done that in 2020--from March on. Rates are at historical lows. Is the company achieving favorable returns because of organic factors, because of management's concerted efforts to contain costs, or because of restructuring capital structure on the balance (by taking on more leverage). 

Now back to revenues and revenue productivity. 

Observe trends over the past five years. And if possible, observe the source of revenues (by product, by subsidiary, by geography, whatever information is immediately available). Are revenues flat, declining, surging, or volatile? Are the factors that explain the trends related to markets, competition, demand (weak or strong) for product, product obsolescence, product growth, pricing, pricing sensitivity or elasticity, or industry influences?

Understand the company's approach to cost control and expense management. Peek at profit margins and cost ratios. 

What is its strategy to use costs to help grow revenues and the business in the long term? Acknowledge for some young firms, some costs are necessary to gear up the business model or prepare for future years of revenue growth. 

The familiar cost ratios can be checked: EBITDA/Revenues, Operating income/Revenues, CGS/Revenues, Cost-of-sales/Revenues, R&D/Revenues, SGA/Revenues, etc. 

Observe trends in ratios, and watch carefully when these ratios increase or when these ratios fluctuate without reason. If they do, they suggest the company is permitting costs to unravel out of control or may not be engaged in an adequate hedging program to reduce costs of raw materials or pricing of commodity-like products.  

If time doesn't permit calculations of ratios (because this is, of course, "back of the envelope"), then at least examine Operating income or EBITDA profit margins. 

If profit margins are deteriorating, that might suggest the company will need to increase returns on capital in other ways (revenue growth, revenue productivity, and leverage). 

Any analysis of costs requires categorization of costs into fixed vs. variable.  In downturns such as we observe in 2020, companies with substantial high fixed costs are vulnerable. Revenues will turn downward in a recession, but profits disappear more quickly when fixed costs can't be eliminated. 

Throughout these observations and quick computations, begin to draw conclusions. You are letting the numbers and ratios tell the financial story. 

Those Precious Cash Flows

Investors and analysts ultimately must assess operating cash flow. That's what pays required interest on debt and shareholder dividends. That's how shareholders and markets achieve "value" (when cash flow increase better than expected) and that's how companies can plan for growth in products and markets.

While at it, use EBITDA (earnings before interest, taxes, depreciation and amortization) momentarily as a proxy for operating cash flows, and observe trends there, too. Accountants will have presented a statement of changes in cash flow, and their derivation of "cash flow from operations" is an even better metric of cash coming in from business activities. 

If possible, compute at EBITDA/CapEx and EBITDA/Interest expense. We'll now into the meat-and-potatoes segment of assessing solvency and ability to meet ongoing obligations without having to scramble to find other cash sources or without having to sell fixed assets to raise it. 

Can the company at least tend to debt obligations from operating cash? Can it at least handle debt interest and ongoing CapEx requirements smoothly--not to mention meet tax liabilities?  If these ratios are both less than 1.0, then there could be ensuing trouble. (Some prefer to look at (EBITDA-CapEX)/Interest expense.) 

Ratios less than 1.0 or declining ratios suggest a company needs to resort to secondary ways to handle basic debt and CapEx obligations. Hence, the company might have to take on more debt, borrow under revolving-credit facilities, or use up cash reserves.

After having reviewed these trends and metrics, the company's financial health is coming into focus. But we still haven't examined capital structure and must do so.

Liquidity and All That Debt

Before leaping into a more thorough examination of debt burden and capital structure, take a peek at liquidity: Is there sufficient cash resources to manage through the next 3-6 months? 

Of course, check recent trends in familiar liquidity ratios:  CA/CL, Cash/CL, and (Cash + AR)/CL. But observe recent trends in cash reserves on the balance sheet. Are reserves generally the same? Are they disappearing and withering? Are they stockpiling? Is cash at low levels and dwindling because the company is paying dividends at high payout rates?

Look for signs and red flags of liquidity risks. A company's long-term prospects may be bright, but is cash on the table or on the way to the treasury to manage a whole host of short-term obligations--those on the horizon within the next quarter?

Now after the liquidity evaluation, proceed to long-term debt analysis.  

The initial assessment of ROE and ALEV (asset leverage = asset/equity) gave some indication of how much the company is relying on debt to achieve higher returns and support the funding of long-term assets (infrastructure, capital expenditures, equipment, investments, etc.). On paper, higher leverage implies higher returns on capital. That explains the leveraged finance and leveraged-buy-out industry. Investors can achieve returns beyond 40% just by rearranging an old balance sheet. 

Debt is also alluring when interest rates are low. Let's tap into the market now, CFOs will argue, while the going is good, while interest rates (as they are in 2020) are ranging at record lows, and while investors are willing to lend. 

But debt must be serviced and paid back. Debt means there must be cash flow to pay those quarterly interest obligations. 

Rapid analysis requires us to resort to familiar debt metrics to get a sense of whether, despite performance and cash flows, debt levels are too high, unreasonable or at perilous levels. 

In the absence of doing projections (to compute maximum debt capacity) and debt-service coverage (all part of a detailed analysis for a more comprehensive review of the company), check the familiar ratios: Debt/Equity, Debt/Ebitda, Net-debt/Ebitda, Debt/(Ebidta-CapEx). 

For complex transactions, analysts, bankers and investors perform in-depth due diligence. They project operating cash flows (from now into perpetuity perhaps), they review all major business sectors in depth, they determine how cash flow will be deployed, they assess how much capital expenditure is necessary to support revenue growth, and they determine how debt will be managed (paid off or refinanced)?

But in the 30-minute window of making a rapid assessment, it's back to familiar debt ratios. 

If Debt/Equity is rising quickly (>4?) even as the company is generating earnings, check for stock repurchases and buybacks and question such a buyback strategy. 

 If Debt/Ebitda is rising quickly (>5?), check for recent borrowings and try to determine the purpose of the borrowings. Check these ratios to see from year to year whether they fluctuate greatly or appear to be stable. Check Debt/Operating cash flow, if time permits.

Compare debt metrics with what is known to be normal for companies in a certain industry or companies in the early or late stages of revenue growth. 

If debt is increasing, what is the purpose of the debt? What is it actually funding? Examine cash flows and balance sheets to get quick clues.  Is debt funding new investments, fixed assets, or infrastructure?

Is it being used--as it certainly has been in 2020--to build cash reserves to prepare for a tough operating environment? Is it ultimately being used to reward equity investors--stock buy-backs, increases in dividends, e.g.?

And are we comfortable with how the debt has been used or how new debt will be used? 

Now it's time to step back and develop themes about what has happened at the company and what will likely happen going forward? Just as important, what could happen if the current downturn scenario worsens? 

We can actually draw some conclusions about how swiftly cash reserves can evaporate, what might be the high-probability amount of cash generated from operations, when will the company need to suspend dividends, whether it may need to forestall planned capital expenditures, or whether it will struggle to meet interest payments over the next two quarters?

And we might be able to answer among ourselves:

 
Is the company still piling on debt while losing money? 

Is the company generating reasonable earnings, but altering its capital structure to increase returns on capital?

 
Is the company doing well and has tolerable levels of debt, but is vulnerable in liquidity (because of asset-conversion cycle or its redeploying cash into new ventures)? 

This, of course, is not be the comprehensive, exhaustive analysis of a company. Bank risk managers, bank regulators, investment committees, SEC regulators, and fund investors will want to see that and will demand more. 

But preliminary perspectives lead to the more focused, purposeful analysis later and permit analysts to zoom in on what requires further investigation, more answers or more risk-reducing strategies for companies.

And often, the preliminary assessment leads decision-makers to decide up front whether a deal, loan, trade, or investment is a no-go. Or is it something do-able, but requiring tight structure (covenants, guarantees, management discussion, collateral, principal amortization, etc.)?

Tracy Williams

See also:

CFN: Financial models and tools, 2014

CFN:  Mastering technical skills, 2010

CFN: New financial technology, 2014

CFN:  Banking 101: Corporate borrowers, 2020

CFN: Financial metrics and ratios, 2015

CFN:  The finance resume' and recruiters, 2014

Banking, Finance: 7 Months into CoVid

In a banner year for trading, Goldman Sachs could generate over $12 billion from trading net revenues

Global finance is treading water while managing a global pandemic. Surviving better than expected. After an initial period of shocking disbelief, banks and businesses are now operating in markets, doing business, selling product, issuing debt, and engaging in trading in capital markets. It's as if we have entered a phase of a "CoVid-normal"--a scenario described by players assuming the threat of CoVid-19 will be here for at least another 18 months. 

Economic and government statistics lament increases in unemployment and decline in GDP. (In the U.S., unemployment hovers about 8-10% and GDP is expected to decline 5% in 2020.) But business activity, banking transactions and trading markets hum along. There has been financial carnage everywhere--bankruptcies, shutdowns, and massive restructuring. But most participants, while struggling and recovering, have adapted. 

Banks Are Surviving Well

Banks across the U.S. have survived well after initial speculation of massive loan defaults, operating losses and severe capital erosion. Most medium- to large-size banks have managed through this crisis, where in that last crisis, financial institutions were pummeled. 

Banks had to boost loan-loss reserves to prepare for the long-term impact of the pandemic. They also had to increase loan-loss reserves to respond to new accounting rules--"CECL"--that require them to project loan losses far more conservatively. 

CECL--"Current Expected Credit Loss" increased loan-loss reserves in the first quarter for publicly traded U.S. banks. At the same time, banks were forced to add to reserves to deal with CoVid-related deteriorating quality in their loan portfolios. Wells Fargo, through June, increased its loss reserves from $9-19 billion in the first half, 2020. Citi increased its reserves from $12-21 billion. 

In 2020, banks are anchored by stronger balance sheets, less leverage, and tiers and tiers of additional capital. U.S. Dodd-Frank and Basel III requirements boosted the capital cushion they all needed to get through this unexpected scenario. 

No one anywhere envisioned a pandemic in 2020 (at least on the massive, global scale we've endured). Hence, banks have been able to build reserves while still maintaining excess capital (and still paying dividends). Increases in reserves subtract from earnings and capital. But large capital cushions (because of regulation) help banks to absorb these modest hits.

Bank stock prices plummeted and have been volatile all year, even as banks have proven to be strong enough to endure 2020. Bank supervisors are less worried about share values, because they assess a bank's "book capital" more closely than "market values." Investors may dislike the fact that U.S. regulators have prohibited bank moves they normally enjoy in good years:  stock buybacks and dividend growth.  Early in 2020, U.S. bank regulators stopped buyback programs and prohibited increases in dividend payouts. 

The Federal Reserve rolled out the results of its stress test in June, the exercise applied to the top 34 bank entities operating in the U.S.  That stress test was based on a "severely adverse" scenario, quite similar to the scenario we are living through in 2020. But its stress test presumes what we are enduring now will continue for about two years more. 

The test and the Federal Reserve's models attempt to predict worst-case losses at banks and check whether they can continue to be "well-capitalized" by regulatory standards. Most banks passed this test adequately. Projected losses were computed to reach enormous levels--about $47 billion in loan losses at Wells Fargo, for example.  But large banks among the peer group that includes Wells Fargo each maintain equity capital near $200 billion.  

In this current crisis, JPMorgan Chase has now eclipsed $3 trillion in assets, almost $2 trillion in deposits. The atmosphere is far less gloomy among the top-tier ("too big too fail"?) banks than it had been in late 2008. 

The Federal Reserve gets the last word, as usual. In the midst of 2020 it altered capital-requirement rules by tying minimum-capital requirements, in part, to how banks fared in its test. (It has now implemented a new, incremental "capital stress-test" buffer.) Stumble in the stress test; then you are required to hold incrementally more capital. 

For banks, third-quarter numbers are about to be reported, and there aren't signs of trouble. If there have been notable increases in loan defaults and losses, they should have been be accounted for and projected in the first and second quarters during the re-calculations of loan-loss reserves.   

While this has been a year of caution for banks on the lending side, banks all over the country (and in all sizes) have had to manage responsibilities in booking loans under the under the U.S. Government's PPP and U.S. Cares Act programs. Some argue banks have encountered operational risks (processing and cybersecurity risks) in these programs, rather than funding and credit risks. 

Banks everywhere have whispered this has been a money-losing operation (low spreads, high operating costs), even as the program has had favorite impact and the Government accepts credit risk. Otherwise, banks are having a banner year for big banks on two fronts:  (a) deposit taking and (b) trading.  

Retail and corporate depositors are comfortable with the soundness of banks (along with FDIC insurance), have increased deposits substantially, and have permitted banks to accumulate cash that helped support PPP lending, corporate loan growth and increases in investment securities portfolios. (JPMorgan announced it had booked over $25 billion in U.S. Cares Act loans.)

All the activity, flurry of trading, and volatility in capital markets mean big trading banks have massive opportunities to make money with such volume. Trading at big banks is practically a function of volume and volatility. (The big banks engage in trading and rely significantly on trading to contribute to total net revenues. Beyond the top 10 banks, few banks engage in trading (market-making) across all risk classes.)

Markets move, investors want to switch out of and into other asset classes, and banks make money doing the trades. In the first half, 2020, JPMorgan generated $5.3 billion in trading gains; Goldman Sachs is on a pace to generate more than $12 billion in trading for the year.

As the Federal Reserve pushed down interest rates to near-record levels, the move encouraged bankers to nudge their corporate clients to issue long-term debt raise cash for uncertain business activity, of course, but also to take advantage of low funding costs. From quarter to quarter, some banks have racked up enormous feeds to help corporates issue record levels of bonds. 

Corporates: A Different Story

Among corporates, the story must be told in tiers, different chapters.  The big have gotten bigger and stronger. The vulnerable have disintegrated or disappeared.  The middle of the pack, while floundering, are managing to endure while hoping for better days if and when post-pandemic days arrive. 

Market observers everywhere have tried to explain the surprising performance of stock markets. In the year that everybody wants to forget, equity indices are up. 

But remember, stock indices reflect the outlook and current performance of large and mid-size corporates, not the thousands of smaller and middle-market businesses that have struggled or collapsed in the pandemic.  There certainly has been a large roll call of well-known, large bankruptcies, but almost all were names that were

(a) in industries that were about to disappear or were in transformation before 2020,

(b) were poorly managed or bet on dubious growth strategies, or 

(c) were simply too enormously highly leveraged after having been blinded by near-record low interest rates. 

After a first-half roll call featuring Hertz, Neimann Marcus, J.Crew, Brooks Brothers, and JCPenney, who's next? Is a Macy's filing just around the corner? There has seldom been a time when a bankruptcy filing was less of a stigma. 

Otherwise, the corporate story in 2020 is mostly an industry story:  Vulnerable industries, dying industries, thriving industries, industries exploiting the current environment, and industries that will do fine regardless of a pandemic's impact. 

Beyond the industry story, it becomes a story of balance sheets, cash on hand and capital structure. What companies are suffering for having too much debt, despite the low cost of debt? What companies prepared well for worst cases and stockpiled cash on the balance sheet and managed tolerable amounts amounts of debt? 

Beyond the balance-sheet story, it might be a management story: How are current business leaders adjusting, changing tunes, tweaking operations, and managing a workforce for the next 18 months? 

Just check stock markets, and we see how well the familiar tech names are doing or at least see the favorable impression investors have for them (Apple, Google/Alphabet, Amazon, Facebook, etc.). There are notable stories of companies reporting exploding revenues because of the pandemic (Zoom, Netflix, e.g.). But the corporate space is dotted with names that six months into the pandemic will see no bright horizons for a long time (airlines, travel and entertainment companies, hotels, etc.). 

A recent issue of the Economist identified another segment:  Zombies, non-investment-grade companies that have avoided bankruptcy, but are proceeding aimlessly, showing few signs of growth, but operating at bare bones just enough to remain solvent. 

The pandemic kick-started debt markets and spawned companies' renewed love affair with leverage. Banks saw companies with revolving-credit lines borrow almost to their limits. Everywhere, from General Motors to middle-market borrowers, companies that hardly used these lines in the past tapped them to prepare for the worst. Meanwhile, after the Federal Reserve clipped rates to near zero, many of the same companies decided to reduce some of the R/C loan outstandings by issuing new public debt at enticing near-zero rates.  Investment banks salivated at the opportunity to help them.

Bank lending appears to have leveled off since then, and third-quarter bank balance sheets might show a slight decline in loan totals. Bank loans at JPMorgan Chase topped $1 trillion in March-2020, but fell to $979 billion in the second quarter. Bank of America also touched $1 trillion in gross loans this year, but will likely report less than $990 billion in the third quarter. 

All in all, debt and equity investors appear to have combed through the markets and identified winners and losers. And perhaps hangers-on (Zombies). 

Beyond the periodic spikes in equity volatility for corporate names in public secondary markets, there is the new-issue market--IPOs. The IPO hasn't disappeared in 2020.  After a crash of equity indices in March and after a period of digesting what hit everybody in the first quarter, the IPO market re-emerged. New companies and their investment banks decided to march ahead and stay the course in plans to go public. 

The New York Times reported the third quarter, 2020, was the busiest IPO quarter in 20 years (81 new offerings). That includes a recent and closely watched Palantir Technologies deal. Bankers and executives Airbnb and DoorDash have queued and are preparing for the next wave of equity offerings. Major investment banks (the JPMorgans, the Citis, Morgan Stanleys and Goldmans) are enjoying exceptional years trading securities and derivatives, as well as issuing new debt and new equity. 

(A new trend, "direct listings," has surfaced, which could hurt banks' roles in IPO. This approach, popular in Silicon Valley, permits companies to go public without the underwriting roles (and the related enormous underwriting fees) of major investment banks.  For the past 15 years, tech-savvy companies have been exploring ways to circumvent the traditional IPO-underwriting process when going public. Banks still must assist in the early due-diligence and SEC registration process.)

In late 2019, this kind of confidence and flurry of banking activity would have been projected and highly expected. In late March, 2020, this confidence disappeared, but had re-emerged cautiously by September. 

Don't Forget CLO Markets

One market niche shouldn't be forgotten: CLOs, or Collateralized Loan Obligations, securitized structures backed by portfolios of non-investment-grade corporate loans.

Contemplate what those loans could be. When structured, they include B+-rated secured loans under the premise that these corporate borrowers, while generating uncertain cash flows from operations, can still meet debt-servicing requirements. Investors like the high credit spreads on the loans and the fact the loans are senior and secured.  They take risks, but the risk-taking is "tranched," because CLOs issue securities rated from AAA to B. 

As long as these non-investment-grade names names are surviving and as long as the collateral is evident and valued (and legally perfected), investors in CLO tranches and securities can enjoy reasonable returns, sometimes slightly better than if they invested in AAA-to-B bonds elsewhere.  

But in 2020, non-investment-grade names, almost by definition, have struggled.  Some slipped quickly into default and bankruptcy. Others are similarly vulnerable. 

Could there be increasing levels of risks for the investors, traders, and risk-takers who have bought these bonds? A CLO portfolio with 100-percent in B-rated corporate loans in September, 2020, might have 10% in C-rated loans or a sprinkling of defaulted loans in the portfolio. CLOs, remember, are structured such that investors who take risks are tiered ("tranched"). Lower-tranched, equity-residual investors or BBB-rated tranches will absorb losses on the portfolio sooner than the AAA-tranched investors.)

Yet a portfolio of CLO loans will certainly not be performing as strongly as the same portfolio a year ago. What do the data say?

In normal years, the default rates of a portfolio of CLO loans might average about 3%. That won't be the case in 2020, where default rates, in some deals, could top 10%, if they haven't already.  Before the pandemic, industry analysts indicated about 11% of CLO portfolios included loans classified as "negative watch" by regulators.  That, too, has increased substantially as 2020 runs its course.  

Industry analysts focus on the percentage of the portfolio rated CCC+ or below. When the CLO is initially structured, the portfolio might include a small amount of CCC loans (about 5-6% when first structured)  Over the life of the CLO, investors, traders and analysts track trends in CCC and below.  Debt rated CCC or below, of course, will have significantly higher default probabilities, which will have impact on pricing and desirability of  CLO securities. 

CLO investors are protected, too, by diversity in the portfolio. A typical U.S. CLO may have as many as 250 loans in the basket, helping to reduce concentration by names, but not necessarily by industry. There is also the risk of "correlation"--that independent loans in the portfolio may be subject to default correlation. (They default unfortunately all at the same time.) Because so many different names and industries are vulnerable to the pandemic, correlation risks are real. 

Three Months to Go

The year is not over. And the impact of 2020 apparently will carry over into 2021. Expect markets to continue to be volatile. Expect interest rates to continue to remain low. Expect banks to remain in solid shape, notwithstanding their disappointing share prices and the quarterly upward blips in loan-loss reserves. Expect another round of announced bankruptcies of household names. Expect the expected.

Tracy Williams

See also:

CFN: Corporate Bankruptcy Season, 2020

CFN: Are Corporate Borrowers Prepared? 2020

CFN:  Stress Tests and Stressful Times for Banks, 2020

CFN: Anticipating the New Year 2020, 2019