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Nick Corbishley



Articles by Nick Corbishley

US Whacks at Wage-Repression Model in Mexico, Demands Inspections, Industry Has a Cow

18 hours ago

NAFTA 2.0 gets complicated for US & global manufacturers, particularly automakers.
By Nick Corbishley, for WOLF STREET:
This week, an 11th-hour demand from Democrat members of the U.S. Congress concerning the U.S.-Mexico-Canada Agreement (USMCA), the trade agreement to replace NAFTA, has put Mexico’s government and global manufacturers in a tight spot. The U.S. lawmakers are calling for a program of inspections to enforce the beefed up labor standards included in the new deal, along with meaningful penalties for companies that don’t comply — including the imposition of tariffs on the goods they manufacture.
The proposed trade agreement, unlike NAFTA, includes protections for workers in all three North American countries as well as a stipulation that 40% of the cars assembled in the

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Another UK Mutual Fund Leaves Investors Twisting in the Wind

2 days ago

Another “run on the fund.” More investors can’t get their money out but contemplate big losses.
By Nick Corbishley, for WOLF STREET:
In what is beginning to look like a trend, another British open-ended fund slammed its doors on investors today. After a surge of redemptions, M&G Investments, the fund management arm of UK insurance giant Prudential, decided to halt dealings in its direct property fund, which has more than £2.5 billion ($3.2 billion) in assets under management, as well as its feeder fund.
In July, M&G had already suspended redemptions at one of its property funds, with assets of just over £650 million, which intensified the pace of redepemptions from its other property funds. Today, the company extended the suspension to cover all of its funds.
The company said that

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Another Negative-Interest-Rate Central Bank Laments What Negative Interest Rates Have Wrought

6 days ago

Instead of warning about the effects of this absurdity, they could just raise rates and quit buying bonds.
By Nick Corbishley, for WOLF STREET:
Just two days after French luxury giant LVMH picked up Tiffany & Co. in a €14.7-billion deal, the Bank of France has warned that large French non-financial corporations, many of them part-owned by the state, have been taking advantage of years of low or negative interest rates to take on dangerous levels of debt.
Much of that debt has been used to buy up overseas companies and assets, the central bank warned in a report published in its November monthly bulletin.
Unlike some of their European peers, French firms’ net financial indebtedness (the total amount of debt minus available cash) has continued to rise since the 2008 financial crisis,

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Over-Indebted European Telecom Giant Tries to Dump its Latin American Empire

7 days ago

Telefonica, with operations in Venezuela, Argentina, Chile, Peru, Ecuador, Colombia, and Mexico, is on the verge of “junk,” and the ECB holds some of its debt. 
By Nick Corbishley, for WOLF STREET:
Telefonica, the telecommunications and internet giant headquartered in Spain and with operations in numerous countries and burdened by enormous debts, has announced plans to stage a historic retreat from one of its core markets, Latin America, in a bid to generate much-needed funds. Like many of its peers, Europe’s fourth-largest telecoms company is finding it difficult to achieve consistent profit growth while its debt load remains dangerously high. Its shares recently hit their lowest level in more than two decades, and are down by 9% this year and by around two thirds over the last

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Negative Interest Rates Bite: Bundesbank Warns of Risks to Financial Stability, Moody’s Downgrades Outlook for German Banks

14 days ago

Yield-starved banks expanded lending to “relatively high-risk businesses” and to the property sector, as the Bundesbank considers house prices in many cities overvalued by 15% to 30%.
By Nick Corbishley, for WOLF STREET:
The “risks to financial stability have continued to build up in Germany,” the Bundesbank warns in its Financial Stability Report, published this week. One major risk highlighted by the central bank is that Germany’s current economic slowdown — the result largely of “unfavourable external economic developments” — could turn into an “unexpected economic downturn”.
The country’s export-led economy has barely grown in the last five quarters as global trade has slowed. If the situation gets much worse, it could trigger a “deterioration in the debt sustainability of

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As Bad Loans Explode in Turkey, Government Tries to Recreate Debt-Fueled Boom that Led to its Financial & Currency Crisis

19 days ago

Banks are being pushed to lend with the same reckless abandon.
By Nick Corbishley, for WOLF STREET:
İşbank, one of Turkey’s largest private banks, has warned that the non-performing loans (NPLs) in its portfolio could reach 7.5% of its total loan book by the end of this year, up from a previous estimate of 6%.
Deputy CEO Senar Akkuş, during a recent earnings call, blamed weak demand for new loans as one of the main reasons behind the increase in the bank’s NPLs, since weaker credit growth renders the portion of soured loans relatively larger when compared to total loans,
Bad loans in Turkey have almost doubled since last year’s currency and financial crisis lopped off roughly a third of the Turkish lira’s value, making repayment of loans denominated in dollars or other foreign

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Screwed Investors Still Stuck in Woodford’s Imploded Mutual Fund Get a Glimpse of Their Losses

22 days ago

After a “run on the fund,” triggered when people figured out it was loaded up with crappy illiquid assets.
By Nick Corbishley, for WOLF STREET:
Hundreds of thousands of investors trapped in the imploded and shuttered Woodford Equity Income (WEI) fund, which is now down to £3.1 billion, could lose a third or more of their remaining investment by the time the fund is wound up, according to an analysis commissioned by the fund’s administrator Link Fund Solutions.
In a base case scenario modeled by private equity specialists PJT Park Hill last month, losses could reach 32.5% of total funds as the fund is liquidated. Under the worst-case scenario, the fund’s value would fall by 42.6%.
In other words, the fund’s investors could collectively lose between £1 billion and £1.3 billion of

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Mexico’s Cancelled $13-Billion Zombie-Airport Refuses to Die

23 days ago

The people voted to scrap the project that was one-third finished, $4 billion over budget, mired in allegations of corruption, and built on an unstable lake-bed. But it has a life of its own.
By Nick Corbishley, for WOLF STREET:
A year ago, the Mexican people — albeit a small fraction of the electorate — voted to scrap a new $13-billion airport for the capital that was almost one-third finished, at least $4 billion over budget, and mired in allegations of corruption. Around $5 billion had already been poured into the new Texcoco airport, which was to feature a futuristic, X-shaped terminal designed by Norman Foster. Another $8.3 billion was earmarked to finish it.
And for the foreseeable future, Mexico City, one of the world’s largest metropolises, must continue to make do with an

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Months After Takeover, European Supermarket Giant Dia Discloses Huge Losses, Plunging Revenues, Soaring Debt

29 days ago

Russian billionaire rues the day he bought it. “We should have been more cautious and done our due diligence better.”
By Nick Corbishley, for WOLF STREET:
Dia, once one of Europe’s largest supermarket chains but now struggling with cascading losses and a near-bankruptcy experience, has just disclosed its results for the first three quarters of 2019. The firm racked up even more losses (€504 million) in the first nine months of this year than it did in the whole of last year (€365 million), when it was rocked by accusations that its executives, with the complicity of its auditor, KPMG, had engaged in accounting fraud to conceal the true extent of the firm’s losses.
Luxembourg-based investment fund LetterOne (L1) took over the supermarket group in the summer with the purchase of 70%

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Global Slowdown? Mexico’s GDP Declines Year-Over-Year for First Time Since 2009

October 31, 2019

Not just exports and manufacturing – but services stall.
By Nick Corbishley, for WOLF STREET:
In the third quarter of 2019, Mexico notched up its first year-over-year decline in GDP since the final quarter of 2009, when it was in the midst of a sharp recession brought on by the Financial Crisis. According to a preliminary estimate published by Mexico’s statistical institute INEGI, in the third quarter, the economy shrank 0.4% compared with the same quarter a year earlier.

On a quarter-to-quarter basis, GDP in Q3 ticked up a minuscule 0.1% from the weak second quarter (0% growth) after an even weaker first quarter that had booked a 0.3% decline. That tiny uptick in Q3 and the 0% growth in Q2, following the 0.3% decline in Q1, were enough to avert a “technical recession,” defined as

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Redemptions Rip Through UK Equity Funds as Fallout from Woodford Collapse Grows

October 28, 2019

In funds with a liquidity mismatch, the First-Mover Advantage is huge, as Woodford’s investors found out.
By Nick Corbishley, for WOLF STREET:
On Oct 15., it was announced that Neil Woodford’s flagship Equity Income fund (WEI), which has blocked redemptions since June, would be closed for good. And signs are emerging that the problems that bedeviled WEI may be spreading to the wider UK equity fund sector. Across all UK-domiciled funds, investors pulled £2.1 billion in September taking net outflows this year to £7.3 billion, according to data from Morning Star.
Here are the active funds that bore the brunt of the exodus:
Standard Life Aberdeen’s flagship Gars fund, which saw outflows of £392 million in September and which is down £8.9 billion over the past 12 months, shrinking the

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The Crisis in Catalonia & What I Saw in Our Neighborhood in Barcelona

October 27, 2019

As separatist region is rocked by violence, businesses sound alarm.
By Nick Corbishley, for WOLF STREET:
Two of Catalonia’s biggest business associations, Foment de Treball and Pimec, have called for calm and dialogue after ten days of non-stop political and civil unrest in the separatist region of Spain. At a gathering of almost 450 Catalan business people and executives on Wednesday, the two associations called for a political solution to what they described as “the grave conflict we are living through in Catalonia,” a region that is riven down the middle by the question of independence.
A key passage in the event’s joint manifesto hinted at why the crisis shows no sign of abating: “It is the responsibility of politicians, and not the justice system,” to find an “effective and

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JP Morgan Chase, BofA, Citi, Barclays, Deutsche Bank, BBVA, Santander Accused of Rigging Government Bond Auctions in Mexico. Bank of Mexico Implicated

October 15, 2019

Collusion and “absolute monopoly practices.”
By Nick Corbishley, for WOLF STREET:
Mexico’s antitrust agency Cofece has accused the domestic subsidiaries of JP Morgan Chase, Bank of America, Citigroup, Barclays, Deutsche Bank  Santander, and BBVA of colluding to rig Mexican bond prices, in particular treasury notes, over a ten-year period. Following a three-year investigation, Cofece on Monday declared that it had notified “various economic agents” of their likely involvement in a concerted scheme to manipulate Mexican bond prices .
Sergio Lopez, the head of Cofece’s investigative unit, said that the agency’s probe had unearthed evidence that between 2006 and 2016 banks conspired to withhold bond inventories from the market in order to benefit each other. In a summary on its website,

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Just Weeks After the Collapse of Thomas Cook, Spain Launches First Bailout of its Huge Tourism Industry

October 12, 2019

“An unforeseen crisis.” Other headwinds intensify too.
By Nick Corbishley, for WOLF STREET:
Less than a month after the collapse of Thomas Cook, the global travel & vacation-giant and airline operator, the Spanish government has unveiled an €800 million taxpayer-funded bailout of its all-important tourism industry. During the presentation of the new 13-point royal decree, Spain’s vice-president Carmen Calvo described the measures as a “reasonable response to an unforeseen crisis” — though the term “unforeseen” is ironic because in February we warned about the precarious condition of Thomas Cook and in May we warned that it “verges on collapse.”
Initially, the rescue package was worth €300 million. It included €200 million of cheap credit lines and was intended to help the two

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GM, Ford, BMW, VW, Honda Shift More Production to Mexico. Auto Imports Surge Despite Decline in US Sales

October 6, 2019

But Mexican exports to other countries plunge, tripped up by global auto slowdown.
By Nick Corbishley, for WOLF STREET:
Automakers continue to shift their production base from the U.S. to Mexico, where labor costs pale in comparison with those in the U.S., despite growing opposition from U.S. auto workers and their unions. U.S. imports of new vehicles from Mexico surged by 8% in the first three quarters of 2019, according to the auto manufacturers association AIMA, released by Mexico’s National Institute of Statistics and Geography (INEGI). This surge has occurred even as total deliveries of vehicles to end-users in the US fell by 1.6%.

Between January and September 2019, 2.03 million new vehicles were dispatched from assembly plants in Mexico to the U.S. market, 158,000 more than

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Low & Negative Interest Rates Get Broadsided by the BIS

October 3, 2019

They undermine banks. To dodge the fallout, banks chase yield, buying stuff like CLOs, instead of lending. When loans go bad, banks may “evergreen” them. 
By Nick Corbishley, for WOLF STREET:
Prolonged low interest rates are having significant negative effects on banks’ core business and role in the economy, the Bank of International Settlements (BIS) warned in a new paper, just weeks after the ECB reduced its policy rate deeper into the negative after a tumultuous meeting where ECB president Mario Draghi steamrollered a veritable palace revolt.
According to the BIS paper, which is based on a sample of all major international banks over a 22-year period from 1994 to 2015, if the benchmark interest rate falls from 3% to 0%, the average net interest margin declines from 1.42% to 1.31%

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Metro Bank Teeters after Bond Sale Fails. Shares Collapsed 95%

September 27, 2019

Hedge-fund manager Steven Cohen and Michael Bloomberg are among those ruing the day they bought the crushed shares of the UK bank touted as a “bargain.”
By Nick Corbishley, for WOLF STREET:
Even by its own recent standards, Metro Bank has had a torrid week. On Monday, shares of the British retail bank tumbled 5%, on Tuesday, 25%, on Wednesday, 5%, and on Thursday, 4.5%, before staging a brief comeback in the final hours of trading on Friday, to end the week 35% lower. By Friday morning, it was the second most-shorted stock on the FTSE all shares index, behind the collapsed travel & vacation-giant Thomas Cook.
The main trigger for this week’s rout was the bank’s failure on Monday to raise a much-needed £250 million by issuing non-preferred bonds that deeply skeptical investors

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Thomas Cook Collapses, up to 600,000 Travelers Stranded in Hotel & Airline Chaos, Triggers “Biggest Peacetime Repatriation in UK History”

September 23, 2019

Rescue deal fell through at the last moment. China’s Fosun and other shareholders are toast. Creditors get to fight over the debris. 
By Nick Corbishley, for WOLF STREET:
Thomas Cook, the global travel & vacation-giant with its own airline and hotels, with 21,000 employees globally — 9,000 of them in the UK — and a 178-year history, ceased operations with immediate effect early Monday morning after failing to raise the £200 million of additional funds being requested by its main creditors to complete its rescue. The British government also refused to step in at the last minute to bail out the company.
The travel group has been placed into compulsory liquidation, as opposed to administration, meaning the business will be wound down. The immediate result has been chaos in holiday

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Use of “Hidden Debt Loophole” Spreads Among Australian Corporations

September 22, 2019

Situation already so bad that hiding debt becomes a priority?
By Nick Corbishley, for WOLF STREET:
Australian engineering group UGL, which is working on large infrastructure projects such as Brisbane’s Cross River Rail and Melbourne’s Metro Trains, recently sent a letter to suppliers and sub-contractors informing them that as of October 15, they will be paid 65 days after the end of the month in which their invoices are issued. The company’s policy had been, until then, to settle invoices within 30 days.
The letter then mentioned that if the suppliers want to get paid sooner than the new 65-day period, they can get their money from UGL’s new finance partner, Greensill Capital, one of the biggest players in the fast growing supply chain financing industry, in an arrangement known as

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Interest Rate Derivatives Trading Explodes to $6.5 Trillion/Day

September 19, 2019

A gigantic spike in 3 years. The UK dominates.
By Nick Corbishley, for WOLF STREET:
The volume of over-the-counter (OTC) interest rate derivatives traded globally soared by 141% in three years to $6.5 trillion per day in April 2019, according to the Bank for International Settlements’ new Triennial Survey of Global Derivatives Markets. In the prior survey period, April 2016, $2.7 trillion per day in trades were executed. Since 2001, the magnitude of trading volume has multiplied by a factor of 13, from $490 billion per day to $6.5 trillion per day, with a gigantic spike over the past three years:

OTC derivatives are securities that are generally traded through a dealer network rather than on a centralized exchange such as the London Stock Exchange or the New York Stock Exchange.

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Who’ll Rescue Thomas Cook, the Collapsing Vacation-Travel-Airline Giant with 21,000 Employees?

September 13, 2019

Shareholders are already toast. Would China’s Fosun conglomerate follow the time-honored principle of throwing good money after bad?
By Nick Corbishley, for WOLF STREET:
Following yet another bleak week of trading, the shares of 178-year-old British global travel & vacation-giant and airline Thomas Cook, with 21,000 employees globally — 9,000 of them in the UK — are down to 5 pence, down 96% from 130 pence in May last year. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a paltry £75 million.
The company now has just one lifeline left: a proposed £900 million rescue deal that would see its biggest shareholder, Chinese conglomerate and investment giant, Fosun, inject £450 million in return for a 75% stake in the group tour operator and a 25% stake in the

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Contagion from Liquidity Crunch at Junk-Bond Funds to Trigger “Material Second Round Effects”: EU Securities Regulator

September 7, 2019

The costs of dodging negative interest rates.
By Nick Corbishley, for WOLF STREET:
In the event of a market shock, 40% of European funds focused on junk-rated bonds — ironically named “high-yield” funds — would not have enough liquid assets on hand to meet investor withdrawals, even if the withdrawals in one week amount to only 10% of the fund’s net asset value, the European Securities and Markets Authority (ESMA) warned this week, raising yet more concerns about the risks associated with the liquidity mismatch at funds that offer daily redemptions while holding illiquid assets that can take much longer to sell at survivable prices.
In the wake of liquidity problems at H2O Asset Management and the recently gated £3.7 billion Woodford Equity Income Fund, two UK-based firms that

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These Incidents Raise New Questions about the Security & Operability of the Banking System in Mexico

September 5, 2019

For now, it’s deny, deny, deny.
By Nick Corbishley, for WOLF STREET:
For seven hours on Friday, three of Mexico’s four biggest banks, BBVA, Citibanamex and Banorte, suffered payment system failures at exactly the same time, leaving millions of consumers unable to withdraw money from ATMs, make payments with their credit or debit cards, or access their online and mobile accounts.
From noon, many of the banks’ customers vented their anger on social media, complaining that they could not carry out transactions of any kind, whether in physical cash (because there was no way of withdrawing money), with their cards or on mobile platforms. While the mayhem caused by the outage may have been short lived, the timing could not have been worse, coming on the Friday of the second quinzena

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Bank of Mexico Raises Alarm About Mexico’s Economy

September 3, 2019

“Particularly worrisome” is that this slowdown “has taken place in a context where the US economy is growing above potential.”
By Nick Corbishley, for WOLF STREET:
The bad omens are stacking up for Mexico’s faltering economy as both domestic consumption and investment dry up while the challenges facing the country’s heavily indebted state-owned oil giant, Pemex, continue to rise. That’s the broad conclusion in the minutes of the latest meeting of the Bank of Mexico’s governing board.
Mexico’s benchmark index, the BMV IPC, has fallen 15% in the last year. For the first time since December 2018, the Mexican peso is once again below the all-important psychological level of USD$0.05 (or 20.07 pesos to $1), after having fallen by 6% in the last month, due in part to the emerging market

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Woodford’s Shuttered Fund Crushed Further by Plunging Stocks in its Holdings, such as Muddy-Waters Target Burford Capital

August 26, 2019

Hedge funds have field day front-running the liquidation. 300,000 investors left twisting in the wind.
By Nick Corbishley, for WOLF STREET:
Neil Woodford, the manager of shuttered asset management fund, Woodford Equity Income fund, just had one heck of a black Friday. First came news that Link Fund Solutions, which manages the corporate governance of Mr Woodford’s investment vehicles, had slashed the valuation of cold fusion developer Industrial Heat, one of Woodford’s largest unquoted holdings, by around 40%, from £91.3 million to £55 million.
The move will shave 4.3% off the net asset value of the Woodford Patient Capital (WPCT) investment trust. Having plunged since the suspension of Woodford’s flagship Woodford Equity Income fund (WEI), shares in the trust dropped a further

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Liquidity Crunch Mangles UK Equity & Real Estate Funds

August 24, 2019

Exodus from funds with illiquid assets forces more funds to block redemptions.
By Nick Corbishley, for WOLF STREET:
Equity and property funds in the UK saw withdrawals of £2.5 billion in July, taking total outflows in 2019 so far to £12.4 billion, according to Morning Star data. Equity funds, with total assets of £691 billion, were down £1.6 billion in July and £10.6 billion so far this year. In a broad flight to safety, money market funds experienced their sixth consecutive month of inflows while investors poured £428 million into Fixed Income funds.
Morning Star analysts blamed the outflows from equity and property funds on fears over a UK recession and a no-deal Brexit. But there’s also a structural element at work: the mismatch in open-ended equity and property funds that offer

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HSBC Runs into Buzzsaw in Hong Kong & China, its Home Market Generating 75% of its Profits

August 19, 2019

HSBC’s pleas of innocence have won little sympathy in Beijing.
By Nick Corbishley, for WOLF STREET:
Global banking behemoth HSBC has found itself on the back foot in recent months in its most important market, Hong Kong and China. The unexpected departure of three senior executives within a week, including its CEO and the head of key China business, sparked a broad sell-off of its shares, which are down 13% in just three weeks.
The world’s eighth biggest bank by assets, HSBC is also reeling from the after effects of increasingly violent political unrest on its home turf. Protracted demonstrations in Hong Kong, triggered by opposition to an amendment to the region’s extradition law, have become increasingly disruptive. Despite the withdrawal of the proposed bill, the Asian financial

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Argentina Crisis Slaps Foreign Banks & Companies Operating in the Country

August 15, 2019

Peso collapse and inflation force Spanish companies and banks — second largest investors in Argentina, behind US companies — to tally their losses.
By Nick Corbishley, for WOLF STREET:
Having learnt their lesson, most European companies and banks have limited exposure to Argentina’s crisis-prone economy. One exception is Spain’s corporate sector, which, after the U.S.’s, has the most exposure to the South American economy, with almost €6 billion invested by its companies there, down from around €9 billion in 2011 after some divestments.
For many of those companies, Argentina is still an important source of revenues and profits. But those revenues and profits are getting slammed by the double whammy of a rapidly deteriorating economy and rampant inflation. Now, there’s the potential

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One of World’s Construction Giants Admits Using Risky Hidden-Debt Loophole “Across Group.” Australian Subsidiary Crushed

August 9, 2019

This “crack cocaine for CFOs” was also extensively used by Carillion until it collapsed.
By Nick Corbishley, for WOLF STREET:
The world’s seventh largest construction and services company (by sales), with subsidiaries around the globe, Grupo ACS, has revealed it is making extensive use of reverse factoring, a controversial financing technique that played a key role in the collapse of UK construction giant Carillion. In a conference call with analysts, ACS chairman, Florentino Perez, said the firm has been rolling out factoring “across the group,” to “more efficiently manage cash flows and match revenues and costs over the course of the year.”
The admission by ACS that it is using reverse factoring of payables across its vast global empire has spooked investors, given the malign role

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Investor Sentiment Goes to Heck After Draghi’s Easing Promise

August 6, 2019

Bitter irony: As Draghi’s term is about to end, investor expectations plunge to where they’d been when he made his “whatever it takes” speech in 2012.
By Nick Corbishley, for WOLF STREET:
The Sentix economic index, a gauge of investor sentiment in the Euro Area, fell 7.9 points in August 2019 to minus 13.7, its lowest level since October 2014. The index has been on a downward spiral since January 2018 but in recent months the trend line has sharply steepened.
The index of investor confidence is meant to serve as a barometer of the general mood of people and institutions who are invested in bonds, shares, options and other financial instruments. It is run by the Frankfurt-based boutique investment firm Sentix and is based on a regular survey of investors from over 20 countries. It is

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