As everyone reflects on the horrendous decline in primary market earnings this year and laments the impending slowdown in M&A deals, let’s remember that bad news rarely comes alone. When things go really wrong, sales aren’t really an issue. There are reports.
In 2008, investment banking revenues fell 55%, but it was the continued accumulation of billions of dollars in write-downs on bad loans related to subprime mortgages that was at the heart of the crisis. Then there was a hint of writedowns again at the onset of the COVID crisis, when major US banks shed $25 billion. The release of provisions for COVID loan losses over the past year helped boost banks’ profits.
However, as of 2022, the point of writing is back. As we found out last week, leveraged loans are part of the problem. The Wall Street Journal noted yesterday that sellers of newly issued buyout loans were only 94.8 cents on the dollar at the end of June, compared to 99.2 cents at the end of January, and that things could get worse. That means banks like Bank of America, Credit Suisse and Goldman Sachs that still have debt to sell debt generated over the past year could lose billions.
However, leveraged loans are only part of the problem. A broad recession driven by rising energy prices could also lead to a decline. Apparently, Germany’s banks are warning at a conference in Frankfurt this week. Russia’s main gas pipeline to Germany will be shut down for maintenance between July 11 and 21, and “top bankers” told Bloomberg they fear it won’t get back online. In that case, according to bankers, billions would have to be set aside to cover non-performing loans as German companies struggle in an environment of ever-higher energy prices. It would “force a deep recession,” agreed Deutsche Bank CEO Christian Sewing. Deutsche Bank traders and bankers might be shocked by the bonus pool at the end of this month.
Regardless, your cell phone can fool you. Neuroscientists claim that long-term use of tasks like GPS, rather than actually reading a map, decreases gray matter density in the hippocampus, an area of the brain linked to memory. This, in turn, has the potential to increase the risk of depression and dementia. Research shows that young children who have more technology have thinner cortices, which may be linked to degenerative diseases like Parkinson’s and Alzheimer’s, as well as migraines. Phone brake is recommended. Even then there can be a return to the paper map.
Meanwhile…
, American companies have about $12.5 billion in debt. A portion of that $6.7 trillion is made up of bonds issued primarily by large and mid-sized public companies. Another $1.3 trillion is bank loans and another $1.1 trillion is mortgage loans. The rest — over $3 trillion — is non-bank financing, which consists primarily of private debt. (Economist)
Credit Suisse is cutting 24 investment bankers in Asia to cut costs. Further cuts may occur in the fourth quarter. (Blumberg)
Vault, a Coinbase-backed crypto lender, halted payouts and hired consultants to investigate a possible restructuring. A few weeks ago, the company announced plans to cut 30% of its workforce. (Blumberg)
EY has promoted thousands of people as “affiliates” without giving them any capital or a share of the profits. “It’s hard to stop headline inflation because [it is] A pretty powerful recruitment tool and cheaper than paying properly. “ (financial time)
William Blair added five dealmakers in Europe and increased headcount by 45% in one year. (financial news)
Junior barristers in top US law firms are paid a salary of £160,000. Medium-sized lawyers and seniors have hardly moved up. (financial times)
Airport lounges are rationing their allowances. “We are not WeWork.” (WSJ)
Kim Hammonds, the former Deutsche Bank COO who worked bottom at Deutsche Bank, has died. She had breast cancer. (financial news)
An angry welfare brother guy who used to work for Deutsche Bank. (under)
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