Tag Archives: Credit Quality

Warning: Signs of credit crisis grow

Posted on by • Posted in Uncategorized • Tagged , , , , , , , , , , , , , , , , , , , , , , , • Leave a comment

https://www.axios.com/credit-crisis-banks-us-debt-4b77bbc4-395b-4c1e-9be4-b29d72548315.html

A credit card machine catching on fire

A recent survey of bank officers shows U.S. institutions are tightening their lending standards and raising rates on commercial loans and credit cards.

Details: Bankers say they have increasing concern about future economic growth, despite continued U.S. labor market strength and solid economic fundamentals. The data banks are seeing runs contrary to the overall narrative of a strong U.S. economy.

Driving the news: Credit card delinquency rates in Q1 hit the highest level since 2012, driven in part by a spike in overdue payments by people ages 18–29, according to a report out this week from the New York Federal Reserve.

What’s happening: In addition to the inability to make credit card payments, the rise in younger borrowers’ delinquency rates — by far the highest among all age groups — reflects the cohort jumping into the credit card market at a faster rate, as well as the eagerness of banks to latch on to younger consumers. Still, the delinquency rate remains well below that seen during the financial crisis.

  • More young people are opening credit cards now than they did in the the past decade — about 52% in 2018 verses 46% in 2008, per the New York Fed — pushing up the likelihood of more delinquencies.
  • Credit card accounts among young borrowers fell in 2009 following the passage of the Card Act, which added new rules for consumers under 21 looking to borrow and limited how much banks could advertise to young people.
  • “There has been some recovery in credit card prevalence in recent years, consistent with increased issuance in card accounts,” according to the Fed.

Why it matters: After the financial crisis, young people had been largely debt-averse — particularly with credit cards — as a result of the the Great Recession. But that trend looks to be reversing.

  • “Banks were a little concerned going forward and [expect to] tighten standards,” David Norris, head of U.S. credit at TwentyFour Asset Management, tells Axios.
  • “I think from the viewpoint of the marketplace, if that’s going to continue … it works its way into consumer spending habits, consumer attitudes, and that can affect the demand side of the economy.”

That move comes as U.S. debt is $1 trillion higher than its previous record…

The N.Y. Fed’s latest report shows that total household debt increased by $124 billion in Q1. It was the 19th consecutive quarter with an increase, and household debt is now $993 billion higher than the previous peak of $12.68 trillion in the third quarter of 2008.

Between the lines: Delinquency rates are trending up again, and not just for younger consumers.

  • The report found that seriously delinquent credit card balances have also risen for consumers aged 50–69.
  • For borrowers aged 50–59 and 60–69, the 90-day delinquency rate increased by nearly 100 basis points each.

“People are probably extending themselves too much,” said TwentyFour’s David Norris, also noting that the headline numbers for Q1 U.S. GDP were a bit misleading.

  • “Banks are seeing this currently and they’re beginning to get concerned about credit quality and the quality of borrowers and they’re trying to tighten standards. This is a signal that we need to watch out for.”

A deeper look at the credit card delinquencies that are steadily rising…

  • In the Fed’s latest U.S. bank senior loan officers survey, which provided data from the fourth quarter of 2018, loan officers predicted more delinquencies this year as a result of the growth of “non-prime” borrowers. They’ve cited that as a reason for an anticipated pullback in credit and an increase in rates.
  • U.S. card holders are expected to pay $122 billion just in interest charges this year. That’s 50% more than what they paid just 5 years ago.
  • The average credit card assessed interest rate is now 16.91%. It was 13.14% in the first quarter of 2014.
  • The average interest rate on retail cards is more than 25%.

 

 

 

When the cycle turns: Healthcare Subsectors Ranked by Vulnerability to Economic Downturn

Posted on by • Posted in Uncategorized • Tagged , , , , , , , , , , , , , , , , , • Leave a comment

https://www.capitaliq.com/CIQDotNet/CreditResearch/RenderArticle.aspx?articleId=2223124&SctArtId=470487&from=CM&nsl_code=LIME&sourceObjectId=10964199&sourceRevId=6&fee_ind=N&exp_date=20290429-17:15:44

 

https://www.spglobal.com/marketintelligence/en/news-insights/trending/klmhcli3tn4os6wkclht0a2

Related image

S&P: Hospitals vulnerable to recession as healthcare sector stays defensive

The healthcare sector remains defensive but has become increasingly vulnerable to an economic downturn because of deteriorating ratings, comparatively higher leverage and greater industry disruption, analysts at S&P Global Ratings said in a new report.

Healthcare companies’ issuer credit ratings are becoming more vulnerable to a cyclical downturn in comparison to prior recessions, according to the rating agency, which also said that proposals from the U.S. government are threatening the sector’s creditworthiness.

Credit quality has fallen considerably since the last recession in the healthcare sector — where products and services continue to show a largely inelastic demand — with 66% of healthcare companies carrying B ratings, according to the April 29 analysis.

Ratings estimates that about 20% of for-profit healthcare companies have investment-grade issuer credit ratings, in comparison to 54% in 2005. The rating agency believes this transition shows an increase in smaller and mainly private equity-owned healthcare issuers.

Hospitals among subsectors most vulnerable to economic slowdown

The subsectors most vulnerable to an economic downturn are hospitals, healthcare service providers and hospital staffing services, based on leverage metrics and relatively higher disruption in comparison to other subsectors, the rating agency added.

Ratings analysts said companies like Tenet Healthcare Corp., Prospect Medical Holdings Inc. and HCA Healthcare Inc. would be affected by a potential rise in uncompensated care — with patients opting for lower cost options — since insurance coverage tends to decline as unemployment rates increase during a recession. In addition, healthcare companies such as Acadia Healthcare Co. Inc. and WP CityMD Bidco LLC would be highly exposed to reimbursement rates based on Medicaid and Medicare plans.

The healthcare segment at highest risk in an economic downturn is temporary nurse staffing, which is highly sensitive to cyclicality, more so than part-time physician staffing and full-time employment.

Pharmacy benefit managers, often called the drug middlemen or PBMs, such as CVS Health Corp. and Aetna Health Holdings LLC, which are responsible for negotiating drug prices between drug companies and insurers are also at risk of exposure to a downturn.

The Trump administration wants to end the safe harbor protections, which permit PBMs to collect rebates, by Jan. 1, 2020, and move the U.S. to a fixed-fee discount model.

Ratings analysts believe healthcare companies with a portfolio of research and development, medical devices, pharmaceuticals and biologics manufacturing will be more insulated and can expect steady demand during a recession, which will help achieve astrong revenue base.

Companies like Pfizer Inc., Amgen Inc. and Teva Pharmaceutical Industries Ltd. may be at the receiving end of a slight shift in the sector, which will see customers increasingly preferring lower-cost generic and biosimilar alternatives. In addition, increased usage of high-deductible insurance plans will bolster switches to lower-cost options.

Life sciences companies like Danaher Corp., Thermo Fisher Scientific Inc. and PerkinElmer Inc. mostly see repeat sales of their products, and since there is an increase in the use of diagnostic tests, the life sciences subsector would be more resilient in an economic downturn.

Medical devices companies Baxter International Inc., Abbott Laboratories, Becton Dickinson and Co. and Hologic Inc. should expect consistent demand though there is some exposure to patient and hospital admission volumes.

However, Ratings analysts believe the medical devices subsector “does not have a large target on its back, in terms of cost control, versus the pharmaceutical industry.”

Given the mostly inelastic demand in the healthcare sector, McKesson Corp., Cardinal Health Inc., Owens & Minor Inc. and other such companies in the drugs and medical products’ distribution segment will be largely insulated from the economic downturn, Ratings analysts added.