American corporations in debts worrying Investors to withdraw funds, $5 trillion in debt.
New York : It's getting awfully difficult for investors to ignore Corporate America's mountain of debt.
Fears of an economic slowdown -- or even recession -- have turned a spotlight on the debt that businesses piled up during the past decade, when borrowing costs were historically low.
For the first time since the Great Recession, investors want companies to prioritize paying down debt rather than investing in the future or share buybacks and dividends, according to a Bank of America Merrill Lynch survey of global fund managers.
Forty-six percent of fund managers surveyed think corporate balance sheets are overleveraged, Bank of America said. That's a record high for the survey.
"2019 will be defined as a year of deleveraging," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "You're going to hear much less about buybacks and dividend increases. That's one of the areas of excess in this cycle." US nonfinancial companies rated by Moody's were sitting on $5.7 trillion of debt as of the end of June.
The corporate debt concerns reflect growing worries on Wall Street about the eventual demise of the economic expansion. A severe slowdown, let alone an outright contraction, would make paying down debt difficult for money-losing companies.
Fifty-three percent of investors surveyed by Bank of America expect global growth to weaken over the next 12 months, the worst outlook since October 2008.
At the same time, borrowing costs have increased, especially for risky companies with bloated balance sheets. The Federal Reserve's rate hikes make rolling over maturing debt more expensive for companies. Wednesday would mark the ninth rate increase over the past three years, and the Fed's balance sheet has also shrunk by about $400 billion to about $4.1 trillion.
Egged on by years of cheap money, companies piled on vast amounts of debt to expand, fund acquisitions and reward shareholders with generous stock buybacks. US companies announced a record $1 trillion of buybacks in 2018, according to TrimTabs Investment Research.
The Office of Financial Research, a Treasury Department bureau created after the 2008 financial crisis, recently flagged corporate debt as a potential problem.
"US nonfinancial corporate credit risk is elevated," the OFR warned in its annual report to Congress last month.
But elevated doesn't mean it's as bad as before the Great Recession, right? Wrong. In fact, the ratio of nonfinancial corporate debt to GDP has never been higher going back to records that began in 1947, according to the OFR.
Despite solid economic growth, some companies don't even make enough money to pay interest on their debt.
As of the second quarter, one-third of companies that were either junk-rated or not rated at all generated pre-tax earnings below their interest expenses, according to the OFR.
Fifty-three percent of investors surveyed by Bank of America expect global growth to weaken over the next 12 months, the worst outlook since October 2008.
At the same time, borrowing costs have increased, especially for risky companies with bloated balance sheets. The Federal Reserve's rate hikes make rolling over maturing debt more expensive for companies. Wednesday would mark the ninth rate increase over the past three years, and the Fed's balance sheet has also shrunk by about $400 billion to about $4.1 trillion.
Egged on by years of cheap money, companies piled on vast amounts of debt to expand, fund acquisitions and reward shareholders with generous stock buybacks. US companies announced a record $1 trillion of buybacks in 2018, according to TrimTabs Investment Research.
'Elevated' corporate credit risk
The Office of Financial Research, a Treasury Department bureau created after the 2008 financial crisis, recently flagged corporate debt as a potential problem.
"US nonfinancial corporate credit risk is elevated," the OFR warned in its annual report to Congress last month.
But elevated doesn't mean it's as bad as before the Great Recession, right? Wrong. In fact, the ratio of nonfinancial corporate debt to GDP has never been higher going back to records that began in 1947, according to the OFR.
Despite solid economic growth, some companies don't even make enough money to pay interest on their debt.
As of the second quarter, one-third of companies that were either junk-rated or not rated at all generated pre-tax earnings below their interest expenses, according to the OFR.
Investors to Corporate America: You've got a debt problem
By Matt Egan, CNN Business
Updated 1515 GMT (2315 HKT) December 19, 2018
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New York (CNN Business)It's getting awfully difficult for investors to ignore Corporate America's mountain of debt.
Fears of an economic slowdown -- or even recession -- have turned a spotlight on the debt that businesses piled up during the past decade, when borrowing costs were historically low.
For the first time since the Great Recession, investors want companies to prioritize paying down debt rather than investing in the future or share buybacks and dividends, according to a Bank of America Merrill Lynch survey of global fund managers.
Forty-six percent of fund managers surveyed think corporate balance sheets are overleveraged, Bank of America said. That's a record high for the survey.
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"2019 will be defined as a year of deleveraging," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "You're going to hear much less about buybacks and dividend increases. That's one of the areas of excess in this cycle."
US nonfinancial companies rated by Moody's were sitting on $5.7 trillion of debt as of the end of June.
Corporate America gives out a record $1 trillion in stock buybacks
The corporate debt concerns reflect growing worries on Wall Street about the eventual demise of the economic expansion. A severe slowdown, let alone an outright contraction, would make paying down debt difficult for money-losing companies.
Fifty-three percent of investors surveyed by Bank of America expect global growth to weaken over the next 12 months, the worst outlook since October 2008.
At the same time, borrowing costs have increased, especially for risky companies with bloated balance sheets. The Federal Reserve's rate hikes make rolling over maturing debt more expensive for companies. Wednesday would mark the ninth rate increase over the past three years, and the Fed's balance sheet has also shrunk by about $400 billion to about $4.1 trillion.
Egged on by years of cheap money, companies piled on vast amounts of debt to expand, fund acquisitions and reward shareholders with generous stock buybacks. US companies announced a record $1 trillion of buybacks in 2018, according to TrimTabs Investment Research.
'Elevated' corporate credit risk
The Office of Financial Research, a Treasury Department bureau created after the 2008 financial crisis, recently flagged corporate debt as a potential problem.
"US nonfinancial corporate credit risk is elevated," the OFR warned in its annual report to Congress last month.
But elevated doesn't mean it's as bad as before the Great Recession, right? Wrong. In fact, the ratio of nonfinancial corporate debt to GDP has never been higher going back to records that began in 1947, according to the OFR.
Despite solid economic growth, some companies don't even make enough money to pay interest on their debt.
As of the second quarter, one-third of companies that were either junk-rated or not rated at all generated pre-tax earnings below their interest expenses, according to the OFR.
Stocks on track for worst December since the Great Depression
Federal Reserve chief Jerome Powell in a recent speech flagged a number of concerns, including that over the past year companies with high leverage and interest burdens have been increasing their debt the most. He also noted deteriorating underwriting quality and higher leverage multiples.
"Some of these highly leveraged borrowers would surely face distress if the economy turned down," Powell told Economic Club of New York. High investor losses could "exacerbate the downturn," Powell said.
PIMCO estimates that the odds of a US recession over the next 12 months have climbed to about 30%, the highest level during the nine-year economic expansion. Eighty-two percent of US CFOs surveyed by Duke University believe that the United States will be in recession by the end of 2020.
By Matt Egan, CNN Business
Updated 1515 GMT (2315 HKT) December 19, 2018
PlayMute
Duration Time3:04
Loaded: 0%
1:31
Progress: 0%
Fullscreen
Why home builder stocks are getting crushed
Why oil is in a bear market
How to invest in a volatile market
Why Canopy Growth's earnings are disappointing pot investors
Banks are raking in profits. Why are stocks lagging?
Why you should ignore the Dow
Workers can be hurt when companies buy back stock
What is an ICO?
NOW PLAYING
Alan Greenspan: Bull market is beginning to fumble
Why red flags in housing could be a warning sign for economy
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When stock market swings should raise alarms
What kills a bull market?
Why investors are selling tech stocks
JPMorgan strategist: US is not headed for a recession
Why home builder stocks are getting crushed
Why oil is in a bear market
How to invest in a volatile market
Why Canopy Growth's earnings are disappointing pot investors
Banks are raking in profits. Why are stocks lagging?
Why you should ignore the Dow
Workers can be hurt when companies buy back stock
What is an ICO?
Alan Greenspan: Bull market is beginning to fumble
Why red flags in housing could be a warning sign for economy
Stocks are having the worst December since the Great Depression
When stock market swings should raise alarms
What kills a bull market?
Why investors are selling tech stocks
JPMorgan strategist: US is not headed for a recession
Why home builder stocks are getting crushed
New York (CNN Business)It's getting awfully difficult for investors to ignore Corporate America's mountain of debt.
Fears of an economic slowdown -- or even recession -- have turned a spotlight on the debt that businesses piled up during the past decade, when borrowing costs were historically low.
For the first time since the Great Recession, investors want companies to prioritize paying down debt rather than investing in the future or share buybacks and dividends, according to a Bank of America Merrill Lynch survey of global fund managers.
Forty-six percent of fund managers surveyed think corporate balance sheets are overleveraged, Bank of America said. That's a record high for the survey.
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"2019 will be defined as a year of deleveraging," said Peter Boockvar, chief investment officer at Bleakley Advisory Group. "You're going to hear much less about buybacks and dividend increases. That's one of the areas of excess in this cycle."
US nonfinancial companies rated by Moody's were sitting on $5.7 trillion of debt as of the end of June.
Corporate America gives out a record $1 trillion in stock buybacks
Scepticism in Easy money among Investors:
The corporate debt concerns reflect growing worries on Wall Street about the eventual demise of the economic expansion. A severe slowdown, let alone an outright contraction, would make paying down debt difficult for money-losing companies.
Fifty-three percent of investors surveyed by Bank of America expect global growth to weaken over the next 12 months, the worst outlook since October 2008.
At the same time, borrowing costs have increased, especially for risky companies with bloated balance sheets. The Federal Reserve's rate hikes make rolling over maturing debt more expensive for companies. Wednesday would mark the ninth rate increase over the past three years, and the Fed's balance sheet has also shrunk by about $400 billion to about $4.1 trillion.
Egged on by years of cheap money, companies piled on vast amounts of debt to expand, fund acquisitions and reward shareholders with generous stock buybacks. US companies announced a record $1 trillion of buybacks in 2018, according to TrimTabs Investment Research.
'Elevated' corporate credit risk
The Office of Financial Research, a Treasury Department bureau created after the 2008 financial crisis, recently flagged corporate debt as a potential problem.
"US nonfinancial corporate credit risk is elevated," the OFR warned in its annual report to Congress last month.
But elevated doesn't mean it's as bad as before the Great Recession, right? Wrong. In fact, the ratio of nonfinancial corporate debt to GDP has never been higher going back to records that began in 1947, according to the OFR.
Despite solid economic growth, some companies don't even make enough money to pay interest on their debt.
As of the second quarter, one-third of companies that were either junk-rated or not rated at all generated pre-tax earnings below their interest expenses, according to the OFR.
Stocks on track for worst December since the Great Depression
Federal Reserve chief Jerome Powell in a recent speech flagged a number of concerns, including that over the past year companies with high leverage and interest burdens have been increasing their debt the most. He also noted deteriorating underwriting quality and higher leverage multiples.
"Some of these highly leveraged borrowers would surely face distress if the economy turned down," Powell told Economic Club of New York. High investor losses could "exacerbate the downturn," Powell said.
PIMCO estimates that the odds of a US recession over the next 12 months have climbed to about 30%, the highest level during the nine-year economic expansion. Eighty-two percent of US CFOs surveyed by Duke University believe that the United States will be in recession by the end of 2020.
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