The Economist Intelligence Unit is relaunching its industry blog. Now known as EIU Views, the site features data-driven commentary by members of the EIU’s industry team. The approach is much the same as Daily Data Point, but the new site will feature a broader pool of editors writing about a wider range of sectors (including, of course, the financial services industry).

Please update your bookmarks and head over to www.eiuviews.com. To see only the finance posts, visit www.eiuviews.com/index.php/category/financial-services. For the finance RSS feed, use www.eiuviews.com/index.php/category/financial-services/feed.

Yesterday, bonds issued by Walt Disney set new records for corporate debt, with the lowest-ever coupons achieved for five-, ten- and 30-year bonds. Disney’s ten-year tranche, with a coupon of 2.75%, boasted a yield roughly the same as French sovereign bonds.

As investors seek safe havens amid market turmoil, yields on US Treasuries have plunged, giving intrepid corporate borrowers in America an opportunity to pitch for low-cost, long-term funding. Coca-Cola and AT&T also issued bonds this week at record-low yields for the companies.

As Treasuries, gold, the Swiss franc and other perceived low-risk assets attract investors, this got us thinking about the creditworthiness of the world’s strongest corporate borrowers vis-à-vis beleaguered sovereigns. At the close of trading yesterday, there were 25 companies with narrower credit default swap spreads than the top-ranked sovereign, Norway. In the minds of CDS traders, Norway is roughly as creditworthy as Walt Disney  (is Mickey’s Magic Kingdom now considered a safe haven?). The map below shows the approximate corporate equivalents to a selection of European sovereigns, according to the CDS market.

In a day of extraordinary action in the markets, perhaps the most noteworthy move yesterday was a 20% plunge in the share price of Bank of America. Despite rallying today, the bank, America’s largest by assets, has seen its shares lose around 30% of their value so far this month (and nearly 50% so far this year).

Bank of America now trades at a wince-inducing 32% of its book value. This puts it at the bottom of the price-to-book league table for domestic banks. But there are banks in Europe that trade at similar discounts; many of these remain part-nationalised (RBS, Dexia) or face severe sovereign-related stress (UniCredit, Alpha Bank). For Bank of America, a major mortgage lender, this is is not the best neighbourhood to be in.

British banks received a fillip from parliament today, as the Treasury Select Committee called for “more detailed analysis” of the proposal to ring-fence banks’ retail units from the rest of their operations. Banks have criticised the proposal, made by the Independent Commission on Banking, as saddling them with unnecessary costs and restraining their capacity to lend. Signs of a rethink on the proposal sent British banks’ shares sharply higher.

The rally reversed steep declines following Friday’s EU stress test. Although all four of the British banks in the test passed, some of the details that emerged about the banks’ balance sheets spooked investors. In particular, funding costs soared in the test’s “adverse” scenario—which many analysts, including the EIU, think was not nearly adverse enough. The cost of funding for Barclays, for example, rose almost four-fold between 2010 and 2012 in the test, the largest jump in the 90-bank sample. The other British banks in the sample also saw above-average increases in costs, thanks in part to reliance on wholesale funding sources.

Exposure to fickle wholesale markets is one of the reasons cited in favour of erecting firewalls around universal banks’ retail activities. Any new analysis of the retail ring-fence idea should take the implications of banks’ enduring reliance on short-term interbank markets into account.

A new survey of executives by the Economist Intelligence Unit adds another perspective to the all-but-inevitable event roiling financial markets: a Greek default. Nearly three-quarters of more than 300 executives polled by the EIU over the past week believe that Greece will eventually default on its debt. (For the full survey results, visit the EIU’s Business Research site.)

On Monday, euro area finance ministers released a statement calling for a “broader and more forward-looking policy response” to Greece’s ongoing struggles with its crushing debt burden. On the same day, Greek prime minister George Papandreou added his thoughts on the matter, warning that “if Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that will engulf our common union.”

In the EIU’s survey, a small but noteworthy minority of respondents, 12%, think that the impact of a Greek default will be of a similar scale and magnitude of the collapse of Lehman Brothers in 2008. A larger share of executives, 47%, predict a significant, long-lasting impact, but with the pain largely confined to the euro area. The remaining respondents either expect little impact or weren’t willing to hazard a guess.

With Greece’s benchmark bonds trading at half of face value, and spreads for Spain and Italy recently touching euro-era highs, officials are scrambling to stem the contagion from the monetary union’s troubled periphery. There is talk of an emergency euro summit on Friday, when release of the EU’s bank stress tests could destabilise markets further. But true to form, euro area officials are finding it difficult to come to an agreement on whether to meet or not.  

The Federal Reserve’s “temporary” dollar swap lines with other major central banks are beginning to look like anything but temporary. The facilities were first introduced in December 2007, closed in February 2010, reopened in May 2010, and recently extended through August 2012. Under these agreements, the Fed offers unlimited dollar liquidity to other central banks, which in turn offer the funds to local banks that find it difficult to borrow in interbank markets.

The “re-emergence of strains in short-term US dollar funding markets” was cited by the Fed when it revived the programme last year after its brief hiatus. The recent extension of the swap lines—previously scheduled to expire next month—suggests that officials believe that these strains remain, or may be worsening. But so far the move looks like more of a precaution than a sign of imminent distress. Since announcing the extension on June 29th, no central bank has drawn on the facility (the data is reported weekly, on Thursdays). In fact, the swap lines have not been used since March, when only US$70m was drawn, a small fraction of the hundreds of billions borrowed during the depths of the crisis following the collapse of Lehman Brothers.

The volume and value of initial public offerings in Hong Kong soared in the first half of the year, according to a new analysis by PricewaterhouseCoopers. Despite some companies getting cold feet and pulling planned listings in recent weeks, PwC believes the Hong Kong exchange is on track for another robust year.

Last year, the number of IPOs in Hong Kong rose by 56% and the value of funds raised increased by nearly 80%. In the first half of this year, the volume of listings rose by 55% and the value of money raised nearly tripled when compared with the same period in 2010. The number of expected IPOs in 2011—110, reckons PwC—should be roughly equal to the previous year. However, the value of fundraising, forecast at HK$380bn (US$48.8bn), is expected to fall by 15% from 2010.

Choppy markets led six firms to scrap planned Hong Kong IPOs last month, although the pipeline still looks relatively healthy. Chinese retailer Sun Art, for example, reportedly closed the books early on its HK$8bn listing. If not as lucrative as last year, the IPO market in Hong Kong still looks to be one of the busiest in the world this year.

After a brief growth spurt, bank lending in the US shrank in April and May, according to the latest data from the Federal Reserve. As Bloomberg points out, banks’ appetite for government bonds has remained relatively robust since the onset of the financial crisis. American banks now hold almost US$1.7trn in treasuries and related government debt, with holdings growing by an 11-12% annual clip so far this year, despite miserly yields.

The situation at Japanese banks looks eerily similar. Funds are being recycled into government bonds instead of loans, with year-on-year credit in a seemingly permanent state of contraction. The Economist Intelligence Unit does not expect America to experience a protracted slump like the one that has dogged Japan since its spectacular asset-price bubble burst in early 1990s. Still, there are enough similarities in some metrics to cause discomfort.

Encouragingly, deposits at American and Japanese banks are at or near record highs. This will please regulators, who are urging banks to avoid flightier wholesale sources of funding. But until these funds are put to more productive use than stockpiling low-yielding government bonds, nobody will be truly happy.

In most large countries, loan growth of 17% would represent a breakneck pace. In China, such growth is perceived as sign of a slowdown.

In May, the value of China’s outstanding bank loans rose by 17% from the year before, the slowest pace since late 2008. A series of interest rate increases and, more importantly, hikes to banks’ reserve requirements appear to be cooling the stimulus-fuelled surge in lending recorded in the months after the global financial crisis. The latest boost to reserve requirements, announced today, is the sixth hike so far this year. More increases are likely in the coming months, as worries persist over rising consumer inflation—5.5% in May—and a frothy property market. Still, the Economist Intelligence Unit expects China’s GDP to grow by 9% this year, only a modest slowdown from the 10.3% growth recorded in 2010. Despite the central bank’s tightening measures, credit conditions will remain relatively loose.

(Note: Some data in this post, and the accompanying chart, have been updated to reflect revised historical data.)

On June 3rd, Atlantic Bank and Trust of Charleston, South Carolina became the 45th bank in the US to fail this year. After a brief period in receivership under the control of the Federal Deposit Insurance Corporation, the lender’s assets—worth US$208m—were transferred to First Citizens Bank and Trust.

This is not an unusual occurrence: 367 banks have failed since 2008. But the pace of failures so far this year is slower than in 2010. And only five banks failed in May, which some see as an “encouraging milestone”. Recall, however, that three banks failed in March, promptly followed by 13 in April, the highest monthly tally since last spring.

More encouraging is that the size of failed banks so far this year is significantly smaller than last year—an average of US$430m in assets per bank through May this year, versus US$867m over the same period in 2010.

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