Download Independent Credit Evaluation Services

Independent Credit Analysis –
Protecting and Enhancing Capital
Sean J. Egan
President, Egan-Jones Ratings
Grant’s Conference
March 2016 Conference
New York, April 9, 2013
Egan-Jones: Background
I. Ranked #1 for warning about the
credit crisis by Fortune magazine
II. Warned about Countrywide, Enron,
Greece, Lehman, Ambac, MBIA,
Portugal, Petroleum, Metals
III. Numerous studies verifying accuracy
IV. Different view - independent
2
Overview
I. Where we are
II. Where we are going
III. Resulting opportunities
3
Major Market Drivers
Structural slowdown in global economies
Debt overhang, Aging, Shifts
Ineffectiveness of Keynesian Actions
Major Adjustments – energy, migration,
increased debt, re-setting of
assumptions
4
Technology Shifts
• Energy Chaos – massive increases in
efficiencies, some new suppliers
• Banking – market consolidation (Wells),
flat yield curve, changing services
• Media – Netflix (global network),
changing consumption
• Autos (later) – electric, self driving,
Uber
5
China – from a Global Growth
Driver to the Opposite
Massive shift – investment was near 40%
of economy (infrastructure and housing)
Demographic issues – one child
Poor capital allocation
Global ambitions
6
Weakening Major Sovereign
Credit Quality
•
•
•
•
Japan: 250+% debt to GDP
Greece: needs to restructure (again)
Italy and Portugal are concerns
Low growth is a killer
7
Debt Overhang
Reinhart and Rogoff – debt overhang and
growth
Low interest rates are driven by low
growth which in turn is impeded by the
overhang
8
Where Are we Headed
•
•
•
•
•
Weakness in the yuan
Flight to quality
Increased polarization in US politics
Low growth, low interest rates
Uncertainty caused by negative interest
rates
9
Major Themes - 2016
I. No US banking vulnerability
II. Slowing revenues, margins
III. Structural improvement for
airlines
IV. Disasters: retailing, E&P, metals,
manufacturing, blue chips
V. Look for disrupters
10
Identifying Opportunities
• Two-notch or more disparity
• RCA – rating change anticipator
• SPOB – spread over benchmark
• Pearls and Pebbles
11
Opportunities over 6 to 12 Mos.
Comparison of change in risk
- versus Likely changes in spread
12
Major Uncertainties - stuck between a past
we seek to overcome and
a future we have yet to define
ZIRP Tyranny: Pensions, Ins. Cos. Banks
Monetary Mischief: BOJ and ECB
Sovereign debt rise: Japan and Italy
New Nuclear state: Iran
Islamic “Spring”/ Awakening
Low growth: baby boomers, China, Tech
Election: massive polarization
Petroleum Volatility
13
Egan-Jones Ratings Company
[email protected]
Website: Egan-Jones.com
14