Global Sovereign Borrowing To Increase By 3% To $7.1 Trillion in 2014
We forecast that global sovereign borrowing will increase by 3% to $7.1 trillion in 2014. Our global report summarizes a series of simultaneously released regional sovereign borrowing and debt reports, which are available on this page.
Latin American Nonbank Financial Institutions Should Maintain Resilience Amid Uneven Economic Growth In 2014
Latin America's nonbank financial institutions (NBFIs) have been able to maintain stable asset quality by managing inherent risks in the sector--such as slowing economic growth in the region and credit deterioration from riskier borrowers--through adequate profitability and capitalization levels, stable funding sources, tighter underwriting, and more disciplined collection procedures. Still, these NBFIs--essentially lightly regulated lenders who extend credit through payroll discount lending, leasing, loans, factoring, microlending, and pawnshops, for instance--could see an increase in nonperforming assets (NPAs) in 2014 if the region's economies slide further, along with the sector's continuing reliance on wholesale funding, their chief vulnerability. For 2014, we expect NBFIs to maintain stable outlooks; 91% of the rated NBFIs remained stable in 2013, excluding Argentina because of pressures on the negative ratings on that sovereign.
Chinese property developers struck while the iron was hot and reaped rewards. Most of the Chinese developers we rate posted record-high contracted sales in 2013, benefiting from a largely stable regulatory environment and robust demand, especially in tier-1 and tier-2 cities. The companies also took advantage of favorable financing conditions to issue bonds; many were new bond issuers. With the proceeds, the Chinese developers refinanced loans and bought a large amount of land for replenishment and expansion. However, we expect sales and property prices to grow more moderately this year due to uncertainties in financing conditions and economic prospects. Developers took advantage of the market opportunities in January and February to secure funding. On the other hand, leverage will likely rise in the next 12 months for some developers, as a result of this round of aggressive land acquisitions.
Changing economic conditions and industry-specific credit considerations continue to shape our view of the North American life insurance, property/casualty insurance, and reinsurance markets. We maintain a stable outlook on the life insurance sector. Although historically low interest rates continue to squeeze margins, life insurers haven't ventured too far into higher-risk assets seeking yield. In the property/casualty sector, where we also maintain a stable outlook, insurers have benefited from rate increases in recent years as well as reduced catastrophe losses in 2013. However, catastrophe risk is ever-present and losses remain high for workers' compensation, which still struggles to become profitable. Meanwhile, stiff competition continues to dog the reinsurance sector, and its impact on profits contributed to our recent outlook revision to negative. Here we respond to the leading questions investors have asked us about the current state of these sectors.
We expect new borrowings by French local and regional governments (LRGs; cities, intercities, and regions) will remain almost stable in 2014. Given our expectations of debt capital repayments, we forecast continued growth in direct debt that is likely to reach €139 billion-€140 billion or 72% of operating revenues at year-end 2014. We expect an increase in regions' new borrowings to be compensated by the same decrease for cities and intercities, while departments' new borrowings are likely to remain stable. Furthermore, the changes observed last year in LRGs' funding sources will likely continue to alleviate the liquidity crunch observed before 2013. In 2014, we anticipate that French LRGs' operating revenue growth will continue to slow, because we expect operating revenues to increase by less than 1%.
U.S. Banks' Earnings Showed Steady Progress In Fourth-Quarter 2013, But The Outlook For 2014 Remains Unchanged
We are maintaining our earnings outlook for the U.S. banking industry in 2014 and 2015 based on the Federal Deposit Insurance Corp.'s recently released industry financial performance data as of fourth-quarter 2013 and full-year 2013. Earnings in the fourth quarter were about 4% higher than we had anticipated on the back of slightly better-than-anticipated operating revenues, including net interest margin that remained stable from the previous quarter and lower litigation expenses at one large institution. However, credit leverage, rather than operating leverage, continued to bolster banks’ bottom lines, even as loan loss provisions increased sequentially. With reserve releases likely ending in 2014, bank management teams will be challenged to improve top-line growth.
Aereo Inc. launched in February 2012 as an over-the-top (OTT) service, offering online entertainment directly to consumers by circumventing cable, satellite, and telecom video providers. The service allows subscribers to watch and record over-the-air broadcast television by relaying signals from local TV station affiliates to its customers through a personal antenna system. However, unlike cable and satellite operators, Aereo doesn't pay retransmission consent fees to local TV stations for this content, which is the underlying reason for its legal dispute with broadcasters. On April 22, 2014, the U.S. Supreme Court will hear oral arguments in the case of American Broadcasting Companies (ABC) Inc., et al. versus Aereo Inc. In the following FAQ, we explore the operational issues, legal uncertainties, and potential actions broadcast networks might take, depending on the outcome of the Supreme Court case.