World Economic News
LBOs Turn Euro Companies into 'Headless Chickens'
"These companies could be left for dead," said Jon Moulton, head of Alchemy Partners, at the Super Investor conference in Paris, referring to a rash of leveraged buyouts in Europe, adding that this painted a "terrible political picture" for private equity. Moulton estimates there are $768 billion worth of outstanding leveraged loans in Europe that have financed about 2,500 private equity-backed companies. Some 200 have undergone "leveraged recapitalizations," in which private equity backers repay themselves their entire "investment" while at the same time loading the companies with extra debt. There likely will be "a large number of defaults next year," he warned, citing "irresponsible leverage", as some of these companies now have as many as 11 layers of debt.
His comments were reported in the Financial Times of Nov. 15.
40% Collapse in British Home Prices Expected
In a speech to the British Bankers Association Nov. 15, Clive Briault, the Financial Services Administration (FSA)'s managing director for retail markets, reported that after a review of British banks' "stress-testing" models for a collapse in house prices, he found the tests not serious enough.
To correct this, the FSA issued an instruction which orders the banks run a test that assumes a 40% collapse in home prices, and that 35% of home mortgages now in default would end with homes being repossessed. In a letter last month to British bank chief executives, the FSA stated that some CEOs failed toor more appropriately, refused toconsider scenarios in which they might be forced into losses, dividend cuts, and capital shortfalls.
In 1989-92, British home prices fell by 15%; in parts of East Anglia, home prices tumbled by 40%, leading to repossession of homes, mortgage write-downs, and bank losses, a mere foretaste of what will happen today.
Italian Consumers Group Scores Rating Agencies
Adusbef, an Italian consumers organization, has published a report signed by Adusbef chairman Elio Lannutti and Paolo Raimondi, chairman of the International Civil Rights Movement Solidarity, exposing international rating agencies as a tool of financial speculation, and calling for a New Bretton Woods-like reorganization of the financial system. The report includes a passage on the resolution for a new financial architecture, voted by the Italian Parliament in 2005, and the Adusbef website version adds a box mentioning Lyndon LaRouche as initiator of the NBW.
A statistical survey by Adusbef found that of 1,000 reports issued by Moody's, Standard & Poor's, and Fitch, 910 proved to be wrong.
The Adusbef report was motivated by the recent downgrading of the Italian public debt. The report states that "the Three Sisters [the major rating agencies] ... are an integral part of the problem that is driving the economic world towards the crash and systemic crisis, with devastating consequences for the entire economic, social and political life of our planet."