Survey: Retail Sector Ranked Most Financially Vulnerable in 2017

Respondents to AlixPartners LLP’s recent 2017 North American Restructuring Experts Survey overwhelmingly identified (67 percent) the U.S. retail sector as the most likely industry to face financial distress this year, surpassing the oil & gas sector (57 percent) and health care industry (31 percent). Globally, oil & gas (55 percent), maritime/shipping (40 percent), retail (35 percent) and sovereign debt (32 percent) were areas of concern that stood out for respondents. Retail’s ranking, according to AlixPartners, may be in response to 2016’s uptick in retail bankruptcies. Retail’s cost base is structurally difficult to adjust because of the industry’s large real estate footprint, according to the survey. On the other hand, experts are predicting that the oil & gas industry will stabilize during 2017 and into 2018. About 27 percent predicted stabilization in 2017, though more than half of the experts (55 percent) said that the turning point will not be until 2018.

 

Analysis: Shipping's Long, Slow Turn

Warnings about overcapacity in the shipping industry date back almost a decade, yet even with a slowdown in trade, the global box fleet just kept growing, according to a Bloomberg News analysis today. The deadweight tonnage of the world's container ships more than doubled in the decade through June 2016 and didn't decline in any single quarter, according to IHS Global Ltd. data compiled by Bloomberg Intelligence. Even after demolitions of older and unprofitable ships began to outstrip orders for new vessels in 2012, the fleet kept expanding for four years. Since June 2016, 104 ships have left the global fleet, reducing capacity by about 2.5 million deadweight tons. That's helped lift rates: The price for shipping a 40-foot container from Hong Kong to Los Angeles has tripled from $776 to $2,336 at the end of January, according to Drewry, a London-based research firm — the highest level for the route since 2013 and not far below the record in figures dating back to 2011. In many ways, the world's container lines still appear to be in heavy seas. Hanjin Shipping Co., South Korea's biggest line until it sought bankruptcy protection last August, may start to be liquidated soon since a Seoul judge ended its receivership earlier this month, Bloomberg News reported Thursday. A.P. Moller-Maersk A/S, owner of the world's biggest container line, this week surprised the market by posting its second annual loss since World War II and warned of the "very negative effect" of any trade war between China and the U.S. There's a bright spot in both events, though: A fire sale of Hanjin's assets is the best possible of the likely outcomes for a shipping industry awash in excess capacity (having scrap dealers buy the entire fleet would be better still). And Maersk forecasts that net income at its container line would be about $1 billion higher than its $384 million loss this year, thanks in part to a demand for containers that is growing faster than capacity for the first time in at least 15 quarters.

For-Profit Law School Faces Crisis After Losing Federal Loans

The Charlotte School of Law, a for-profit school with hundreds of students, remains in business, even without the lifeline of federal student aid, the New York Times reported yesterday. It is counting on the Education Department under the Trump administration to reopen the loan spigot that the agency turned off last month after the American Bar Association, the law school’s accreditor, found that the school did not satisfy its admissions and curriculum standards. Schools have to be accredited in order for their students to qualify for federal student loans, a source of funding that most law students rely on to pay six-figure tuition costs. Charlotte Law’s struggles and its dispute with the government highlight the questions being raised over for-profit law schools and the sky-high amounts that students are borrowing for their educations. Law school debt alone, when counting interest, has risen to about $175,000 per student, said J. Jerome Hartzell, a lawyer in Raleigh, N.C., who has studied the debt issue.


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Commentary: Trump and Brexit Pose New Questions for Financial Regulation

Europe has spent the years since the financial crash constructing an edifice of regulation to curb excessive risk-taking by banks and other financial institutions. With the last bricks almost in place, two factors threaten to bring the building down: Donald Trump and Brexit, according to a Wall Street Journal commentary today. Trump’s administration has raised two pertinent questions: Will it embark on an aggressive deregulation of the financial system, leaving deeply different regulatory regimes on either side of the Atlantic? And, if so, will it abandon its efforts for international coordination? Brexit also boosts uncertainty, not the least around the consequences of London, Europe’s financial capital, no longer being inside the European Union and its financial institutions not necessarily being bound any longer by EU regulations. Gary Cohn, Trump’s senior economic adviser, said last week that American banks were at “a huge disadvantage relative, especially, to the European banks,” largely because the American banks were carrying much fatter capital cushions. Most financial experts say that Europe was much slower than the U.S. in cleaning up its banks post-crisis and that there are still lingering problems, including nonperforming loans, in some countries. But European banks say one important reason that their capital ratios are below that of their American counterparts is because they can’t sell off capital-hungry mortgages to government-sponsored enterprises, as U.S. banks do. Additionally, they say, a glance at the success of American banks in European investment-banking league tables doesn’t suggest they are laboring under huge competitive disadvantages.

 

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