Report: Young Americans Faring Less Well in Credit Markets

Report: Young Americans Faring Less Well in Credit Markets

ABI Bankruptcy Brief

April 4, 2019

ABI Bankruptcy Brief

Report: Young Americans Faring Less Well in Credit Markets

Young Americans are getting left behind when it comes to credit access, the New York Federal Reserve said in a report released on Tuesday, the Wall Street Journal reported. The central bank’s finding came in a report that detailed the growth of credit access and borrowing levels. The New York Fed said that while overall debt levels have surpassed their prior peak, overall borrowing quality has improved and become more sustainable. “Trends since 2008 have focused debt growth among older, higher credit score, and presumably wealthier, households,” the report said. That is leaving the younger generation behind. “Burdened by increasing amounts of student debt, reduced homeownership and home equity, and relatively high or increasing student and auto loan delinquency rates, their financial situation contrasts sharply with the overall generally improved dynamics in household debt,” the New York Fed report said.

To view the full report, please click here.

Analysis: Risky Company Debt Is Getting Riskier

Protections built into loans and bonds are being steadily eroded, but investors keep buying, according to a Bloomberg News analysis. Private-equity firms such as Apollo Global Management and KKR & Co. have fought to make it easier for the companies they own to take on more debt soon after borrowing, and for debtors to sell off assets and pay the proceeds to shareholders. For a decade they had already chipped away at other provisions in loans known as “maintenance covenants” — requirements that a corporate borrower meet specific performance hurdles or else be forced to renegotiate terms or even repay debt. Private-equity firms “began to select their investment banks based in part on who could get the loosest high-yield covenants,” says Kirk Davenport, a former partner at law firm Latham & Watkins who also worked for Drexel on early junk-bond deals. “And once they figured that out, the race to the bottom was on.” Moody’s Investors Service says covenants for bonds and loans generally are at or near their weakest levels since the ratings firm started tracking them nearly a decade ago. When the economy slows, lenders could suffer much bigger losses than in previous downturns, say strategists at UBS Group AG, who estimate that lenders might recover less than half their money instead of 75 percent to 80 percent because of eroded protections.

ABI Consumer Bankruptcy Commission Report Coming Next Thursday

ABI's Commission on Consumer Bankruptcy next Thursday unveils its Final Report of recommendations to make consumer bankruptcy more accessible for financially struggling Americans. The report will be made available on April 11 at 9 a.m. EDT at, and you can tap in online to a special briefing at 10 a.m. EDT by Commission leadership. Also, be sure to attend the Annual Spring Meeting next week for sessions providing an in-depth look at the recommendations. Register here.

U.S. Regulators Propose Rule Discouraging Large Banks from Investing in Competitors' Debt

U.S. bank regulators proposed a rule on Tuesday that would discourage large banks from heavily investing in debt issued by other large banks by requiring them to hold additional capital against such investments. The proposal from the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency is aimed at ensuring that banks do not end up holding large amounts of “total loss-absorbing capacity” (TLAC) debt from fellow banks. Banks are required to issue TLAC debt under new rules established after the 2008 financial crisis, which were aimed at ensuring banks can quickly access more equity if pushed to bankruptcy. Banks are required to issue TLAC debt under new rules established after the 2008 financial crisis, which were aimed at ensuring that banks can quickly access more equity if pushed to bankruptcy, lowering the odds that taxpayers would need to bail them out. However, if large banks like JPMorgan Chase, Goldman Sachs and Citigroup simply bought up each other’s debt, regulators worry it could weaken that safeguard should a broad future crisis hit multiple global banks at once. Specifically, the rule would actively discourage larger banks from investing in TLAC debt by requiring banks to put up additional capital against large amounts of such investments. The proposal would also require those banks to publicly report how much of that debt they have outstanding.

Commentary: Corporate Executives Must Face Jail Time for Overseeing Massive Scams

It is time to reform our laws to make sure that corporate executives face jail time for overseeing massive scams, according to a commentary by Sen. Elizabeth Warren (D-Mass.) in the Washington Post on Tuesday. When a criminal on the street steals money from your wallet, they go to jail. When small-business owners cheat their customers, they go to jail. But when corporate executives at big companies oversee huge frauds that hurt tens of thousands of people, they often get to walk away under the current system with multimillion-dollar payouts, according to Warren. Too often, prosecutors don’t even try to hold top executives criminally accountable. Warren calls on Congress to enact the "Ending Too Big To Jail Act," which she introduced last year. That bill would make it easier to hold executives at big banks accountable for scams by requiring them to certify that they conducted a “due diligence” inquiry and found that no illegal conduct was occurring on their watch. Warren said that she also introduced a bill that expands criminal liability to any corporate executive who negligently oversees a giant company causing severe harm to U.S. families.

Big Banks Reach for Small Deals as Merger Boom Slows

Investment bankers across Wall Street are tripping over themselves, and sometimes each other, to win business advising smaller companies on deals — assignments they would have scoffed at a few years ago, the Wall Street Journal reported. They are hiring bankers in cities like Dallas and Atlanta and cozying up to a different set of corporate executives. As the post-crisis deal boom shows signs of slowing, Wall Street firms accustomed to headline-grabbing megadeals are sliding downmarket. Deals between $500 million and a few billion dollars historically have been dominated by regional firms such as Harris Williams & Co. in Richmond, Va., and Minneapolis’s Piper Jaffray Cos. “Every 10 years or so, the big banks get the idea to move in,” said Mark Brady, head of mergers and acquisitions at William Blair & Co., a Chicago-based firm where the average deal is $400 million. “As soon as there’s a down cycle, they disappear.” Bank executives say they are committed this time. Their own investors are demanding growth, and “there are only so many big transactions,” Mr. Brady said. There were 135 deals in the U.S. last year valued at over $2 billion, versus 2,200 under, according to FactSet.

Don't Miss Annual Spring Meeting Next Week in Washington, D.C.!

ABI's Annual Spring Meeting starts next week, featuring 30 sessions with expert speakers analyzing important bankruptcy cases and issues. Legendary journalist and author Bob Woodward will deliver a keynote to provide the pulse of D.C. Additionally, ABI's Consumer Bankruptcy Commission will release its final report of recommendations to improve the consumer bankruptcy system. Don't miss the engaging sessions. Don't miss the ample networking opportunities. Don't miss THE bankruptcy event of the year. Register here.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!


New on ABI’s Bankruptcy Blog Exchange: Wells Fargo Offers New Student Card Benefits After Backlash

Wells Fargo said holders of its student cards will see their costs decline by about half as it expands benefits after drawing scrutiny earlier this year for high fees on college campuses, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

© 2019 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600
Alexandria, VA 22314

To UNSUBSCRIBE from future bankruptcy brief emails,
click here.