“A bank run at a small local institution in the southwestern Chinese city of Zigong could be a sign of an impending financial crisis.
“Shareholders of Bank of Zigong in Sichuan Province absconded with 40 billion yuan ($5.78 billion), through loans issued to shell companies that they had created, according to a Nov. 2 post in a Chinese social-media account, and a report by Da Zhong, a state-run news website. The loans were long overdue, resulting in huge losses for the bank.
“The news spread quickly, even though the post was deleted within 20 minutes by internet censors. Scores of bank customers rushed to dozens of bank branches in Zigong City to retrieve their deposits, while long lines of people could be seen from photos of the scene and uploaded by netizens…”
“…the Bank of Zigong exemplifies a common situation in many regions acrross China.
“Like many economic hubs in China, municipal authorities in Zigong have borrowed large sums from the Bank of Zigong to finance local infrastructure projects. The bank explicitly explains on its website that the institution supports initiatives by the city’s Communist Party committee and government authorities such as building projects, city redevelopment, state-owned enterprises reform, and more.
“Zigong City, as with many other municipal governments, has set up local investment firms as a popular option to borrow money. But that has led to enormous debt that governments couldn’t repay.”
“China’s economy grew at its slowest pace in a decade in the third quarter… the slowdown this year is in largely thanks to a state-led deleveraging campaign that was started last year in attempt to deal with excess debt. Most notably, authorities had attempted to crack down on risky lending as part of the program.”
“The Democrats will retake the US House of Representatives, dealing a major blow to President Donald Trump’s domestic agenda, but if anxious politicians in Beijing think that means a reprieve from the White House, they should think again. China is one of the few policy areas where there is some bipartisan consensus.”
“”As Treasury Secretary, I presided over the US response to the 2008 financial crisis, so I know a little something about systemic risk. And I simply cannot see how the international system can endure when the two countries that comprise some 40% of global GDP and over 50% of global growth are working at cross-purposes, attempting to de-integrate their two economies, and contesting the foundations of a rules-based order at every turn,” Paulson said.”
Amen to that, Hank.
“Japan’s government has kicked off debate on changing antitrust rules to make it easier for regional banks to merge, as they struggle to generate profits due a declining population and a limited number of corporate borrowers… The plight of regional banks has become a headache for the BOJ, which is drawing criticism for hurting financial institutions’ profits by keeping interest rates virtually at zero for years.”
“Macquarie Bank says the downturn in Australia’s housing market will be larger than it first thought, with price declines of between 15 per cent to 20 per cent likely in Sydney and Melbourne… “The overall decline is now likely to approach 10 per cent… the largest peak-to-trough decline in nominal housing prices in almost 40 years.””
“[The global economic faultlines] can be seen in the build-up of leverage in emerging market economies, the shift of leverage from banks to non-banks and an increase in corporate bond issuances globally, said Monetary Authority of Singapore’s (MAS) managing director Ravi Menon, as he warned of the possibility of another global financial meltdown.”
“Rating agency Moody’s yesterday warned that South Africa and some of its emerging market peers, such as Turkey, Argentina and Brazil, faced heightened risks due to weak institutions, unpredictable domestic politics and geopolitical risk. “
“…all three of Italy’s PMI prints (manufacturing, services, composite) has entered into contraction territory and that won’t be music to the ECB’s ears. The good news is that the last time these sectors saw a contraction, it immediately recovered. However, you get the feeling that this time around is a little different.”
“…investors are partly priced for an aborted ECB rate hike cycle. Or they believe the neutral policy rate in the euro zone — the interest rate level that neither restricts nor stimulates the economy — is likely to stay negative. This is significant because it means the ECB’s room to use interest rate cuts as a tool to combat an economic downturn will be limited, suggesting it may have to turn to quantitative easing again.”
“…former Federal Reserve Chair Janet Yellen warned the U.S. might struggle to cope with lending risks that have spread beyond banks.”
“There’s a very real possibility the global economy breaks down in the next six months.”