Moreso than ever before, the world has been financialized. The increased financialization means that loans and other borrowing instruments are quite important to economic growth.

Within this vein, some interesting trends have emerged over the past few years.

Non-Performing Loans

The following is a look at countries with non-performing loans above 6.6% of their total loans balances. The list includes some concerning areas.

The Three Worst

On top of the non-performing loans list is Cyprus, at 40.2%. In second place is Greece at 39.9%. In third place is another European country, Ireland, at 30.3%.

Take a step back and think about it.  About 40% of all loans are not being paid back in Cyprus and Greece.

Amazing.  In a sad way.

Others on the List

The list, of course, doesn’t stop with teetering European economies. Other members with non-performing loans above 20% include Albania (25.3%), Romania (25.3%), Sierra Leone (24.7%), Senegal (22.8%), Slovenia (21.2%), and Serbia (20.3).

Other big economies on the list include Italy (16.9%), Portugal (12.9%), Ukraine (12.9%), and Spain (9.4%).

nonperf1

The Other End of the Non-Performing List

Now take a look at economies on the other end of the non-performing spectrum. The best area where individuals and businesses are having little difficulty paying back their loans is Estonia at 0.2%.

Interestingly, the list includes not only very wealthy economies, but some small, globally less significant areas.

Large economies on this list include at the United States at 2.8%, Brazil at 2.7%, Japan at 2.3%, Australia at 1.1%, China at 1.0%, South Korea at 0.8%, and Canada at 0.4%.

nonperf2

How Has the Situation Changed over the Past 3 Years?

A 2014 snapshot, of course, doesn’t provide a complete view. Here’s a look at what non-performing loans have done for selected countries since 2012.

The green dot represents where the percentage of non-performing loans were in 2012. In orange is 2013. In blue is 2014.

Large Increases

Some countries at the top have experienced some large expansions in their non-performing loans.

Greece, for example, saw the percentage of loans classified as non-performing jump from 31% in 2013 to 40% in 2014. Cyprus experienced a similar jump over the same period, with non-performing loans going from 30% to 40%.

Small Changes

Interestingly, the large jumps in countries such as Greece or Cyprus was not matched by countries where non-performing loan figures improved. Improvement in countries such as the U.S, China, Australia, and South Africa was marginal.  The figures barely improved.

nonperf3

Conclusion

Overall, non-performing loans exploded in certain areas of the globe in 2014. Can non-performing loans be a trigger for broader global turmoil in this year or the next?

The answer is, unsurprisingly, maybe.  After all, all it took to send the global economy into a terrible recession in 2008 were a few areas of the U.S. housing market.  The weakness in certain U.S. housing markets snowballed across the globe.  The same type of experience could happen here.

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Fifty years from now, when economists debate the major themes of the first half of the 21st century, could the first half be known as the debt era?

Debt to GDP

Here’s a map of the global debt to GDP landscape. Perhaps completely unsurprising to seasoned professionals in the investment banking world, the map shows the dominance of debt in European countries.

European countries are, of course, not alone.  Some other high debt load countries include Japan, the United States, Indonesia, China, and a few others.  Of this group, probably the only really surprising member is China.

Also interesting when looking at the geography behind the debt picture is the lack of large debt burdens in Russia and many South American countries.  One likely explanation for this is the concern bond markets have for the stability of the given countries’ financial systems.

The Debt Era

Detailed Views

Europe

Here’s a detailed view of Europe. As mentioned, European countries are loaded with debt. The highest on the debt list is Ireland at 390%.  Ireland’s profligacy is followed by Portugal, Belgium, Netherlands, and Greece.

Other European countries with debt burdens above the 200% watermark are Spain, Denmark, Sweden, France, Italy, United Kingdom, Norway, Finland, Austria, and Hungary. Interestingly, the strongest members of the EU – Germany – has a relatively low debt burden at 188%.  Guess it pays to be efficient and prudent.

The Debt Picture in Europe

South America

The debt picture is somewhat different in South America. The country with the highest debt load is Brazil at 162%.

The Debt Picture in South America

Asia

The debt picture in Asia is somewhat surprising. Of the interesting numbers is the lack of profligate spending in Russia, with a debt to GDP burden of only 65%. On the other end, some of the world’s most highly indebted countries call East Asia home, including Japan at 400% and Singapore at 382%. Also interesting is the 217% debt burden in China.

The Debt Picture in Asia

North America

In North America, the U.S. has the highest burdened citizens at 233%, followed by Canada at 221%. The other end includes Mexico at a mere 73%.

The Debt Picture in North America

The Table

Here’s a table view of the debt to GDP picture.

Debt to GDP

What Has Debt Done Since 2007?

Certainly, some of the massive debt expansion has the global financial crisis of 2007 to 2008 to blame. Here’s a look at how the debt picture has changed since 2007 to 2014 Q2.

The column on the farthest left is debt to GDP. The second column is total debt growth since 2007. The third column is corporate debt growth since 2007. The fourth column is household debt expansion since 2007. The right column is the debt change in the financial sector since 2007. A couple of things stand out.

First, government debt has exploded much quicker than household or corporate debt.

Second, it’s hard to tell which sector expanded quicker overall – corporations or households – indicating that the two have a closer view of the usefulness of debt than governments do.

Debt Picture Change, 2007 - 2014

Conclusion

Overall, debt picture is part surprising, part alarming, and part amusing. There’s lot of ways the debt world could deal with the massive debt loads in various areas of the world, but one thing is certain.  It will have to be dealt with sooner rather than later, regardless of what current Greek politicians think.

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Unless you willingly prefer to ignore reality, you likely know that politics is intricately connected with the investment banking world. Let’s take a look at employment growth by U.S. president since 1948. Unsurprisingly, employment growth expanded the strongest during the Clinton and Reagan administrations.

Employment Growth

During the Clinton administration, employment grew by a little over 20 percent. The Reagan administration places second at about 17 percent. Fast-forwarding to the two most recent administrations, things do not look nearly as bright.

During the George W. Bush’s administration (Bush II), the employment picture expanded by a couple of percentage points.  The Bush II administration was hindered by two recessions – the bursting of the technology bubble and the global financial crisis.

Following the George W. Bush’s administration, the Obama administration’s experience has been just as weak (weaker if you solve for trend growth). President Obama came into office about in the middle of the 2008/2009 recession.  Since bottoming out early in his second year of office, the U.S. economy has slowly added jobs, only recently gaining a little bit stronger pace after four years of anemic growth. Overall, if the current administration is lucky, it could see employment growth a little bit better than the Eisenhower administration (thanks to the weakness in the last year of the Eisenhower administration).

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GDP Growth

Switching to GDP, here is a look at GDP growth by U.S. president. Unsurprisingly given the performance of employment during their presidencies, GDP expanded the strongest during the Clinton and Reagan administrations. During the Clinton Administration, GDP grew by about 35 percent. During the Reagan Administration, GDP expanded by about 30 percent.

Fast forward to the two most recent administrations and again, things look relatively poor. At this point in his presidency (6 years), GDP was up about 16 percent during the George W. Bush’s Administration. Through the 6 years of the Obama Administration, GDP is up about 13 percent.

Where did the growth go in the past 15 years?

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Conclusion

Overall, the investment banking universe is intricately connected with the political world.  Always has been, and likely always will be. In looking at the performance of the economy – as measured by jobs – by U.S. President, it does not look very good for the most recent administrations. If the economy is able to survive another two years without a hiccup in the overall employment picture (probably unlikely), the Obama administration might make it to third worst since 1948 (for 2 full-term serving presidents).

A third worst performance would put the Obama administration far behind the employment growth experienced during the Clinton and Reagan years and about in line with what happened during the Bush II years if one excludes the global financial crisis.

When switching from the employment picture to the GDP picture, not a whole lot changes.  The Reagan and Clinton years were the best, and the two most recent administrations saw uncharacteristically slow GDP growth.

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Which Economic Unit’s Inflation Rate Moves the Price of Gold the Most?

February 2, 2015

It’s not uncommon to see investment bankers check the state of the gold market at least a few times a day. Of all the markets in the world, it’s one of the few that everyone finds fascinating. Movements in the gold market can signal pending inflation, slowing economic growth, unwise budgetary decisions, and other interesting indicators. The […]

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Do Demographics Correlate to Interest Rates?

January 19, 2015

The investment banking world is intricately involved in influencing the direction of interest rates. Of the many factors that “surprised” many in the investment banking business in 2014 was the continued downward pressure on interest rates. Essentially, at the start of 2014 the presumption among most in the investment banking universe was that global growth would […]

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Thinking About Economic Growth in 2014 and 2015

January 5, 2015

It has been an interesting year for economic growth. Overall, the world economy grew by about 3.5 percent on a real, price differential adjusted, basis.  The growth of 3.5 percent was relatively decent, although, of course, it was not even. Perhaps surprisingly, the 2014 GDP growth figures show a widely uneven experience in the amount of […]

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An 2015 Outlook for Investment Banking Jobs

December 22, 2014

The 2014 year is almost over.  Being good analysts, it seems like a good idea to review how investment banking employment did through the year and what the industry can expect for 2015. A Look Back at 2014 – Actual Employment The first graphic is a look at total investment banking industry employment since 1990.  […]

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