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HSBC México gets capital injection; BNDES suspends loans for firms under corruption probe

Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View


HSBC México gets capital injection; BNDES suspends loans for firms under corruption probe

* Banco Nacional de DesenvolvimentoEconômico e Social has temporarily suspended$4.7 billion in loan disbursements for large engineering companies that have beenimplicated in a wide-ranging corruption probe centered on oil firm Petrobras, Reutersreported. The loans were frozen in May, but the move was only announced publiclyon Oct. 11 by Ricardo Ramos, director of the company's exports division.

* HSBC México SA Instituciónde Banca Múltiple Grupo Financiero HSBC said it received a capital totaling 5.55 billion Mexicanpesos from its parent, HSBC HoldingsPlc. HSBC México CEO Nuno Matos said the funds will allow the bank tocontinue with its "positive growth" demonstrated in recent quarters.

MEXICO ANDCENTRAL AMERICA

* XL Catlinhas opened its second officein Mexico, located in Monterrey, and appointed Carlos Matthey client distributionleader in that location. XL Catlin is the global brand used by 's insurance and reinsurancecompanies.

* Fitch Ratingsassigned BB+(gtm) long-and B(gtm) short-term national ratings to Financierade Occidente SA, with a stable outlook. The ratings are based on theentity's pressured capital, high portfolio concentration and low historical profitability,but also take into account certain advantages provided by synergies with the firm'sgroup.

* Panama's is readying toissue a possible senior unsecurednote alongside a tender offer for its outstanding covered bonds due 2017, IFRreported. Meanwhile, Mexico's NacionalFinanciera SNC Institución de Banca de Desarrollo has finished marketingefforts for a possible U.S. dollar bond offering.

* Salvador Sanchez,the president of El Salvador, urged legislators to endorse a $1.2 billion bond salethat would help the government escape a liquiditycrisis, Bloomberg News reported. The "lack of liquidity" must be addressedin 2016 to "avoid negative consequences of greater dimension," the presidentsaid in a televised address.

* will sign anagreementin the coming days with health care startups Clínicas Cuídate and 1DOC3 to launcha free online medical assessment service for clients, El Economista reported, citing Santiago Fernández, executive vice presidentof health insurance at AXA.

* Representativesfrom Mexico's banking sector agree that an interest rate increase by in September hasresulted in some forms of loansbecoming more expensive, El Economistareported. Banca Mifel SA Instituciónde Banca Múltiple Grupo Financiero Mifel CEO Daniel Becker said thecentral bank could hike its benchmark rate again before the end of 2016.

* Nicaragua-basedbank Grupo BAC Credomatic, which is owned by Grupo Aval Acciones y Valores SA, has dismissed45 employees in a restructuring process aimed at improving operational efficiency,El Financiero reported, citing regionalcorporate relations manager Mónica Nágel.

BRAZIL

* Consumerdelinquencies in Brazilincreased 4.7% in September from the prior month and 0.5% in the year-to-date periodcompared to a year earlier, according to data from credit research firm Boa VistaSCPC. When comparing the September default rate alone with the same month a yearago, the index dropped 3.4%.

* Rodrigo Maia,the speaker of Brazil's lower house of Congress, said he threw out a bill that wouldhave granted financially troubled states a larger slice of the proceedsfrom an amnesty program for undeclared foreign assets, Reuters reported. Maia saidhe scrapped the bill due to disapproval from opposition parties.

* A federalcourt in Brazil closedcriminal proceedings against former executives of local banks FonteCindan and Marka,as well as former directors of BancoCentral do Brasil, without issuing any penalties, Folha de S. Paulo reported. The former bankexecutives had been accused of receiving privileged central bank information aboutthe fixed exchange rate between the U.S. dollar and the real in 1999.

* announced a majorrevampfor its executive leadership, promoting 10 staff members to director positions andrelocating five other executives to different positons, O Estado de S. Paulo reported. The bank also created new director positionsfor marketing and communications, as well as legal affairs.

* The governmentsof Brazil and China signeda memorandum of understanding to set up a $20 billion fund to finance infrastructureprojects in Brazil, with China contributing $15 billion of the total and Brazil$5 billion.

ANDEAN

* GrupoAval Acciones y Valores SA said it has received loans totaling about 100.50 billion Colombian pesos fromaffiliate Banco de Bogotá SAsince early July. The two-year loans were obtained through several transactions.

* Sara Sorianode Teresa has resignedas the board chairman of Banco AztecaSA Institución de Banca Múltiple's Peruvian unit, Banco Azteca del Peru.Soriano de Teresa was replaced by Jose Alberto Balbuena Balbuena, who started inthe position Oct. 10.

* Colombia'sfinancial regulator is investigating BancolombiaSA over recent failuresin its online platform. The bank's technology platform experienced 15 failures inthe last three months and the regulator is investigating to see if fines may beapplicable, Portafolio reported.

* Colombia'sFARC rebel group still wants to end violence in the country despite Colombians recentlyvoting to reject a peace deal the government had reached with the rebels, The Wall Street Journal reported."The news that the world should know is that the war is over and we are goingto find — I have no doubt — alternatives to the problems we have now," saida member of FARC's ruling secretariat.

* Peru's attorneygeneral has launched a probe intoformer president Ollanta Humala and his wife for potential money laundering connectedto campaign donations, Reuters reported.

* More than19,000 pensioners in Peru have signed up to use 25% of their retirement savingsto payoff their mortgage loans, a move that was made possible by new rules introducedearlier in 2016, La República reported,citing financial regulator SBS.

SOUTHERNCONE

* Banco Central de laRepública Argentina and other financial authorities in Argentina areworking on a newrule that will prohibit banks from requesting tax returns from people who wantto open an account or access other banking services, La Nación reported.

* Chilean authorities interrogated Mauricio Peña, a former manager at investmentfund Aurus, for more than five hours over an alleged fraud that resulted in lossesof $25 million for clients, Diario Financieroreported.

* Uruguay's association of private banks signed an 18-month salary agreementwith labor union AEBU for wages that reflect increases in inflation, El Observador reported.

PAN LATINAMERICA

* Moody's said its global speculative-grade default rate closed at 4.5%for the trailing 12-month period through September, downslightly from 4.6% as of June. The rating agency expects the rate to finish2016 at 4.4% before easing off to 3.3% a year from now.

IN OTHERPARTS OF THE WORLD

* Asia-Pacific:Shenzhen-HK trading link established;India to merge 2 state-run banks

Matthew Crazecontributed to this article.

The DailyDose has an editorial deadline of 8:00 a.m. São Paulo time, and scans news sourcespublished in English, Portuguese and Spanish. Some external links may require asubscription.


Listen: Street Talk Episode 40 - Digital Banks Take a Page Out of 'Mad Men'

Mar. 20 2019 — Some fintech companies are making hay with digital platforms that tout their differences with banks, even though they are often offering virtually the same products. In the episode, we discuss with colleagues Rachel Stone and Kiah Haslett the deposit strategies employed by the likes of Chime, Aspiration and other incumbent players such as Ally Financial, Discover and Capital One. Those efforts conjure up memories of a Don Draper pitch in Mad Men and likely will enjoy continued success.

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Technology, Media & Telecom
Broadband Only Homes Skyrocket In 2018 Validating Top MSOs Connectivity Pivot

Highlights

The segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

The following post comes from Kagan, a research group within S&P Global Market Intelligence.

To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Mar. 20 2019 — The U.S. broadband-only home segment logged its largest net adds on record in 2018, validating Comcast Corp.'s and Charter Communications Inc.'s moves to make broadband, or connectivity, the keystone of their cable communication businesses.

The size and momentum of the segment also put in perspective the recent high-profile online-video video announcements by the top two cable operators as well as AT&T Inc.'s WarnerMedia shake-up and plans to go toe-to-toe with Netflix in the subscription video-on-demand arena in the next 12 months.

We estimate that wireline broadband households not subscribing to traditional multichannel, or broadband-only homes, rose by nearly 4.3 million in 2018, topping the gains from the previous year by roughly 22%. Overall, the segment stood at an estimated 23.6 million as of Dec. 31, 2018, accounting for 24% of all wireline high-speed data homes.

For perspective, broadband-only homes stood at an estimated 11.3 million a mere four years ago, accounting for 13% of residential cable and telco broadband subscribers.

The once all-powerful, must-have live linear TV model, which individuals and families essentially treated as a utility upon moving into a new residence, increasingly is viewed as too expensive and unwieldy in the era of affordable, nimble internet-based video alternatives. This has resulted in a sizable drop in penetration of occupied households.

As a result, continued legacy cord cutting is baked in and broadband-only homes are expected to continue to rise at a fast clip, with the segment's momentum in the next few years compounded by Comcast's, Charter's and AT&T's ambitious moves into online-video territory.

Note: we revised historical broadband-only home estimates as part of our fourth-quarter 2018, following restatements of historical telco broadband subscriber figures and residential traditional multichannel subscriber adjustments.

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Q4'18 multichannel video losses propel full-year drop to edge of 4 million

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Q4'18 multiproduct analysis sheds more light on video's fall from grace

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Watch: Power Forecast Briefing: As retirements accelerate, can renewable energy fill the gap?

Mar. 19 2019 — Steve Piper shares the outlook for U.S. power markets, discussing capacity retirements and whether continued development of wind and solar power plants may mitigate the generation shortfall.

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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Fundamentals View

Mar. 15 2019 — On November 20, 2018, a joint event hosted by S&P Global Market Intelligence and S&P Global Ratings took place in London, focusing on credit risk and 2019 perspectives.

Pascal Hartwig, Credit Product Specialist, and I provided a review of the latest trends observed across non-financial corporate firms through the lens of S&P Global Market Intelligence’s statistical models.1 In particular, Pascal focused on the outputs produced by a statistical model that uses market information to estimate credit risk of public companies; if you want to know more, you can visit here.

I focused on an analysis of how different Brexit scenarios may impact the credit risk of European Union (EU) private companies that are included on S&P Capital IQ platform.

Before, this, I looked at the evolution of their credit risk profile from 2013 to 2017, as shown in Figure 1. Scores were generated via Credit Analytics’ PD Model Fundamentals Private, a statistical model that uses company financials and other socio-economic factors to estimate the PD of private companies globally. Credit scores are mapped to PD values, which are based on/derived from S&P Global Ratings Observed Default Rates.

Figure 1: EU private company scores generated by PD Model Fundamentals Private, between 2013 and 2017.

Source: S&P Global Market Intelligence.2 As of October 2018.

For any given year, the distribution of credit scores of EU private companies is concentrated below the ‘a’ level, due to the large number of small revenue and unrated firms on the S&P Capital IQ platform. An overall improvement of the risk profile is visible, with the score distribution moving leftwards between 2013 and 2017. A similar picture is visible when comparing companies by country or industry sector,3 confirming that there were no clear signs of a turning point in the credit cycle of private companies in any EU country or industry sector. However, this view is backward looking and does not take into account the potential effects of an imminent and major political and economic event in the (short) history of the EU: Brexit.

To this purpose, S&P Global Market Intelligence has developed a statistical model: the Credit Analytics Macro-scenario model enables users to study how potential future macroeconomic scenarios may affect the evolution of the credit risk profile of EU private companies. This model was developed by looking at the historical evolution of S&P Global Ratings’ rated companies under different macroeconomic conditions, and can be applied to smaller companies after the PD is mapped to a S&P Global Market Intelligence credit score.

“Soft Brexit” (Figure 2): This scenario is based on the baseline forecast made by economists at S&P Global Ratings and is characterized by a gentle slow-down of economic growth, a progressive monetary policy tightening, and low yet volatile stock-market growth.4

Figure 2: “Soft Brexit” macro scenario.5

Source: S&P Global Ratings Economists. As of October 2018.

Applying the Macro-scenario model, we analyze the evolution of the credit risk profile of EU companies over a three-year period from 2018 to 2020, by industry sector and by country:

  • Sector Analysis (Figure 3):
    • The median credit risk score within specific industry sectors (Aerospace & Defense, Pharmaceuticals, Telecoms, Utilities, and Real Estate) shows a good degree of resilience, rising by less than half a notch by 2020 and remaining comfortably below the ‘b+’ threshold.
    • The median credit score of the Retail and Consumer Products sectors, however, is severely impacted, breaching the high risk threshold (here defined at the ‘b-’ level).
    • The remaining industry sectors show various dynamics, but essentially remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 3: “Soft Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

  • Country Analysis (Figure 4):
    • Although the median credit risk score may not change significantly in certain countries, the associated default rates need to be adjusted for the impact of the credit cycle.6 The “spider-web plot” shows the median PD values for private companies within EU countries, adjusted for the credit cycle. Here we include only countries with a minimum number of private companies within the Credit Analytics pre-scored database, to ensure a robust statistical analysis.
    • Countries are ordered by increasing level of median PD, moving clock-wise from Netherlands to Greece.
    • Under a soft Brexit scenario, the PD of UK private companies increases between 2018 and 2020, but still remains below the yellow threshold (corresponding to a ‘b+’ level).
    • Interestingly, Italian private companies suffer more than their Spanish peers, albeit starting from a slightly lower PD level in 2017.

Figure 4: “Soft Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

“Hard Brexit” (Figure 5): This scenario is extracted from the 2018 Stress-Testing exercise of the European Banking Authority (EBA) and the Bank of England.7 Under this scenario, both the EU and UK may go into a recession similar to the 2008 global crisis. Arguably, this may seem a harsh scenario for the whole of the EU, but a recent report by the Bank of England warned that a disorderly Brexit may trigger a UK crisis worse than 2008.8

Figure 5: “Hard Brexit” macro scenario.9

Sources:”2018 EU-wide stress test – methodological note” (European Banking Authority, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies“ (Bank of England, March 2018).

Also in this case, we apply the Macro-scenario model to analyze the evolution of the credit risk profile of EU companies over the same three-year period, by industry sector and by country:

  • Sector Analysis (Figure 6):
    • Despite all industry sectors being severely impacted, the Pharmaceuticals and Utilities sectors remain below the ‘b+’ level (yellow threshold).
    • Conversely, the Airlines and Energy sectors join Retail and Consumer Products in the “danger zone” above the ‘b-’ level (red threshold).
    • The remaining industry sectors will either move into or remain within the intermediate risk band (here defined between the ‘b+’ and the ‘b-’ level).

Figure 6: “Hard Brexit” impact on the median credit risk level of EU private companies, by industry.

Source: S&P Global Market Intelligence. As of October 2018.

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  • Country Analysis (Figure 7):
    • Under a hard Brexit scenario, the PD of UK private companies increases between 2017 and 2020, entering the intermediate risk band and suffering even more than its Irish peers.
    • Notably, by 2020 the French private sector may suffer more than the Italian private sector, reaching the attention threshold (here shown as a red circle, and corresponding to a ‘b-’ level).
    • While it is hard to do an exact like-for-like comparison, it is worth noting that our conclusions are broadly aligned with the findings from the 48 banks participating in the 2018 stress-testing exercise, as recently published by the EBA:10 the major share of 2018-2020 new credit risk losses in the stressed scenario will concentrate among counterparties in the UK, Italy, France, Spain, and Germany (leaving aside the usual suspects, such as Greece, Portugal, etc.).

Figure 7: “Hard Brexit” impact on the median credit risk level of EU private companies, by country.

Source: S&P Global Market Intelligence. As of October 2018.

In conclusion: In Europe, the private companies’ credit risk landscape does not yet signal a distinct turning point, however Brexit may act as a pivot point and a catalyst for a credit cycle inversion, with an intensity that will be dependent on the Brexit type of landing (i.e., soft versus hard).

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.
2 Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
3 Not shown here.
4 Measured via Gross Domestic Product (GDP) Growth, Long-term / Short-term (L/S) European Central Bank Interest Rate Spread, and FTSE100 or STOXX50 stock market growth, respectively.
5 Macroeconomic forecast for 2018-2020 (end of year) by economists at S&P Global Ratings; the baseline case assumes the UK and the EU will reach a Brexit deal (e.g. a “soft Brexit”).
6 When the credit cycle deteriorates (improves), default rates are expected to increase (decrease).
7 Source: “2018 EU-wide stress test – methodological note” (EBA, November 2017) and “Stress Testing the UK Banking system: 2018 guidance for participating banks and building societies”. (Bank of England, March 2018).
8 Source: “EU withdrawal scenarios and monetary and financial stability – A response to the House of Commons Treasury Committee”. (Bank of England, November 2018).
9 As a hard Brexit scenario, we adopt the stressed scenario included in the 2018 stress testing exercise and defined by the EBA and the Bank of England.
10 See, for example, Figure 18 in “2018 EU-Wide Stress Test Result” (EBA November 2018), found at:https://eba.europa.eu/documents/10180/2419200/2018-EU-wide-stress-test-Results.pdf

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2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market-Driven View

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