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Bradford & Bingley loan sale resumed; Bankia-BMN merger likely in 2017

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

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

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

AVIA OTT Summit 2019 Offers Insight Into Changing OTT Roadmap


Bradford & Bingley loan sale resumed; Bankia-BMN merger likely in 2017

Rumors swirl onwinding down ECB's asset purchases: An informal consensus is growing thatthe ECB will gradually scale back its asset purchases before ending itsquantitative easing program, and could wind down its purchases by €10 billion amonth, eurozone central bank officials tellBloomberg News. QE is scheduled to run until March 2017, but the ECB couldextend the program further if necessary. ECB media officer Michael Steen tweetedthat the Governing Council has not discussed such an issue.

* ECB Governing Council member Klaas Knot called on the central bank to assess the impact ofnegative interest rates on the profitability of European banks, Bloomberg News writes."The low interest rates not only create problems for life insurancecompanies and pension funds, but it also hurts the interest rate income forbanks," Knot said.

* Separately, ECB Chief Economist Peter Praet said there is nostrong evidence that the institution's monetary policy measures have anegative effect on banks' profitability, but acknowledged that the longer thecurrent low interest rate environment persists, "the greater thechallenges for bank profitability will be."

* U.S. financial services company Mastercard Inc.has rolled out its new identity check mobile app in Europeancountries including the U.K., Spain, Germany and Finland, The Independent reports.The service allows customers to verify their identity using "selfies"and fingerprint recognition when making online payments.

UK AND IRELAND

UK resumesBradford & Bingley loans sale: The U.K. government has resumed the saleof Bradford & BingleyPlc's £15.65 billion mortgage portfolio after putting it on hold inthe aftermath of the Brexit vote, insiders tellReuters. UK Asset Resolution, which is selling the loans, intends to sendprospective bidders nondisclosure agreements this week.

*  agreed tosell its retail andcorporate banking business in Egypt to Morocco-based . The deal isexpected to reduce Barclays' risk-weighted assets by approximately £2 billion. 

* to key commercialterms with Pomona Capital and Pantheon Ventures regarding the sale of "asignificant percentage" of its investment portfolio. Meanwhile, DavidAtterbury, managing director of HarbourVest Structured Solutions III LP, whoseunsolicited offer for SVG was deemed too low, called SVG's proposals complexand subject to "significantmarket and execution risk" while urging SVG shareholders to acceptits offer "without delay."

* A report by consultancy firm Oliver Wyman said the U.K.financial industry stands to lose up to £38 billion in revenue and 75,000 jobsin a "hard Brexit" scenario that would restrict the industry's accessto the European single market, Reuters reports.In comparison, Britain could lose about £2 billion in revenue and 4,000 jobs ifit manages to retain access to the European Economic Area on terms similar tothose currently in place.

* British lobby group The Investments and SavingsAssociation said clarity on the U.K.'s future relationship with the EU isurgently necessary to secure jobs rather than access to the single market,Reuters reports.The group submitted initial proposals to the U.K. Treasury that included thecreation of a two-tiered structure with separate rules for firms seeking totrade financial services in the EU and those that just want to cater to Britishclients.

* Michael Saunders, an external member of the Bank ofEngland's monetary policy committee, said the British economy couldgrow "clearly above 1%" in 2017 instead of below 1% as expected,unless there is a sharp rise in Brexit-related uncertainties and globalconditions disappoint markedly.

*  namedAndrew Sinfield head of European investment-grade corporate credit trading,Reuters writes.

* Maurice Kenny, ING Groep NV's head of client coverage in Ireland, saidthe Dutch group's plan to slash 7,000 jobs will not affect its employees in thecountry, the Irish Independent writes.

GERMANY, SWITZERLANDAND AUSTRIA

Deutsche Bank eyeing $4B to $5B to settleMBS claims: is looking at a possible settlement ofbetween $4 billion and $5billion with U.S. authorities for alleged misselling of MBS, Reuters writes, citing areport by German markets newsletter PlatowBrief. The lender is eyeing asettlement by the end of the month and is considering canceling bonuses and raising freshcapital, according to the report.

* CommerzbankAG CEO Martin Zielke expects not to pay a dividend for 2017 and2018 as the bank carries out its recently announced restructuring anddigitalization, Reuters reports.

* Deutsche Bank namedJack Rabun head of its asset management investment banking coverage for theAmericas, Reuters writes.Rabun joins the bank from UBSGroup AG, where he was most recently a senior member of its assetmanagement investment banking team.

* BlackRock Inc.,Deutsche Bank's single biggest shareholder, excoriated Europe's banks while calling for greatercross-border mergers in the sector, FrankfurterAllgemeine Zeitung reports. BlackRockVice Chairman Philipp Hildebrand described the long-term performance ofEuropean banks as "shockingly bad," adding that investors currentlyhave little interest in actively investing in bank shares.

* dodged insolvency after it was able to complete formerly open securitiestransactions and collect outstandingpayment. The German securities trading bank filed for insolvency last Friday but said yesterday thatit withdrew the application following the completion of the transaction,leading its clearing bank, HSBCTrinkaus & Burkhardt AG, to reactivate its blocked accounts, Börsen-Zeitung adds.

* named Christopher Lohmann CEO. Lohmann succeeds Thomas Leicht, who isstepping down next year.

* namedDaniel von Borries CFO of Swiss Life Deutschland as of Nov. 1, Börsen-Zeitung reports.

* A majority ofHeta Asset ResolutionAG's creditors has accepted a bond buyback offer made by theAustrian province of Carinthia, Handelsblatt reports.Three-quarters of the bad bank's senior bondholders agreed to the offer, aswell as half of its junior debt holders.  

FRANCE AND BENELUX

AXA rebuffsGenerali merger suggestions: AXA CEO Thomas Buberl said told Süddeutsche Zeitung that a merger with makes no sense but that hewas open to working with GoogleInc., L'Argus de l'Assurance reports.

* OrangeSA completed the acquisition of a 65% stake in 's and is on target toopen its first accounts in spring 2017, LaTribune reports.

* France has 3 million people in a fragile banking situationand another 500,000 who do not have a bank account, according to a report fromL'Observatoire de l'inclusion bancaire, LesEchos reports.It adds that 69,000 people used the government's "right to anaccount" legislation in 2015.

* The French government has ruled out country-specificlegislation to control the use of blockchain technology, Les Echos reports.

* About half of IT jobs at will go as part of areorganization at the ING unit, L'Echo notes.The firm will also let go about 33% of retail jobs, more than half of itsfinance division and two-thirds of its financial markets unit.  

SPAIN AND PORTUGAL

Bankia-Banco MareNostrum merger likely in mid-2017: Bankia SA Chairman José Ignacio Goirigolzarri said apotential mergerbetween the bank and Banco MareNostrum SA could occur in the middle of 2017, subject to theconclusion of an analysis of the operation. A merger could create a combinedentity with total assets of more than €240 billion, Reuters notes.

* MAPFRESA will acquirea 31% stake in PT. Asuransi BinaDana Arta Tbk for €92.3 million, increasing its stake in theIndonesian insurer to 51%. MAPFRE said the transaction completes its entry intothe Indonesian insurance market.

* BancoSantander SA and Banco Bilbao Vizcaya Argentaria SA said their main focusis on organic growth but are not closing their doors at acquisitionopportunities in Spain, accordingto Expansión.

* Caixa Geralde Depósitos SA will soon announce a cut in the interest rates forlong-term deposits as a way to compensate the continuing rise in EURIBOR, Jornal de Negócios reports.The change will affect private and company accounts.

ITALY AND GREECE

Amundi, Poste Italiane lead race for UniCredit's Pioneer: AmundiSA and an Italian consortium led by are considered thefrontrunners to purchase UniCreditSpA's asset management business Pioneer after submitting thehighest nonbinding offers last month, insiders tellReuters. Aberdeen AssetManagement Plc and Australia-based are alsointerested in Pioneer and are carrying out due diligence, while was given a chance toimprove its offer.

* CEO Marco Morelli is planning to renegotiate commissions for advisers JPMorganand Mediobanca and could seek to significantly reduce the fixed component whileintroducing a success fee, MF writes.  Meanwhile, securities regulator Consobextended a ban on short-selling of Monte dei Paschi shares, in effect sinceJuly 7, until Jan. 5, 2017, Reuters reports.

* Bank of Italy Director GeneralSalvatore Rossi says the central bank sees alternatives to liquidation shouldthe planned sale of four banks bailed out last year fall through, accordingto Reuters. Unione di BancheItaliane SpA remains interested in the possible acquisition ofthree of the four lenders but only at certain conditions, Il Sole 24 Ore writes, adding that work iscontinuing on a backup plan that could involve selling the banks or specificassets owned by them to investors who expressed interest in a previous biddinground.

* Bank of Italy Director GeneralSalvatore Rossi said mergers between midsized Italian banks should beencouraged to boost profitability in the banking sector, Reuters also reports.

* increased its stake in Cassa diRisparmio di Saluzzo SpA to 80% from 48.98%, MF reports. 

NORDIC COUNTRIES

Danish FSA eyeshigher fees on foreign-owned banks: The Danish FSA has proposed a new billthat would require local subsidiaries of foreign banks to pay highersupervisory fees, FinansWatch reports.A local subsidiary of a foreign bank currently pays between 15% and 20% insupervisory fees, but the FSA wants to raise the rates to 50% for foreign banksin Denmark and 80% for systemically important banks.

* Danske BankA/S, Jyske BankA/S and SydbankA/S pledged to improve their lending policies after being stronglycriticized by the Danish FSA, FinansWatch writes.After an inspection, the FSA concluded that Denmark's largest banks do not meettheir own policies when funding housing in large cosmopolitan areas. 

* is facing flak frominvestors saying it was overvalued at $4.5 billion in an IPO last month,Bloomberg News reports.

EASTERN EUROPE

Polish FSA extendsdeadline for Polbank sale, demerger: The Polish FSA extended deadlinesregarding the demerger and sale of Raiffeisen Bank Polska SA, PAP reports.The lender has until November-end to work out the conditions of the divisionand sale, while the demerger itself should be completed by the end of June2017. The FSA also expects Raiffeisen Bank International AG to notify the ECB bythe end of October about an intention to open a branch in Poland that will takeover the Polish unit's demerged business consisting of foreign-exchangemortgage loans.

* The Polish FSA classified , , , , , , ,Bank BGZ BNP ParibasSA, Polbank and GetinNoble Bank SA as other systemically important institutions andimposed certain capital buffers on the lenders based on their risk exposure,PAP reports.

* RBI decided to gradually shut its online lender Zuno Bank,operating in the Czech Republic and Slovakia, Hospodarske Noviny reports.Zuno Bank's clients will be taken over by Czech-based and Slovakia-basedTatra banka a.s. bythe end of the first half of 2017.

* Getin Noble Bank completed the consolidation of its sharesat a ratio of 3:1, Parkiet reports.

* Under the new division of competences within the Russiancentral bank, first deputy head Dmitry Tulin, will oversee banking regulationand supervision as of Oct. 17, while first deputy head Sergey Shvetsov will beresponsible for licensing and financial rehabilitation of banks, Vedomosti reports.

* Vnesheconombank plans to boost the capital of by 75 billionRussian rubles by 2016-end, Banki.ru writes. The transactionwill be carried out through the conversion of the leasing unit's obligations toVEB into equity.

* Türk EkonomiBankasi AS CEO Ümit Leblebici said the Turkish banking sector isexpected to begin normalizing from the fourth quarter after the failed coupattempt in the country in July, FinansGündem reports.

* UniCredit's indirect share of 50% in Koc FinansalHizmetler, the main shareholder in Yapi ve Kredi Bankasi AS, has been convertedinto a direct holding.

* TürkiyeVakiflar Bankasi TAO secured a securitizationloan in denominated in euro and U.S. dollar a total amount of S$890 million.The total amount consists of seven separate tranches.  

IN OTHER PARTS OF THEWORLD

Asia-Pacific: Sompo Holdings to acquire Endurance Specialty; India cuts policyrates

Middle East & Africa:Attijariwafa to buy BarclaysEgypt; South Africa's FSB backs new exchange

Latin America: Porto Seguro, AIG Seguros in auto portfolio deal; BNDES shifts focusto clean energy

North America: Wells says loss from Illinois suspension only $50,000, not'millions'

North America Insurance: Hurricane Matthew poses threat to reinsurers; insurer to exit ACAexchange

NOW FEATURED ONS&P GLOBAL MARKET INTELLIGENCE

MergingSpain's Bankia with Mare Nostrum may mean bigger not better: TheSpanish state rescue fund may merge Bankia and Banco Mare Nostrum. Butsynergies may be hard to find.

Stateinfluence hangs over PZU's dividend promise: PZU said its M&Aplans will not affect a pledge to pay out at least half its profit asdividends. But one analyst said the state's desire to make its role felt in thePolish economy brings a measure of unpredictability. 

Leo Magno, Ed Meza, Danielle Rossingh, Esben Svendsen, Beata Fojcik, Thanasis Kakalis, AliKayalar, Heather O'Brian, Brian McCulloch, Praxilla Trabattoni and Mariana Aldano contributedto this report.

The Daily Dose has aneditorial deadline of 7 a.m. London time. Some external links may require asubscription.


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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Credit Analysis
2019 Credit Risk Perspectives: Is The Credit Cycle Turning? A Market Driven 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.

Giorgio Baldassarri, Global Head of the Analytic Development Group, 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, Giorgio focused on the analysis of the evolution of the credit risk profile of European Union companies between 2013 and 2017, and how this may change under various Brexit scenario; if you want to know more, you can visit here.

I started with an overview of key trends of the credit risk of public companies at a global level, before diving deeper into regional and industry sector-specific performance and pointing out some key drivers of country- and industry-level risk. Credit Analytics Probability of Default (PD) Market Signals model was used to derive these statistics. This is a structural model (enhanced Merton approach) that produces PD values for all public corporates and financial institutions globally. Credit scores are mapped to PD values, which are derived from S&P Global Ratings observed default rates (ODRs).

From January 2018 to October 2018, we saw an increase in the underlying PD values generated by PD Market Signals across all regional S&P Broad Market Indices (BMIs), as shown in Figure 1. For Asia Pacific, Europe, and North America, the overall increase was primarily driven by the significant shift in February 2018, which saw an increase in the PD between 100% to 300% on a relative basis. The main mover on an absolute basis was Latin America, which had a PD increase of over 0.35 percentage points.

Figure 1: BMI Benchmark Median credit scores generated by PD Market Signals, between January 1 and October 1, 2018.

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

Moving to the S&P Europe BMI in Figure 2, we can further isolate three of the main drivers behind the overall increase in PDs (this time measured on a relative basis), namely Netherlands, France, and Austria. Among these, the Netherlands had the most prominent increase between August and October. Again, one can identify the significant increase in the PDs in February, ranging from 150% to 230%, across all three countries. Towards July, we saw the spread between the three outliers shrink significantly. In August and September, however, the S&P Europe BMI began to decrease again, whilst all three of our focus countries were either increasing in risk (Netherlands, from a 150% level in the beginning of August to a 330% level at the end of September) or remaining relatively constant (France and Austria).

Figure 2: European Benchmark Median PD scores generated by PD Market Signals model, between January 1 and October 1, 2018.

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

In the emerging markets, Turkey, United Arab Emirates (UAE), and Qatar were the most prominent outliers from the S&P Mid-East and Africa BMI. As visible in Figure 3, the S&P Mid-East and Africa BMI saw less volatility throughout 2018 and was just slightly above its start value as of October. Two of the main drivers behind this increase were the PDs of the country benchmarks for Turkey and the UAE. Turkey, especially, stood out: the PD of its public companies performed in line with the S&P Mid-East and Africa BMI until mid-April, when it increased significantly and showed high volatility until October. On the other hand, the benchmark for Qatar decreased by over 60% between May and October.

Figure 3: S&P Mid-East and Africa BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

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

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We then looked at different industries in Europe. As shown in Figure 4, the main shift in S&P BMIs occurred in February, with most industries staying on a similar level for the remaining period. The main outliers were the S&P Industrials, Materials, and, in particular, Consumer Discretionary Europe, Middle East, and Africa (EMEA) BMIs. The S&P Energy BMI saw some of the highest volatility, but was able to decrease significantly throughout September. At the same time, the Materials sector saw a continuous default risk increase from the beginning of June, finishing at an absolute median PD level of slightly over 1% when compared to the start of the year.

Figure 4: S&P EMEA Industry BMI Median PD scores generated by PD Market Signals, between January 1 and October 1, 2018.

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

In conclusion, looking at the public companies, Latin America, Asia Pacific, and Europe pointed towards an increase of credit risk between January 2018 and October 2018, amid heightened tensions due to the current U.S. policy towards Latin-American countries, the U.S./China trade war, and Brexit uncertainty.

1 S&P Global Ratings does not contribute to or participate in the creation of credit scores generated by S&P Global Market Intelligence.

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

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AVIA OTT Summit 2019 Offers Insight Into Changing OTT Roadmap

Mar. 06 2019 — Over-the-top video in the Asia-Pacific has been rapidly evolving as OTT players continue to learn and understand the landscape. Industry experts who participated in the Asia Video Industry Association OTT Summit 2019, held February 20 in Singapore, emphasized the importance of relevant content and adaptability of OTT players, particularly in finding the right business model.

According to Media Partners Asia's Vice President Aravind Venugopal, most OTT players that entered the region in 2016 — citing Netflix Inc., HOOQ and iflix — primarily offered a subscription service, whereas PCCW Media Ltd's Viu provided ad-supported content. He said that a year after, each one was trying to figure out what revenue model would work best. It was at that time that sachet pricing, transactional video-on-demand and ad-supported content became more prevalent.

As for 2018, it was said that OTT players moved toward paths through which monetization could continue to grow, and advertising video-on-demand had to be maximized. Venugopal cited that in one of Media Partners Asia's studies, online video platforms that were more ad-focused came out on top. China players such as iQIYI Inc., Tencent Holdings Ltd.'s Tencent Video and Youku Tudou Inc. are able to monetize consumers by adding sachet pricing, as well as allowing customers to purchase magazines or books, or any other offering that would make them stay on the service.

As more OTT services enter the region, finding the most ideal business model to retain and grow viewership can be a challenge. Panelists who were part of the "AVOD vs SVOD vs TVOD: Finding the Right Business Model" discussion, however, agreed there really is not any right model — it is yet to be discovered as OTT players learn more about their respective areas of operation.

Services will have to adapt and should be open to evolving content offerings based on consumers, while also taking regulatory policies into consideration.

In the case of HOOQ, CTO Michael Fleshman highlighted that the company is moving toward using a freemium model, through which consumers may eventually no longer need to register on the site. The OTT player is also trying to maintain simpler packages, with free content very much accessible for everyone.

He also said that HOOQ was initially worried about cannibalizing the subscription video-on-demand business, but as it turns out, engagement is still doing well.

HOOQ recently added linear channels to its offering, and Fleshman emphasized that the OTT service is not shifting but expanding its service so customers will not feel the need to go somewhere else to watch linear channels.

When global OTT player Netflix entered Asia in 2016, it had an international playbook in hand, which made collaborating with local operators a crucial step in learning more about the region. Subscription payment was one of its main concerns and having local partners became beneficial in addressing this.

When asked how the company felt about competitors and what its competitive advantage was in the Asia-Pacific region, Tony Zameczkowski, Netflix's vice president of business development in Asia, said the company sees competition as a good thing.

He also said Netflix's competitive advantage is its platform, content, marketing and partnership. In terms of platform, Zameczkowski elaborated that Netflix provides a "hyper-personalized" service capable of providing recommendations and personalizing the customer's content library.

In terms of content, Zameczkowski acknowledged that the OTT player's local content offering was initially weak. Soon after acquiring various licensing content from producers, however, Netflix started producing original content. The company will continue to invest in relevant titles. In relation to marketing the service, Zameczkowski said that Netflix banks on its titles, part of its promotional strategy.

Partnering with telcos was also very instrumental in establishing Netflix's presence in the region. Likewise, partnering with device manufacturers was important — a different approach for the company, as the Netflix app would normally be included on most devices in U.S. and European markets.

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