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Weekly Market Outlook: Rate Spike Would Tame the Bulls

The US equity market may continue to set new record highs as the VIX index lengthens its stay under an extraordinarily low 10 points. Ample liquidity implies that a recent high-yield bond spread of 359 bp might soon dip under 350 bp.

October 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed

Five Focus Points for Commercial Lease Due Diligence

Proper assessment of your prospective borrower's future cash flow from rental income involves both a qualitative and quantitative analysis of the underlying leases. A sample “Lease Abstract Form” is provided to facilitate the compilation of relevant information. This article discusses five key aspects of a commercial lease which drive this analysis.

September 2017 Pdf Robin Russell

Weekly Market Outlook: Less Fear, More Debt

Times have changed. In a world where core inflation ebbs amid a sharply lower jobless rate and corporate bond yield spreads narrow despite steeper leverage, pigs just might fly.

September 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell

Weekly Market Outlook: Low Inflation May Suppress Bond Returns

A less accommodative US monetary policy may heighten market volatility near term. However, over time, the fundamentals that give direction to business activity and financial markets will prevail. For now, current trends involving demography, technology, regulation, and globalization favor the containment of core price inflation and still relatively low US Treasury bond yields.

September 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed

Weekly Market Outlook: What Might Trigger the Next Market Plunge?

An overvalued equity market and an extraordinarily low VIX index offer no assurance of impending doom for US equities. Provided that interest rates do not rocket higher, expectations of corporate earnings growth should be sufficient for the purpose of avoiding a severe equity market correction that would doubtless include the return of corporate bond yield spreads in excess of 700 bp for high-yield and above 200 bp for Baa-rated issues.

September 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell, Faraz Syed

Weekly Market Outlook: Jobs, VIX and Defaults Move Together

Consensus forecasts of corporate bond yields are hard to come by. However, the Blue Chip Financial Forecasts publication supplies a consensus outlook for the long-term Aaa and Baa corporate bond yields.

September 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell

Rent Rolls at Risk - Assessing Commercial Leases

Proper assessment of your prospective borrower's future cash flow from rental income involves both a qualitative and quantitative analysis of the underlying leases. Understanding these key drivers will allow a lender to properly prepare a rental rate sensitivity analysis to stress test projected income.

September 2017 WebPage Robin Russell

Weekly Market Outlook: Low Inflation Trims Interest-Rate Risk

The recent slowdown by the underlying rate of consumer price inflation significantly lowered the risk of a disruptive climb by interest rates. In response, the VIX index sank from the 16.0 points of August 10, 2017 to a recent 10.7 points, while a composite high-yield bond spread narrowed from August 11's 410 bp to August 30's 399 bp.

August 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell

Weekly Market Outlook: Medium-Grade Bond Yields May Lag Consensus Views

Though the number of new jobs has been plentiful, the quality of new jobs has not been great enough to improve the outlook for employment income. In order to compensate for lackluster employment income prospects, interest rates must not increase significantly. The 10-year Treasury yield is unlikely to spend much time close to or above 2.5% anytime soon.

August 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Katrina Ell, Jack Chambers

Weekly Market Outlook: Jobless Rate's Waning Influence on Inflation and the Fed

The minutes of the July 25-26 meeting of the FOMC indicated that Fed policymakers have become increasingly concerned about persistently soft consumer prices despite higher rates of resource utilization, including the lowest unemployment rate in 16 years. In response, fed funds futures recently assigned only a 44.4% likelihood to a year-end 2017 midpoint for the fed funds rate that is higher than its current 1.125%. Policymakers and some market participants worry that if underlying inflation slows when rates of resource utilization climb, then a destructive bout of price deflation might arrive once resource utilization rates inevitably ease.

August 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo, Alaistair Chan, Katrina Ell

Weekly Market Outlook: Swelling of Low-Grade Spreads Looms

Markets became slightly unhinged at the prospect of a US military confrontation with North Korea over the latter's nuclear weapons program. As of August 10's early afternoon trading, the market value of US common stock had declined by -1.2% from its August 8 close, or just prior to the intensification over the North Korean conflict. In a more immediate response to jitters surrounding the possibility of a very destructive conflict, a composite high-yield bond spread widened from August 8's 371 bp to August 9's 387 bp as the accompanying speculative-grade bond yield jumped up from 5.57% to 5.72%.

August 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Barbara Teixeira Araujo

Data Analytics and the Future of Credit Risk Management

The future is closer than you think – start shaping your risk management future today. Banking is becoming more future oriented and data analytics can help financial institutions be on the forefront of innovation.

August 2017 WebPage Eric Snyder

Weekly Market Outlook: Liquidity Buoys Corporate Credit

Long-term fundamentals suggest that interest rates will remain well under their averages of 2002-2007's recovery. If only because of an unprecedented and irreversible aging of the US population and workforce, fears of a disruptive lift-off and extended high-altitude orbit by Treasury bond yields are probably exaggerated.

July 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Katrina Ell, Barbara Teixeira Araujo, Alaistair Chan

Weekly Market Outlook: Low Interest Rates Offset Fiscal Gridlock

A fundamentally excessive climb by Treasury bond yields is one of the bigger risk factors facing corporate credit. Now that gridlock may persist indefinitely in Washington, the absence of fiscal stimulus requires a continuation of low interest rates.

July 2017 Pdf Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , John Lonski, Katrina Ell, Faraz Syed

Weekly Market Outlook: The Least Inaccurate Forecaster

The forthcoming passive reduction of the Fed's bond holdings may not be followed by higher Treasury bond yields. So suggests what came after October 2014's end to the third installment of quantitative easing (QE3). In fact, since the October 2014 expiry of QE3, the average 10-year Treasury of 2.07% has been less than its 2.30% average of October 2014, never mind its “taper tantrum” average of 2.71%.

July 2017 Pdf John Lonski, Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , Katrina Ell

Best Practices for Corporate Treasurers: OECD BEPS 2018 Transfer Pricing Compliance

As countries continue implementing the guidelines from the OECD's BEPS action plan, corporations are facing increasing challenges in conducting transparent intercompany loan transfer pricing transactions.

July 2017 WebPage Christophe Marinier

Weekly Market Outlook: Overvalued Equities Boost Credit Ratings

Relatively narrow corporate bond yield spreads reflect confidence in the business outlook for 2017's second half. Apparently, corporate credit expects profits growth will be sufficient to avoid a worsening outlook for defaults.

July 2017 Pdf John Lonski, Franklin Kim, Njundu Sanneh, Yukyung Choi, Tomas Holinka , Katrina Ell

Combining Information to Better Assess the Credit Risk of Small Firms and Medium-Sized Enterprises

In this article, we discuss the issues associated with acquiring behavioral and financial data and transforming it into a business decision. We also present a unified modeling approach for combining the information into a credit risk assessment for both small firms and medium-sized enterprises.

July 2017 Pdf Dr. Douglas Dwyer

CECL: What's on Tap for the Future of Credit Loss Accounting?

A new model for expected credit losses is supposed to fix flaws in the accounting system and protect against future financial crises. But the so-called CECL model comes with its own set of challenges that will dramatically change firms' accounting practices for impaired loans. The Financial Accounting Standard Board's (FASB) recently issued current expected credit loss (CECL) model attempts to align measurement of credit losses for all financial assets held at amortized cost, and specifically calls out potential improvements to the accounting for purchased credit impaired (PCI) assets.

July 2017 Pdf Masha Muzyka

A Balanced Approach to Credit Analysis

A recent webinar with Moody's Analytics set an attendance record at over 1300 lender participants. The follow up response was tremendous, including a large array of topics. In fact, if I addressed each one, I would be busy well into next year! However, the follow up questions provided valuable insight into the evolving approach to credit. Agriculture is a cyclical industry; and one that is currently in an elongated downturn. Thus, the best approach to credit and customers is one of balance. Actually, a balanced approach is necessary to maintain the stability of credit in agriculture.

July 2017 Pdf David Kohl

Risk Perspectives: Managing Disruption

Examines the role of disruptive technologies in the financial sector and how firms can improve their practices to remain competitive.

July 2017 WebPage

Battle for Small Business Capital Access: Traditional vs. Alternative Lenders

This article explores innovative strategies that traditional banks can use in small business lending to remain competitive with alternative lenders.

July 2017 WebPage Michael Schwartz

When Good Data Happen to Good People: Boosting Productivity with High-Quality Data

In this article, we show the mechanisms through which data quality and productivity interact, and how investments in data quality can offer productivity gains.

Machine Learning: Challenges, Lessons, and Opportunities in Credit Risk Modeling

In this article, we analyze the performance of several machine learning methods in assessing credit risk of small and medium-sized borrowers.

July 2017 WebPage Dinesh Bacham, Dr. Janet Zhao

The Effect of Ride-Sharing on the Auto Industry

In this article, we consider some possible long-term ramifications of ride-sharing for the broader auto indust

July 2017 WebPage Dr. Tony Hughes

Reconsidering Risk Management, Governance, and Stress Testing

This article discusses areas such as capital stress testing where simplification of regulations could improve the flow of credit while protecting the financial system.

July 2017 WebPage Dr. Deniz Tudor

Predicting Earnings: CECL's Implications for Allowance Forecasts

In this article, we demonstrate the effect of the new allowance framework by quantifying allowances and credit earnings volatility for a sample portfolio.

July 2017 WebPage Joy Hart, Anna Labowicz

Accounting for Purchased Credit Deteriorated Financial Assets: Current and Future GAAP

In this article, we explore existing and future accounting and operational challenges faced by institutions acquiring financial assets with credit deterioration.

July 2017 WebPage Masha Muzyka

What Do Half a Million Loans Say About the Impact of CECL on Loan Loss Allowance?

In this article, we use historical data to calculate and compare loan- and portfolio-level loss allowances under the incurred loss model and CECL.

July 2017 WebPage Dr. Yanping Pan, Dr. Yashan Wang

Combining Information to Better Assess the Credit Risk of Small Firms and Medium-Sized Enterprises

In this article, we combine financial information with behavioral factors to more accurately assess credit risk for small firms and medium-sized enterprises.

July 2017 WebPage Dr. Douglas Dwyer
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