Friday, December 2, 2011

Could europe collapse china

"Axe sheets" grow as Credit Agricole, others dump Asia loans

The loans on offer in Asia are being sold at discounted prices by sellers who just want to get out. That's driving up prices of primary market loans, as bankers who play in both markets know they can get cheaper secondary loans. Loan bankers expect steeper discounts to come given that buyers are waiting for even better bargains. That in turn will push up prices in the primary market.

Posted by mark @ 10:29 AM (1462 views)
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11 thoughts on “Could europe collapse china

  • mark wadsworth says:

    Mark, you are missing a very important step.

    Let’s assume that Mark Industries in Hong Kong borrowed HKD 100 million from Credit Ag, paying 5% interest. And yours is a well run company and easily capable of servicing that debt.

    You get wind that CA is selling on that loan at a discount of 16% i.e. for HKD 84 million, which is a loss of HKD 16 million to CA (serve them right, see if I care), you’re still tied in to paying HKD 5 million interest, so the new owner of that loan would be getting a 6% return on investment but you ain’t bothered because you are still only paying HKD 5 million.

    As a cunning cove and astute businessman, what you would do is borrow HKD 84 million at 5% and use that money to buy back your own original loan. So hey presto, instead of paying CA 5% of HKD 100 million, you are paying somebody else 5% of HKD 84 million and you have a windfall gain of HKD 16 million to match CA’s windfall loss, as well as HKD 800,000 interest saving each year.

    What’s not to like?

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  • No i realise this

    the point is if the cost of new borrowing jumps or a company is not in a position to buy its own debt and has to refi later at higher rates etc if lending drops because large banks are moving out of area could cause further deterioration

    lets face it chinese companies have been borrowing like mad over the years, they have had a huge building boom based on BS for GDP whats next if banks move out?

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  • mark wadsworth says:

    mark, as a matter of fact, a lot of companies have been buying back their own debt on the cheap, the well run ones which can afford it.

    (IF Mark Industries can afford to pay HKD 5 million a year interest on HKD 100 million, it can easily borrow the HKD 84 million, at 5%.
    ELSE it cannot afford the HKD 5 million and it is b-ggered anyway.)

    Strangely, even the more savvy of the badly run banks have doing discounted debt buy backs as well, it’s a roundabout form of debt-for-equity swap or the precise opposite of debt-financed share buy backs.

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  • Mark – Maybe I am being dim but China has US$2.5 trillion in currency reserves so ‘collapse’ is probably not the right word for it.

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  • maybe i should have said crash

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  • why do the blog owners delete gold articles, yet when you email them they say they are fine???? double standards? or does it take away from the money they are making from adverts plastered over the website?

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  • general congreve says:

    @6 – I take it you tried to post an article and it was removed?

    I think that there may exist a difference of opinion at the top of HPC. Some Mods are fine with gold, and see it’s discussion as an integral part of the financial landscape (see Bart on the main forum – total Gold Bug). However, certainly one or two others are still of the opinion that only house prices matter here and perhaps other topics related to finance like global debt, stocks, economic growth/contraction, commodities, War with Iran, Euro debt, banks, interest rates, pensions, loans to Asia, etc. But certainly not gold, that has no place alongside these other topics here. Which is fair enough I suppose, as obviously topics like war and loans to Asia have a far more obvious and direct link to house prices.

    To be fair I think the above situation is more the attitude I used to experience on the main forum, it is a different set of Mods running the Blog and I think they are largely hands off. I think you may find the fault lies primarily with an HPCer who is an anti-gold crusader, you know, the guys that turn into a bile spitting foaming rage if the word is mentioned. Sometime they bypass the urge to forment and just report the article. Mod just sees it has been reported and they’re just happy they’ve got a purpose to justify their job that day (I imagine things are quiet at their end most of the time) and deletes the thread without question. In fact there is no recourse to question, as unlike the forum, the Mods cannot jump in here or private message an individual to state their position or opinion, so it boils down to a simple yes/no.

    It can be infuriating. I have seen threads with 50+ posts from multiple users, with over 1500 views, that have run for over 24 hours, some have even moved down off the main page and are only really the domain of those still happily involved in the discussion and then all of a sudden, some jobsworth reports it. Despite the time and effort HPCers have put in, it still gets pulled, because on one individual’s personal bias. Meanwhile you go back on the main thread and every topic running on house prices has about 150 view and 1 or 2 comments. Laughable.

    In fact check it out. Keep a mental tab on the popularity of house related articles and non-house (I mean anything that doesn’t mention houses directly) articles and judge the relative popularities. It can be quite an eye opener 😉

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  • i posted an article about gold clothing using a new type of fibre impregnated with gold

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  • general congreve says:

    @8 – Sure, if was suddenly becoming the latest fashion craze and devouring huge amounts of gold in unrecoverable quantities, thus pushing the price of gold up, then it might have floated. As it stands though it as irresponsible as articles I’ve seen posted from the other end of the spectrum about how 6ppm of gold being found in the contents of the sea bed is going to crash the gold price because suddenly we’ll all be using huge amounts of oil to dredge up the Atlantic ocean for it.

    Well done to the Mods in this case. That sort of bullsh1t gives gold articles a bad name and I expect it was obviously a wind up on your part in the first place.

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  • oh thanks for the backup

    it was a bit of light hearted posting which is clearly needed in this serious discussion website

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  • general congreve says:

    @10 – It may have been lighthearted, but you must know how that of thing goes down here, especially with gold involved. I’ve even seen Daily Mash articles pulled due to complete sense of humour failures on the part of HPCers!

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