Headlines

China’s local governments may have accumulated 40 trillion yuan ($5.8 trillion) of off-balance sheet debt, or even more, suggesting further defaults are in store, according to S&P Global Ratings. “The potential amount of debt is an iceberg with titanic credit risks,” S&P credit analysts led by Gloria Lu wrote in a report Tuesday. Much of the build-up relates to local government financing vehicles, which don’t necessarily have the full financial backing of local governments themselves, Bloomberg News reported.

Forget slap-downs from European officials and the soaring risk premium to Berlin, this is what should keep populists in Rome awake at night: Bond yields have already jumped to the point where Italy’s $2.7 trillion debt load will expand faster than the economy is projected to grow, Bloomberg News reported. The nation’s weighted-average yield needs to drop to about 2.63 percent from 3.21 percent for it to exit the danger zone, Richard McGuire, head of rates strategy at Rabobank, told asset managers in meetings in Madrid last week.

Bond markets are signaling that German retailer Douglas Gmbh, which grew over two centuries from a small perfumery and soap maker in Hamburg into one of the largest beauty chains in Europe, may have expanded too far, Bloomberg News reported. Investors are concerned the private company will struggle to repay 2.1 billion euros ($2.4 billion) of debt used to fund its buyout and purchase of brick-and-mortar chains as the rise of online competition pressures retailers from Toys “R” Us Inc. to Sears Holdings Corp. to close shops or restructure debt.

The Lehman Brothers bankruptcy threw the United States into an epoch-defining financial storm. Imagine 300 of them going bust at once. That, in relative terms, is what Iceland endured a decade ago during its banking crisis, which on this rugged island steeped in myths of gods and giants is now known as "hrunid" — the collapse.

Separating the signal from the noise is not always easy, especially in Italy. However, this time the signal is loud and clear: Italy is going for fiscal loosening. It’s the wrong approach for several reasons, the Financial Times reported in a commentary. If the aim is to tackle the country’s high debt through faster economic growth, the old-style stimulus that is being proposed will not work. It generates only a temporary boost to demand, leaving the country with an even higher debt burden and elevated borrowing costs.

South African retailer Steinhoff, has asked creditors for a one-month extension relating to its debt restructuring as it negotiates documents required to implement the plan, it said on Monday. An accounting scandal wiped more than 90 percent off Steinhoff’s market value and forced it to sell assets to generate working capital. Creditors agreed in July to hold off on their debt claims for three years, throwing the company a lifeline, Reuters reported. As part of the deal, all parties sought to start restructuring within three months of the lock-up agreement date of July 20.

China’s peer-to-peer lenders expect their numbers to collapse from more than 1,500 to as few as 50 over the next 12 months, as regulators push through tough reforms while also barring company executives from fleeing the country. Peer-to-peer lending, the business of connecting private lenders with borrowers online, is a $120bn industry in China and traditionally has been lightly regulated with a high risk and return profile, the Financial Times reported.

A summary judgment application for €1.7 million against former AIB and Central Bank director Bernard Somers in relation to a loan that was secured on various assets, including his home in Foxrock, Dublin, has been struck out at the Commercial Court after the sides reached an agreement, The Irish Times reported. Launceston Property Finance DAC had brought the case arising from a demand issued on October 4th, 2017 for some €1.76 million allegedly outstanding on a €3.62 million loan but the matter was adjourned for talks.

Aryzta, the troubled Irish-Swiss baked goods group, has been urged to halve the scale of a planned €800 million rights issue designed to pay down debt and fund the group through a major restructuring of its operations, The Irish Times reported. Cobas Asset Management, the Spanish group that is Aryzta’s largest single shareholder, said on Monday that it is requesting an extraordinary general meeting of shareholders to reduce the money being raised to €400 million. Cobas owns almost 15 per cent of Aryzta’s voting stock.

Italy’s bond markets may be underpricing the risk of the nation having to restructure its debt, Bloomberg News reported. Credit default swaps, which protect investors against the nation failing to pay off its debts, suggest that Italian debt securities are still too expensive, according to NatWest Markets. To counter that, investors should place a curve flattening trade, betting on short-dated bonds selling off more than those further out, it said.