A massive wave of bankruptcies is kicking the door down on us

We are on the brink of corporate bankruptcies in both the US and Europe, the fastest growing financial crisis in 15 years, Deutsche Bank analysts write in their just-released annual report.

According to the bank’s calculations, the ratio of non-performing loans may peak in the fourth quarter of next year.

Based on their forecast, the ratio is above:

• In the case of US high-yield bonds, it reaches 9 percent;
• In the case of American loans, 11.3 percent;
• in European high-yield bonds, 4.4 percent;
• and 7.3 percent for European loans.

Major central banks, including the US Federal Reserve and the ECB, raised aggressive interest rates to control inflation, raising the risk of a global recession. Germany, Europe’s largest economy, slips into recession – Reuters reminds.

The soil in Europe is less warm than in America

The default risk of European companies appears to be lower than that of US companies. There are many reasons for this. On the one hand, the proportion of bonds with excellent ratings is high, as well as the budgetary support of companies in European countries is high, and the share of debt in fast-growing sectors such as the technology sector is low.

Within the European high-yield bond market, the real estate sector has come under the greatest pressure, accounting for more than half of all European high-yield debt, according to Deutsche Bank.

Deutsche Bank isn’t the only one sounding the alarm. Earlier, several credit rating agencies indicated that they expect a global increase in corporate insolvencies. According to Moody’s, the default rate for companies with speculative loans will rise from 2.9 percent at the end of the first quarter of 2023 to 4.9 percent by March 2024, surpassing the long-term average of 4.1 percent.

S&P Global sees the default rate for Bovli-rated companies rising to 4 percent by the end of the year, more than double the 1.7 percent by the end of 2023.