Following our note last week over concerns that the US banks are holding $10tn of risky trades, Goldman Sachs has sent out further warnings that corporate leverage is now at its highest level in a decade due to years of low interest rates and eager investors. With cash flow failing to keep up with the boom in bond sales, the "shopping spree" has left Corporate America with its highest debt load in 10 years. Whilst some of this can be blamed on the energy sector, since oil and gas companies have relied heavily on friendly capital markets to fund growth, the trend is widespread, since if you strip out the struggling energy sector, net debt to earnings is at its highest point since the crisis, says Goldman. Furthermore, the bank estimates that about $1tn of the intangible asset known as goodwill has been added to corporate balance sheets since the financial crisis due to a boom in US mergers and acquisitions, which it sees as a sign that companies are failing to invest efficiently. The bank's warning comes after JP Morgan Chase said earlier today that it had seen an increase in credit card defaults during the first quarter from the previous quarter, but was not sure whether these were related
Following our note last week over concerns that the US banks are holding $10tn of risky trades, Goldman Sachs has sent out further warnings that corporate leverage is now at its highest level in a decade due to years of low interest rates and eager investors. With cash flow failing to keep up with the boom in bond sales, the "shopping spree" has left Corporate America with its highest debt load in 10 years. Whilst some of this can be blamed on the energy sector, since oil and gas companies have relied heavily on friendly capital markets to fund growth, the trend is widespread, since if you strip out the struggling energy sector, net debt to earnings is at its highest point since the crisis, says Goldman. Furthermore, the bank estimates that about $1tn of the intangible asset known as goodwill has been added to corporate balance sheets since the financial crisis due to a boom in US mergers and acquisitions, which it sees as a sign that companies are failing to invest efficiently. Interest in the leverage level of Corporate America is fast becoming a hot topic as the Federal Reserve gets closer to raising interest rates.