While You Were Working - April 14

Banks pivoted back to energy lending

It looks like Wall Street banks are rekindling their lending to oil and natural gas companies.

“In the first quarter, U.S. energy companies raised $26.8 billion in so-called leveraged loans — loans that are extended to those already holding significant amounts of debt — up roughly 86% from the same period last year, according to data compiled by Bloomberg.”

We’ll see if the uptick in lending continues or if it is just rosy numbers compared to last year’s bloodbath. Either way, it might not be very good news for coal.

Again … I think China has accounting standards

This story about a Chinese commodities giant is about far more than commodities. China Hongqiao zoomed past competitors like Alcoa and United Co. Rusal to become the world’s largest aluminum maker, but it looks like the company couldn’t quite sneak by Ernst & Young. The accounting firm decided last month that it was suspending its audit of China Hongqiao’s 2016 results. Trading of China Hongqiao’s shares have been suspended and now the firm is looking to China’s government for help. That’s never a good sign.

The story is particularly sensitive in an environment where many US companies have been accusing Chinese firms of leveraged government subsidies to flood commodities markets and undercut global competitors. But I would submit the story is more about accounting in China and the role regulators are supposed to play in detecting the cooking of books. This from the Wall Street Journal story:

 “China Hongqiao has been more profitable than some Chinese competitors. For instance, China Hongqiao earned an average operating profit margin of 27% in the past five years, compared with minus-1.7% for state-owned Aluminum Corp. of China, known as Chalco, and 5.9% for Alcoa, according to FactSet.”

Despite reporting fantasy numbers like those detailed above, it doesn’t look like any regulators were looking into China Hongqiao. It was an anonymous short seller on a blog and work by fraud-sniffing trading firm named Emerson Analytics that initially shined the light on China Hongqiao. After that, the move by E&Y was only marginally surprising.

I have said it before and I reckon I will probably have to say it again many more times: I think China has accounting standards.

An Ode to Tarullo

It has been a week or so since Daniel Tarullo hung up his spurs at the Federal Reserve, but William D. Cohan at the New York Times wrote today about Tarullo’s farewell speech. With the benefit of time, Tarullo lamented the effect the Volcker rule has had on Treasury liquidity. Cohan questions the value of the stress tests Tarullo valued so dearly, but at least those stress tests have bankers and their regulators thinking about what happens if things go bad.

But perhaps Cohan most spot on when he notes:

“Many people have never heard of him, even though his decisions affected their lives in ways big and small.”

Daniel Tarullo is not a household name. But on his watch, the banking sector recovered from one crisis and managed to go 8 years without suffering another one. Parts of the US haven’t enjoyed a full economic recovery from the financial crisis, but at least the economy in those areas hasn’t gotten worse. For that, Tarullo does indeed deserve a hearty thanks.

Speaking of thank yous…

Hat tip to Grant Wahl for sharing this story on Twitter. The donated heart of former NFL player Konrad Reuland is now beating inside the chest of baseball Hall of Famer Rod Carew. Do yourself a favor and start your weekend right by reading this story.

WYWW Appetizers

May The Force Be with You