WSJ : Got $60 Million? Goldman Sachs Wants to Lend You More

Got $60 Million? Goldman Sachs Wants to Lend You More
Wall Street giant is increasing loans to hedge funds, private equity and the ultrarich

Goldman Sachs GS -0.53%decrease; red down pointing triangle has given up on lending to Main Street consumers. Now it’s doubling down on wealthy clients.

The Wall Street giant is increasing lending to its private-wealth clients, individuals and families who on average have $60 million with the bank. In its trading department, loans to institutional clients, including hedge funds seeking to borrow for stock purchases, are on track to produce the highest revenue in at least three years.

In all, Goldman’s loans and lending commitments outstanding, excluding consumer, totaled $327.5 billion at the end of the third quarter, up about a third from the same time in 2020.

The firm is looking for ways to diversify its revenue stream beyond dealmaking and trading. Consumer lending was meant to help with that, but the bank has been retreating from that business after incurring billions of dollars in losses from the failed effort. When Goldman reports fourth-quarter and full-year earnings on Tuesday, it is expected to highlight growth in nonconsumer lending at a time when dealmaking is depressed.

Lending to big clients has long been seen largely as a way to get other business from them. While that remains the case, Goldman is also interested in generating more net interest income at a time of elevated rates.

Some of the lending increase is being funded by deposits from savings accounts, a portion of the abortive consumer push that the bank plans to stick with. It had accumulated $150.6 billion of consumer deposits at the end of the third quarter compared with $120 billion at the end of 2022.

More lending comes with risk, including that of higher defaults. Goldman says that nearly all of the lending is secured by borrowers’ investments, but losses could mount if there’s a big drop in the value of the collateral or if there’s a recession. Banks suffered billions in losses, for example, when Archegos Capital Management, which had borrowed heavily to buy stock, imploded in 2021. Goldman largely sidestepped those losses.

Lending more to the wealthy is a linchpin of the new strategy.

In recent weeks, Goldman rolled out a new kind of loan to rich clients of its asset- and wealth-management division. The loans allow people to borrow against the value of their investments in certain private-equity, private-credit and other illiquid funds.

Clients can use the loans for pretty much anything, whether buying mansions or art or investing in more private funds with Goldman or other institutions.

The loans are critical to Goldman’s plans to boost revenue in asset and wealth management, which Chief Executive David Solomon is counting on to become a bigger source of revenue and profit.

“This one is particularly strategic,” Nishi Somaiya, global head of private banking and lending, said of the push to lend more to the ultrarich. “It hits all the things that are really important to us.”

Revenue from private banking and lending to wealthy clients increased 12% during the first nine months of last year from the same period in 2022.

In Goldman’s sprawling trading business, revenue from equities financing was higher during the first nine months of 2023 than it was during the same period in each of the prior three years—the furthest back Goldman discloses such figures—boosted by increased lending and the stock-market rally.

Equities lending and trading sat on different floors until 2019, shortly after Solomon and president John Waldron took over and insisted that they move next to each other. The directive came as part of their companywide initiative to encourage employees—in part through bonuses—to direct business to other units of the bank.

A swath of loans are originated under what Goldman refers to as FICC financing.

They include capital-call loans, which advance private-equity and other investment firms cash to make investments while they wait for their own investors to fulfill their commitments.

Regional banks were big in the business, and the banking crisis last year created an opening for large banks to grab more market share.

Goldman recently acquired $15 billion of capital-call commitments, including about $9 billion of outstanding loans, that belonged to Signature Bank before regulators seized it last year.

Goldman is also lending more to private-equity firms that are borrowing against their investments. Demand for these loans has been rising as private companies have held off on going public until valuations improve and as private-equity firms look for ways to return cash to their investors.

And even though the bank is bidding adieu to lending directly to consumers, it has been extending more credit lines to nonbank lenders that specialize in loans consumers use. Goldman over the past year has been providing more financing to UWM Holdings UWMC 0.46%increase; green up pointing triangle, which works with mortgage brokers, and tried to strike a deal with Rocket Mortgage, according to people familiar with the matter. UWM and Rocket Mortgage are among the largest players in U.S. mortgage lending.

FT : Electric vehicle charging crisis is overdone

Electric vehicle charging crisis is overdone
Concerns over lack of chargers are not the real barrier to adopting EVs

The debate about electric vehicles in the UK comes laced with scare stories about hidden costs, suspect environmental credentials, battery lifetime, combustibility and the lack of charging points.

The latter is off-putting for motorists considering making the switch. But the concerns, like most others, are exaggerated.

Carmakers want a rapid increase in public charging facilities to help meet new green targets. Telecoms group BT has declared plans to convert roadside cabinets — traditionally used for cables — into EV chargers.

In total, the UK has nearly 54,000 public charging points compared with 1mn fully electric vehicles, a ratio of just over 18:1. But charging app Zapmap estimates there are also more than 680,000 domestic and work charging points, the locations at which most drivers top up their batteries.

The UK actually ranks mid-table in a group of 10 large economies when comparing the ratio of plug-in vehicles on the road, including hybrids, to standard chargers.


Ratios are imperfect, however, given EVs are a relatively new technology, says Ralph Palmer of campaign group Transport & Environment: it is not yet clear what an EV-dominated UK market would need. These measures also mask the impact of charger speeds. An ultrafast charger at a forecourt would serve more cars in a day than a slow kerbside alternative.  

UK ministers are aiming for 300,000 public chargers by 2030. Rollout rates are improving. Last year, more than 16,600 points were added, says Zapmap, a year-on-year increase of 45 per cent. If annual additions increased at the same percentage rate, the 300,000 ambition would be surpassed by the end of 2028. 


Higher numbers are harder to sustain as markets become more saturated. But there are reasons for optimism. BT is not the only company with ambitions in this area: the oil majors are also rolling out chargers, particularly at forecourts.

Shell is committing $500mn a year in capital expenditure in 2024-25 to expand its EV charging footprint globally, including the UK. Privately owned Osprey, which installed 400 public chargers in the UK between 2018 and the end of 2022, raised its annual rate to 600 in 2023. 

The private sector has largely financed the rollout so far. Ministers have, though, agreed a £450mn fund that will allow local authorities to subsidise charging points in underserved areas. Importantly, the “Levi” fund will provide support for local authorities that do not have the resources to draw up charging plans.

Public charging needs to expand to support the EV market. But the cost of EVs, not insufficient charging infrastructure, is the real barrier to adoption.

WSJ : It Won’t Be a Recession—It Will Just Feel Like One

It Won’t Be a Recession—It Will Just Feel Like One
Economists, in survey, pare back probability of recession in 2024, but still see anemic growth and rising unemployment

The good news is the probability of a recession is down sharply, according to The Wall Street Journal’s latest survey of economists. The bad news is that, for a lot of people, it is still going to feel like a recession.

Business and academic economists surveyed by the Journal lowered the probability of a recession within the next year, to 39% from 48% in the October survey.

“A recession in the year ahead seems less likely than it appeared at the start of 2023, since interest rates are trending lower, gas prices are down from last year, and incomes are growing faster than inflation,” said Bill Adams, chief economist at Comerica Bank.

Still, economists on average expect the economy to grow just 1% in 2024, about half its normal long-run rate, and a significant slowing from an estimated 2.6% in 2023.

“This is less a recession and more of a growth stop,” said Rajeev Dhawan, an economist at Georgia State University.

American employers should keep adding jobs in 2024, but at a much slower pace than in recent years. Economists expect payroll gains to average 64,000 a month this year, less than a third of the 225,000 average in 2023 and far below 399,000 in 2022.

With job growth falling below the growth of the labor force, economists expect the unemployment rate will climb from 3.7% in December 2023 to 4.1% in June and 4.3% by the end of the year. While that is low historically, a 0.6 percentage point increase in the jobless rate would imply a net one million more Americans unemployed by the end of the year, relative to this past December. Moreover, in the past that much of an increase in unemployment has almost always occurred during recessions, according to one widely followed rule.

One reason a growing economy may still feel to many like a recession is the wide dispersion in performance across industries. Cyclical sectors—those most sensitive to the economy’s ups and downs—are likely to struggle in 2024, even if there isn’t an overall economic contraction, economists say.

“Cyclical sectors of the economy are pulling in the reins on employment, and we look for companies to further tighten the reins as they lose pricing power,” said Kathy Bostjancic, chief economist for Nationwide Mutual.

A quarter of economists expected manufacturing to see the weakest job growth this year, while 17% cited retail, and 12% said transportation and warehousing. Those are all cyclical sectors. The majority of economists said healthcare will be the sector with the strongest job growth in 2024, while 11% cited leisure and hospitality.

That would be a continuation of trends in 2023, when hiring was also concentrated. Leisure and hospitality, government and healthcare together accounted for the bulk of job creation in 2023.

Transportation and warehousing employers have been cutting jobs in recent months after hiring aggressively in the wake of the pandemic, and manufacturing employment was essentially flat in 2023 as the sector struggled with high borrowing costs.

With growth remaining positive, the second condition of a soft landing is inflation returning to around 2%, the Federal Reserve’s target, and that too is in the cards for 2024, the survey shows. Economists see inflation as measured by the personal-consumption expenditures price index, excluding food and energy, falling to 2.3% at the end of 2024 from 3.2% this past November. That chimes with Fed officials’ projections. At their December meeting they said inflation would fall to 2.4% by the end of 2024.

The Fed is widely expected to cut rates this year, though economists are divided over when. Markets currently expect the first cut at the Fed’s March 19-20 meeting, but only 19% of economists surveyed agree. Roughly a third expect the first rate cut at the April 30-May 1 meeting, and just over a third at the June 11-12 gathering.

Economists also expect fewer rate cuts than the market, seeing just one or two quarter-percentage point cuts by the end of June, compared with three by markets. The current target is between 5.25% and 5.5%, a 22-year high.

The survey of 71 economists was conducted Jan. 5-9, before the release of the Labor Department’s consumer-price index report, which showed inflation firmed in December after rapid cooling through most of 2023.

FT : Private equity has to make returns the hard way, says Goldman Sachs executi

Private equity has to make returns the hard way, says Goldman Sachs executive
Asset management chief Marc Nachmann warns firms can no longer rely on leverage and cheap money to fuel returns

Private equity can no longer rely on borrowing cheap money to fuel returns, and will have to go back to its roots of sourcing good deals and making operational improvements, according to the head of Goldman Sachs’s investment business.  

“Private equity will look different over the next 10 years than it looked over the past 10 years,” said Marc Nachmann, global head of asset and wealth management at the US bank, in an interview. “It will be a little bit back to the future in a sense.” 

The decade and a half of low interest rates that followed the 2008-2009 financial crisis heralded a boom in private equity, as managers made use of cheap and plentiful debt to embark on acquisition sprees. Falling interest rates raised asset values and cut the cost of capital. 

“Over the past 10 years you could rely on lots of leverage, cheap cost of capital and multiple expansion, and you made your returns that way,” said Nachmann. “That will be harder to do going forward.” 

While there is growing optimism that US interest rates have peaked after the biggest rise in decades, they are likely to remain high for some time. Nachmann was among those warning that private equity would need a different modus operandi from the one it had thrived on in the past decade. 

“When private equity started out, it was about really good deal sourcing and then doing a lot of operational things to improve companies,” he said. “This goes back to the old days when people targeted undermanaged divisions of large companies or private companies that could be improved. A lot of the returns will come from sourcing really good opportunities and then the operational improvements.”

Bankers and industry executives are expecting more corporate carve-outs, when a private equity firm buys a business unit from a large corporation, such as GTCR’s $18bn carve-out of payments company Worldpay from FIS this year.

Goldman runs an internal “value accelerator” platform that works with its more than 300 portfolio companies to build the businesses.

Nachmann said he expected more “performance dispersion [between firms] than we’ve seen in the past few years”. Investors in private equity were “really digging in to see how people have made their returns”, he added, trying to understand how much came from leverage and multiple expansion — selling a business at a higher value than the purchase price — rather than operational improvements at portfolio companies.

Just over a year ago, Nachmann, a trusted lieutenant of Goldman Sachs chief executive David Solomon, was promoted to oversee Goldman’s newly merged asset and wealth management division, which had $2.7tn in assets under supervision at the end of the third quarter.

Expanding this business is crucial to Solomon’s push to revive the Wall Street bank’s stock market valuation and reduce its dependence on the more volatile earnings streams from its investment banking and trading businesses. But the division has been hit by some senior departures, including its chief investment officer Julian Salisbury.

Goldman has earmarked its alternative assets business, which includes areas like private equity, private credit and infrastructure, as a priority for growth. The bank is trying to focus more on investing money from outside clients rather than from its own balance sheet. As a result, its third-party capital in alternatives had grown from $40bn in 2020 to $219bn at the end of the third quarter. Goldman’s alternative funds are on track to raise $225bn from outside investors by the end of 2023, a year earlier than planned.

Nachmann said that the “disadvantage” of its investment bank’s strong position, it ranks top in M&A advisory, was that it runs more sales processes than its rivals, in which its private equity team cannot participate. 

“The benefit of our strong investment banking franchise is that we know more companies than anybody else and we have really tight relationships,” he added. “We may see things way before anybody else sees them and you can work through unique situations that don’t end up in auction processes.”

Commenting on the general economic outlook, Nachmann said: “There are still plenty of risks around, but markets feel good barring exogenous issues that are not yet priced. Over the next few years, we expect US stocks to deliver marginally higher returns than bonds or cash.”

FT : Turkey tightens internet censorship ahead of elections

Turkey tightens internet censorship ahead of elections
New controls on VPNs underline Erdoğan’s moves to curb freedom of information

Turkey is tightening its censorship of the internet months before an important election, highlighting concerns that President Recep Tayyip Erdoğan’s government is further restricting civil liberties.

Documents seen by the Financial Times show that Turkey’s Information Technologies and Communications Authority (BTK) told internet service providers a month ago to curtail access to more than a dozen popular virtual private network services.

At the same time, social media site X said this week it had “taken action” against 15 posts as a result of a court order that also targeted several of the group’s rivals. X said it would have faced a ban in Turkey had it not complied with the order.

The latest interventions against online content, which come ahead of local elections in March, have fuelled concern that the government is further stifling independent sources of news and information in the country of 85mn people. Human rights groups and Turkey’s western allies say they fear that Erdoğan, Turkey’s leader for the past two decades, is backsliding on democratic norms.

“Widespread VPN blocks only take place in the most authoritarian of regimes,” said Andy Yen, chief executive of Proton VPN, one of the services that was targeted by Turkey’s internet regulator. “Blocking . . . the use of VPNs in Turkey is a very concerning move for internet freedom and privacy and is a breach of people’s fundamental human rights.”

Yen said that Turkey’s new attempt at restricting access to popular VPNs placed the country on a par with Iran and Russia. He added that sign-ups for Proton VPN had soared around the May 2023 presidential election and following the February earthquake when government censors briefly interfered with access to X.

The BTK told internet providers to block access to 16 VPN services, including TunnelBear, Surfshark and CyberGhost, and report back regularly to the regulator on their progress, according to the documents. The BTK did not respond to a request for comment.

VPNs — which allow users to route online traffic through an encrypted virtual tunnel — are widely used in Turkey and many other countries to circumvent censorship and make it more difficult for governments, companies and individuals to track browsing activity. Among the countries with the tightest controls on VPNs is China, where internet users try to bypass the “Great Firewall” that separates the highly censored domestic internet from the rest of the world.

While VPNs are used in more technologically literate parts of Turkish society, many Turks will never use such services and rely on online news media and television that is largely state-controlled or aligned with the government.

“VPN usage is not a criminal activity — people rely on it to secure their communications,” said Yaman Akdeniz, co-founder of the Turkish Freedom of Expression Association (İFÖD), a rights group. 

Tests by the FT showed the VPN restrictions were at least partially effective, with service on one targeted provider seriously degraded while another service still appeared to function. The websites of targeted VPN providers were also blocked, making it significantly harder for new users without technical expertise to sign up.

Turkey has previously moved to curb certain VPNs, including after the 2016 coup attempt against Erdoğan. However, Akdeniz said that the latest measures were both more widespread and more effective than in the past, since service providers were required to report back on their progress in blocking services. 

The BTK’s measures, which were first reported by Deutsche Welle, come after a sharp rise in the number of foreign and domestic websites censored or shut by Turkish authorities in recent years. The number of domain names that are completely blocked has reached an estimated 900,000 from about 350,000 at the end of 2018, according to İFÖD.

Turkey’s censors try to block a broad range of content including entire websites of some news providers such as Voice of America and Deutsche Welle, as well as social media posts and YouTube videos.

Censored topics vary widely but include articles critical of Erdoğan and his family, pro-Kurdish and opposition websites and material viewed as obscene or criminal, according to İFÖD. 

In addition to blocking users’ access to individual web addresses and domain names, regulators and courts are increasingly ordering domestic news organisations to remove content from their archives. 

However, Turkey’s Constitutional Court, the country’s top judicial body responsible for safeguarding citizens’ rights, on Wednesday annulled one of the rules that senior politicians, including Erdoğan, have used to block content they claim is infringing on their personal rights.

“The rules constitute a severe interference with the freedoms of expression and the press,” the court said, although the annulment will not come into effect until October, months after the local elections.

The internet censorship comes amid a darkening backdrop for broader freedom of expression in Turkey. Ekşi Sözlük, a popular discussion platform, was for example blocked following the February earthquake because it had coverage critical of the government. 

Legal action was taken against more than 600 people, including over two dozen arrests, for “provoking the public into hatred and hostility” on social media in posts related to the quakes, according to an EU report from November, which warned of “serious backsliding” in freedom of expression in Turkey. 

FT : SoftBank’s Masayoshi Son piles debt on to Silicon Valley mansion

SoftBank’s Masayoshi Son piles debt on to Silicon Valley mansion
Japanese billionaire secured $92mn loan on California estate at centre of local planning controversy


SoftBank founder Masayoshi Son has piled debt on the Silicon Valley mansion he acquired for a record sum, using the showpiece house as security for a multimillion-dollar loan.

The technology investor tapped his sprawling nine-acre estate in Woodside, California, for cash in December 2019, at a time when his company’s fortunes were cracking under the weight of a failed WeWork IPO and Son was struggling to raise billions for a second Vision Fund.

Public records show that the Delaware-registered entity Son used to buy the property, SV Projects LLC, mortgaged the house to secure a ¥10bn loan — worth $92mn at the time — from Japanese bank Mizuho to another Delaware entity called SV America Inc. Details of the loan have not previously been reported.

Son bought the Woodside estate 11 years ago, paying $117.5mn — then the most for a US residential property — to acquire the property from Tully Friedman, co-founder of private equity giant Hellman & Friedman.

The new owner was originally cloaked by his limited liability company, but Son was revealed to be the buyer a few months after the purchase by the Los Angeles Times.

While not necessarily indicative of the market value, the price Son paid was nearly six times the home’s assessed value for property taxes at the time, according to public records. Even today, after a real estate boom in the area and a remade mansion, it is perhaps worth even less than the debt on the property.

Property site Redfin estimates the home is worth $23mn, though top real estate agents in the area said recent comparable sales would probably put its value in the range of $75mn to $90mn.

In recent years, the SoftBank chief has prodigiously tapped the Japanese group’s assets for cash, at one time or another encumbering everything from its shares in UK chip designer Arm to a chunk of its Alibaba stake.

Son also began to borrow personally from SoftBank to foot the bill for his investments in the group’s second Vision Fund, Latin America fund and shortlived hedge fund unit, SB Northstar. By the end of September, his personal debt to the tech group topped $5bn.

Nestled at the top of a hill and shrouded behind trees and fences, Son’s European-style villa is now mostly hidden from passers-by. Planning records show it has an elevator, bowling alley, four storeys and at least as many urinals.

Two people familiar with the purchase said Friedman was not looking to sell when Son approached him. Town records show he had just spent nearly a decade crafting a Georgian-style mansion on the land, but ultimately Son’s cheque book won the day.

“Tully said make me an offer and that’s what it took,” said one of the people.

Son soon decided to rebuild Friedman’s mansion, landing his SV Projects LLC at the centre of controversy in the little town of Woodside.

While his team handling the project won approval for a remodel, town staff visited the site in 2014 and discovered the “entire first floor was demolished . . . [and] the second and third floors were shored up above the basement”, according to a town report. Work was ordered to a halt.

Residents complained that they felt misled by the expanding project. “We’re struggling with the damage that has been done, and the waste of an eight-year-old house that has essentially been thrown away,” commented a planning commissioner at a July 2014 town meeting.

Neighbour Larry Sonsini, name partner of international law firm Wilson Sonsini, said at the meeting that he knew the owner, “who is a reputable businessman”, and urged the town to let the construction finish as fast as possible.

Eventually lawyers for SV Projects LLC prevailed. Work continued with an added $106-an-hour “special inspector” on site to monitor compliance.

Son’s new villa was completed just as SoftBank pulled in tens of billions of dollars from the Middle East to launch the $100bn Vision Fund. Soon a stream of Silicon Valley entrepreneurs were venturing up the home’s long gated driveway to pitch Son their biggest ideas.

SoftBank led a $250mn funding round for data security start-up Cohesity after the founder pitched Son there. Meanwhile, the founder of robot pizza maker Zume piloted one of its trucks up the hill to serve Son freshly heated pizzas, according to Bloomberg. SoftBank invested $375mn.

“It felt ostentatious,” recalled one tech founder who has met Son there. “Everything just looked expensive, from the sofa to the lighting fixtures.”

Son, SoftBank and Mizuho declined to comment. Friedman did not respond to a request for comment.

FT : German insolvencies set to rise as Covid aid ends and economy stagnates

German insolvencies set to rise as Covid aid ends and economy stagnates
Well-known companies including Galeria Karstadt Kaufhof and Bree have filed for insolvency this year

German companies are expected to go bust at a higher rate this year following a sharp increase in insolvencies in 2023, as businesses hit by high energy costs and the end of pandemic aid throw in the towel.

Restructuring experts warn that many “zombie” companies kept afloat after the coronavirus pandemic by generous government aid and a suspension of the obligation to file for bankruptcy — which caused insolvencies to drop to unusually low levels — are now collapsing.

Since the start of this year, several well-known German companies — including the department store chain Galeria Karstadt Kaufhof and Hamburg-based bag maker Bree, whose customers include Chancellor Olaf Scholz — have filed for insolvency.

The ranks of struggling companies have been swelling because of Germany’s economic stagnation, combined with high interest rates, rising wages, elevated energy prices and a government budget squeeze. This is expected to push insolvencies up by between 10 per cent and 30 per cent this year, experts warn, taking them above pre-pandemic levels.

One such company is 85-year-old wooden toymaker Haba. Delivery failures caused by “wrong decisions” on IT systems at Haba’s online children’s clothing operation compounded the “heavy burden” the company was already enduring from the soaring cost of energy and wood, according to spokesperson Ilka Kunzelmann. 

Ultimately, it was too much for the family-owned business based in Bad Rodach, a spa town in central Germany. Haba was granted insolvency by a court in December and expects to emerge in March after it has shed about a third of its 1,500 employees, shut its online clothing arm and sold a school furniture factory.

Steffen Müller, head of bankruptcy research at the Halle Institute for Economic Research, said the monthly rate of German insolvencies it tracks, which excludes unregistered companies that have few employees, has risen since last summer above the pre-pandemic average for the first time. In December, it hit its highest level for at least seven years.

“For the next two to three months we will definitely see higher insolvency numbers, you can see that from the early filing numbers,” said Müller. “The government gave a lot of aid to firms that had low productivity before the pandemic. That prolonged their lives. But now they have to repay the aid and many are struggling to do so.”

Figures released last week by the federal statistics agency showed the number of companies filing for bankruptcy in district courts had increased more than 24 per cent in the 10 months to October, compared with the same period of 2022. 


Germany’s economics ministry said the business environment was “challenging” but played down the scale of the problem, saying: “In the longer-term perspective, and in comparison to the period before the pandemic, corporate insolvencies are currently not at a noticeably high level.”

Wolfgang Steiger, head of the opposition CDU party’s economic council, blamed the government’s “disastrous economic policy” for causing Germany’s insolvency rate to rise faster than many other countries. “High costs for energy and labour, which are a home-made problem, combined with the skills shortage, are causing financial distress for an increasing number of companies in Germany.”

The German economy contracted 0.4 per cent in the third quarter compared with the same period a year earlier after sharp falls in retail sales, exports and industrial production. 

Growth in the country is expected to pick up to 0.6 per cent this year, according to the OECD. But it would still be one of the world’s weakest large economies and several analysts have cut their forecasts since the government slashed spending plans to fill a €60bn hole in its budget left by a constitutional court ruling against off-balance sheet funds.

As part of the budget cuts, Berlin this month ended the temporary low rate of VAT on restaurant meals it introduced during the pandemic, prompting warnings that thousands of eateries would go out of business. More than 15,000 restaurants, snack bars and cafés in Germany are at risk, according to data provider Crif, which estimated that insolvencies in the sector would rise again this year after jumping 36.5 per cent to 1,600 last year.

The German insurance association recently warned of a “massive increase in payment defaults” after credit insurers paid out more than €1.2bn in 2023, up 44 per cent on 2022. “We see significantly more and greater damage from insolvencies and delayed payments than in the previous year,” said the GDV’s Thomas Langen, who predicted German insolvencies would rise 10 per cent this year.

Jonas Eckhardt, specialist at restructuring advisers Falkensteg, said the weak economy was making it harder for companies to pass on higher energy, labour and raw material costs via higher prices. “The big question is — how much of this can I offload on my customers?”

He is predicting that insolvencies will rise more than 30 per cent in 2024 among companies with annual revenues in excess of €10mn.

The sharp rise in interest rates by the European Central Bank to tackle inflation has also made it harder for companies to emerge from insolvency by finding new investors, Eckhardt added. Only 52 per cent of companies could be saved through insolvency at the end of last year, down from 62 per cent two years ago, according to data from Falkensteg.

“Investors have become more risk-averse, and are holding back,” he said. “Those that still want to [take over an insolvent company] face higher financing costs. So it’s a high-risk transaction.”

This drying-up of investment and financing has hit younger, more vulnerable companies. Almost 300 German start-ups filed for insolvency last year, a 65 per cent increase from 2022, according to data provider Startupdetector. Among them was solar-powered car company Sono Motors, online trader Social Chain and anti-fraud software maker Fraugster. 

Many of the bigger companies going bust last year were fashion retailers, transport providers, real estate companies and auto suppliers. There were also high numbers of collapses among German care homes and clinics as they struggled to pass on higher wage and energy costs to the health insurance system. 

Bankruptcies have been rising across much of the world, according to German insurer Allianz, which forecast a 6 per cent increase in global insolvency numbers last year and a 10 per cent rise this year.

“Germany was lagging behind other countries, such as France, the Nordic countries and the Netherlands,” said Maxime Lemerle, lead adviser on insolvency research at Allianz. “But it is catching up with the trend definitely to the upside.”

While it is yet to match the high levels of corporate distress after the 2008 financial crisis, Lemerle said the recent rise of bankruptcies in Germany and elsewhere was now “more than a normalisation, but not yet a tsunami”.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: The 2024 Barron's Roundtable predicts a disappointing stock market

Cover:
-The 2024 Barron's Roundtable predicts a disappointing stock market with returns of minus-5% to plus-5% for the year. They don't anticipate a recession and expect the Federal Reserve to lower interest rates. However, they worry about stocks being too richly valued, leaving little margin for error. Some investors see massive capital investment, new technologies, and investor interest in the 493. The roundtable featured newcomers Rajiv Jain from GQG Partners and John W. Rogers Jr. from Ariel Investments. The group also discussed politics and investment picks.

Interview:
-No interview this week

Tech Trader:
-At CES 2024, PC makers are preparing to ship laptops powered by new processors from Intel, Advanced Micro Devices, and Qualcomm, including "neural engines" capable of running large language models and AI software. Intel's general manager, Michelle Johnston Holthaus, declared that AI is everywhere, transforming, reshaping, and reimagining the PC experience. Lenovo's president of international markets, Matthew Zielinski, believes that PC units should show low-single-digit percentage growth this year, potentially reaching double-digit growth in 2025. Microsoft is excited about the potential of its AI-powered Copilot software, which will launch keyboards for Windows-based PCs with a dedicated button. However, there is no real clarity on what AI PCs will offer, and retailers must train them to teach consumers about the benefits of AI.

The Trader:
-Tesla's stock fell by 3.67% after electric vehicle companies cut prices in China. The Model Y and Model 3 prices fell between 3% and 6%, with the base version starting at $36,000 and the Model 3 at $34,500. Tesla shares finished down 3.7% at $218.89, while the S&P 500 rose 0.1% and the Nasdaq Composite ended flat. Tesla aggressively cut prices globally in 2023 due to higher interest rates and EV competition. The pace of price cuts had slowed later in the year, with a US Model 3 starting at $47,000 in 2022 and ending at $39,000.
-FedEx's stock has dropped 11% since December 19, with the company predicting a low single-digit sales rate for fiscal 2024. The decline was attributed to a decline in shipments and rising prices. However, management maintained its profit outlook, calling for per share earnings at $17.75. FedEx is overhauling its cost structure for 2024, with analysts expecting an operating margin of 7.5%, up from 6.5% this year. Greg Branch, founder and managing partner at Veritas Financial, believes FedEx deserves the benefit of doubt as they have a cost plan in place.

Features:
-The United Auto Workers Union's record wage increases from Detroit-Three auto makers have not significantly impacted new car prices, according to Kelly Blue Book. The average transaction price for December 2023 was $48,759, up from $48,247 in November but down 2.4% year over year. This rise in prices is attributed to seasonal factors and the fourth consecutive month of year-over-year declines, which is "unique."
-Oil investors have remained relatively calm amid rising Middle East tensions, with the risk of a price shock rising. The US and Great Britain attacked areas controlled by Houthi militants in Yemen, signaling a new level of violence in a fight that has been brewing for weeks and has serious consequences for the global economy. The Houthis have almost completely shut down the Red Sea, impacting 15% of global shipping, including oil and liquefied natural gas. Despite this, oil prices have barely budged as the conflict worsens. Analyst Helima Croft suggests that oil investors may be complacent about the steepening risks related to Middle East violence, as traders are hesitant to bet on oil rising due to a fear of overreacting.

Europe:
-Tesla is set to halt production at its German factory for two weeks due to Red Sea shipping attacks extending transport times from Asia to Europe. The disruption is affecting global supply chains and threatening to derail the fight against inflation. Tesla will stop nearly all production at its factory near Berlin from January 29 and resume production on February 12. Tesla shares were down 1.6% in early trading, while the S&P 500 and Nasdaq Composite were both up about 0.5%. The delay is not the most likely reason for the drop, as Tesla cut prices on its electric vehicles in China by 3% to 6%. The company reported operating profit margins of almost 17% in 2022 and is expected to improve in 2024.

Emerging Markets:
-Javier Milei, the new president of Argentina, has been praised for his swift and decisive government, which has seen Argentina's hard-currency bonds rise to the mid-30s. He has promised root-and-branch reform, addressing the state's deficits and overregulation, which are pushing inflation past 100% annually. Milei has cut the official exchange rate of the peso, abolished controls on food prices and rents, loosened labor restrictions, and prepared state companies for future privatization. Additionally, Economy Minister Luis Caputo has unveiled a package of tax increases and spending cuts to shrink Argentina's budget deficit by 5% of GDP.
Commodities:
-US natural gas prices have surged due to cold weather and new attacks on Red Sea shipping routes. Futures for US natural gas jumped 7%, reaching their highest since November, and have risen over 13% this year. Cold blasts could increase demand and lock in production, while continued tumult in the Red Sea has added to global supply concerns. The US produces more natural gas than it consumes, selling the surplus into global markets. The Red Sea attacks could drive energy prices higher by making it more expensive to ship liquefied natural gas to Europe and Asia.

Streetwise:
-Flight demand in the US is increasing, with legacy airlines expecting strong first-quarter results. Despite the temporary grounding of Boeing's 737 Max 9 fleet, the companies appear poised for profitability in both up and down cycles. However, shares in airlines like United Airlines Holdings and American Airlines Group have been lagging behind the market. Analyst Helane Becker, who covers airline shares for TD Cowen, believes that the industry is better for trading than long-term investment due to short-lived positive investor sentiment. Other analysts are more open to the possibility of airlines outperforming for longer, with industry profits for the largest airlines down only 19% from pre-pandemic 2019, but market values down 61%.