Friday 13April2018 FINANCIAL TIMES COMPANIES & MARKETS @ FINANCIAL TIMES LIMITED Stocks gain ground as Middle East jitters ebb Oil prices retreat in choppy trading, gold slides STEPHEN SMITH AND KATE ALLEN What you need to know • Wall Street opens positively and European markets also moving higher • Oil prices choppy amid Middle East tension • Dollar firmer as investors digest Fed minutes, euro slides • Rouble strengthens after sanctions-driven slide • Bourses down in Asia after weak lead overnight from US “Markets are moving from the relief that the trade war rhetoric has stepped back for now to a realisation that the Middle East rhetoric is stepping up,” said Jim Reid of Deutsche Bank. “The short-term geopolitical fear has been the dominant theme over the last 24 hours, overshadowing an in-line US CPI [inflation] print and a slightly hawkish set of Fed minutes.” Hot topic Wall Street stocks are higher and European markets are folding on to early gains after Asian bourses followed Wednesday’s dip lower amid continued rumblings of geopolitical tension in the Middle East. The benchmark S&P 500 is up 1 per cent at 2,669 while the Dow Jones Industrial Average is 1.3 per cent higher. The Europe-wide Stoxx 600 is 0.7 per cent stronger while Germany’s Xetra Dax is up 1.1 per cent and London’s FTSE 100 is 0.1 per cent firmer. Russian equities are rallying after a tumultuous start to the week. But the dollar-denominated RTS stock gauge is off 10.4 per cent over the course of the week against a 4 per cent fall for the rouble-denominated Moex. Overnight on Wall Street, the S&P 500 shed 0.6 per cent amid the heightened geopolitical tension and after the minutes from US policymakers’ latest meeting indi- ANDREW EDGECLIFFE-JOHNSON Hearst has agreed to pay $2.8bn to buy out its French partner in Fitch Group, the privately owned US media group said on Thursday, increasing its focus on credit ratings and other financial information services. The all-cash purchase, for which Hearst has not had to raise new financing, makes Fitch Hearst’s largest wholly-owned business. “Fitch CEO Paul Taylor has built a great team that has delivered impressive growth in the ratings and information services businesses,” Steven Swartz, chief executive officer of the New York group, said in a statement. The deal brings to an end what Mr Swartz called “an excellent partnership” with Fimalac, the holding cated that Federal Reserve officials were considering the possibility of steeper interest rate rises. Asian equities staged an early climb that later crumbled, leaving the Hang Seng benchmark 0.2 per cent lower on the day. Shares in Chinese state-owned oil firms rose but that was more than offset by a fall in tech stocks. The Shanghai Composite closed 0.9 per cent lower. In Tokyo, the Topix index finished off 0.4 per cent. New Zealand stocks on the NZX 50 closed 0.6 per cent lower after the country’s prime minister announced it would ban future offshore oil and gas exploration. Commodities Oil benchmarks are lower again after bouncing off earlier dips. International benchmark Brent crude briefly rose above $73 a barrel on Wednesday to its highest level for nearly four years after US president Donald Trump warned Russia to “get ready” for US missiles to be fired at Syria and reports that Saudi Arabia’s air defences had intercepted a “rocket” above Riyadh. Brent then pulled back later in the Wednesday session from a peak of $73 a barrel to dip below $72. Trading on Thursday has seen the global benchmark move between gains and losses, currently down 1 per cent on the session at $71.36 a barrel. US marker West Texas Intermediate is 0.9 per cent lower on the day at $66.20. Gold is down 1.1 per cent, or $14, at $1,338 an ounce after touching $1,365 on Wednesday. Forex and fixed income The dollar index, which measures the greenback against a basket of other currencies, is up 0.4 per cent. Sterling is 0.1 per cent higher against the dollar at $1.4193 while the euro is down 0.5 per cent at $1.2302 — unsettled by some disappointing eurozone industrial production data. Hearst pays $2.8bn to take full control of Fitch Group company for French billionaire Marc Ladreit de Lacharrière. Hearst bought its first 20 per cent stake in Fitch from Fimalac in 2006 for $592m, and spent another $2.6bn increasing its holding to 80 per cent between 2009 and 2014. The company noted that Fitch had diversified in recent years, and now derived more than 20 per cent of its revenues from data products unrelated to its core ratings business, where it competes with the larger Moody’s and Standard & Poor’s. Hearst is still best known for newspapers such as the Houston Chronicle and magazines such as Cosmopolitan but has stakes in television networks from A&E to ESPN, television stations from Boston to Sacramento, and investments in digital media companies including BuzzFeed and Vice. C002D5556 BUSINESS DAY S&P warns of risks in leveraged loan market as deals surge A3 Limited investor security in debt agreements seen ending badly as credit cycle peaks ERIC PLATT and Europe, and that companies and rower friendly terms, setting the private equity firms were willing to stage for lower recovery values if pay more to clinch deals than at any companies subsequently default. S&P Global has warned investors in the $1tn leveraged loan Paul Draffin, analyst at S&P said: tections in a bond or loan document time since at least 2003 in the US. The quality of covenants — the pro- market that weak lending terms “History shows us that the worst debt that can limit the amount of debt a pose a risk as the credit cycle approaches a peak and deal making has times . . . Now is the perfect time to it can pay its equity investors in transactions are done at the best of borrower can take on or how much surged in recent months. be cautious.” dividends — has steadily weakened While a number of high-profile Scott Roberts, the head of high in recent years. investors have warned of the risks yield at Invesco, said the recent “We’ve already seen weaker of leverage in the $8.8tn US corporate bond market, money continues could spark additional M&A activ- [over] the last couple of years,” Beth declines in the US stock market terms continuously deteriorating pouring into the US loan market, ity, coaxing private equity buyers MacLean, a bank loan portfolio where interest rates are floating and who had been sidelined by the high manager with Pimco, said of covenant packages. “I’m not sure the adjust higher as the Federal Reserve equity valuations back to the market. tightens policy. Bank loan funds have PE firms are sitting on record “drypowder” of $1.7tn, money they have However, Rob Cignarella, who market can tolerate much worse.” attracted more than $3bn of money this year, following 2017’s $15bn raised to fund takeovers, according heads global leveraged finance in haul, according to EPFR. to data provider Preqin. asset manager PGIM’s fixed-income That has bolstered confidence “Despite the equity volatility, business, noted that the market had among dealmakers that they can the high yield and leveraged loan yet to see the kind of leveraged buyout activity that occurred between finance mergers and acquisitions. markets are still open to finance Takeovers worth more than $1.2tn these deals,” said Mr Roberts. “There 2006 and 2007, when a string of have been announced so far this is a ton of [private equity] capital $10bn-plus private-equity backed year, up more than 45 per cent from chomping at the bit and a leveraged takeovers were struck. Even with a a year prior, Dealogic data shows. loan market still looking for paper.” recent uptick in volatility, he said it The New York-based rating agency warned that leverage was ap- raised the risk that a flurry of deals to risk assets. One warning sign he That kind of backdrop S&P said was “hard” to reduce his exposure proaching or exceeding levels seen could be financed with limited would look for though: over-leveraged, PE-backed before the financial crisis in the US investor security packages and bor- LBOs. UK consumer credit drops ‘significantly’ Changing appetite to risk and a lending squeeze cools market in first quarter GAVIN JACKSON The availability of consumer credit dropped “significantly” in the first quarter of 2018, according to a survey of credit conditions published on Thursday by the Bank of England. A net 38.7 per cent of lenders reported that the availability of unsecured consumer credit — such as credit card lending and overdrafts — fell during the three months to the end of March, compared with the previous quarter. “The availability of unsecured credit to households was reported to have decreased significantly in Q1,” the BoE wrote in its report. “This was largely driven by a changing appetite to risk, with lenders also reporting that the credit scoring criteria for granting both credit card and other unsecured loan applications tightened significantly in Q1.” Consumer borrowing has helped to keep the UK economy growing following the June 2016 EU referendum, as households have borrowed or dipped into savings in order to maintain their living standards as prices have risen faster than incomes. However, the increase in borrowing has also worried economists and regulators. “The credit conditions survey for the first quarter of 2018 should go down pretty well at the Bank of England given its view that recent rapid growth in consumer credit has created a ‘pocket of risk’,” said Howard Archer, chief economic adviser to the EY ITEM Club. “The Bank of England has also warned that banks risk becoming complacent in their lending behaviour so it should take some comfort from banks reportedly tightening their lending standards for granting unsecured consumer credit,” he added. Previous studies by the BoE and others have found that much of the rise in borrowing over the past year has been by those on higher incomes using credit cards or buying new cars on credit. The BoE interviewed banks and building societies between February 19 and March 9 to compile the report. The central bank weighted their responses to reflect their market share. Recommended Analysis High yield bonds UK’s high-yield high street struggles under hefty debt load The lenders said they expected the availability of consumer credit to remain virtually unchanged over the second quarter of the year. It was the first time respondents to the survey had not expected unsecured credit to become less available over the next three months since late 2016. Lenders also reported defaults on unsecured credit had increased during the first quarter of the year, and said they were expected to increase again during the second quarter. Defaults were increasing slower on credit cards than on other kinds of loans. Separate figures published on Thursday by the Office for National Statistics said that the proportion of cash saved by households had fallen to 0.9 per cent in 2017, the lowest cash savings ratio since 2009.