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Money Management

Credit managers take bleaker view of North America — IACPM survey

Credit portfolio managers are more pessimistic on credit conditions in North America over the next 12 months, according to the latest survey from the International Association of Credit Portfolio Managers.

The Credit Default Outlook index for North America for the next 12 months is -41.2, down from -20.0 in the previous quarter's 12-month survey. A negative number indicates credit conditions are expected to worsen, while positive numbers mean conditions are expected to improve.

In North America, the drop in sentiment looks ominous, but Som-lok Leung, IACPM executive director, said in an interview that it's important to keep in mind that defaults are currently at a low level, and that North America is in a different situation than Europe.

"Europe is still in the quantitative-easing part of the cycle," Mr. Leung said. "We've ended that. That definitely has an impact on the outlook but not as marked as you would think. It's been so well-telegraphed and so well built in, the effect is fairly minimal."

"There was certainly a stock market bump up after the election," he said, "but that's kind of leveled off. It's a sign it's not clear what pro-business initiatives the Trump administration is going to be able to implement, and that's also reflected in views of credit."

In an IACPM news release, Mr. Leung also pointed out that 53% of respondents think defaults will remain at the same level in North America, while 44% expect them to rise and just 3% think defaults will decrease.

The news release also mentioned that commercial real estate is one sector that worries survey respondents in North America, with almost two-thirds of respondents predicting that defaults will increase over the next 12 months due to structural changes in the retail sector.

The index in every other region improved slightly, although all were still negative: Europe was at -30.3, improving from -38.9; Asia at -27.3, from -37.5; and Australia was at -17.6, from -19.0. The overall Credit Default Outlook index worsened slightly to -31.1 from -28.9.

Regarding Europe, the release said it is important to remember the region is at an "earlier stage in the economic cycle than North America."

The survey is conducted among IACPM members, which consist of credit portfolio managers at more than 90 financial institutions in the U.S., Europe, Asia, Africa and Australia.