Aurelia Butler

Commercial property prices have fallen sharply due to higher borrowing costs and poor demand as firms adjust to post-pandemic realities, with the ECB estimating that prices may have dropped by close to a tenth last year alone. “The inspection teams have found a range of problems in how banks commission or carry out valuations,” the ECB said in a Supervision Newsletter on Wednesday. “With higher interest rates and lower demand weighing on key segments, borrowers are more likely to face debt servicing challenges.”Some banks are using inappropriate definitions of market value and some are not facing up to the reality that the market is in a sharp downturn, suggesting that some of the collateral backing loans may be worth less than assumed, it said. ECB inspectors found in 2022 and 2023 that some banks were basing valuations on transaction data from 2021 or earlier, arguing that there were too few deals in the more recent past to adjust valuations.”No adjustment was made to reflect the market downturn and the very different economic circumstances, not least the increase in inflation and in ECB interest rates,” said the central bank, which has been conducting an on-site inspection campaign of commercial property exposures.Some banks are also interpreting market value as being the figure that they hope to achieve when they are actually in a position to sell, even if transactions could take months or even years.However, valuations must be based on the economic realities on the reference date and not when the market environment may be more favourable, the ECB argued.The supervisor also objected to banks averaging a number of different valuations.When valuations differ, banks should question the methodology rather than just accept the figure, it said.Inspectors also found some banks not applying higher construction costs to new developments and accepting overly optimistic valuations assuming the highest and best use of the property by the buyer. More

PHILADELPHIA (Reuters) – In the 25 days since Vice President Kamala Harris entered the race for the White House, she has kept energy executives guessing.Is she the climate and anti-pollution warrior who was attorney general of California? Or the pragmatic Number Two in the Democratic Biden administration that oversaw record U.S. oil production and exports.In speeches over the last week, she has mentioned the word climate seven times, but the words energy, fracking and oil have yet to cross her lips.Opinion polls show broad support for tackling climate change, especially among younger voters. But her campaign aims to avoid alienating either side. Several aides describe her plan on controversial energy issues as one of strategic ambiguity. The goal is to attract voters in battleground states like Michigan, Pennsylvania and Wisconsin where elections are decided. There, blue-collar workers rely on extractive, power and manufacturing industries and often back Republican policies that seek to maximize and prolong fossil fuel output.Harris’ Republican rival in the Nov. 5 election already has voiced his view. In an interview with billionaire Elon Musk on Monday, Donald Trump called Harris a “radical left lunatic.” He questioned the urgency attached to climate change.In five of her speeches the last week, she uttered the same 10-word phrase in the context of Trump, saying: “He intends to surrender our fight against the climate crisis.” Harris’ late entry to the presidential race has given her little time to finesse policies. One campaign official, when asked about specific policy proposals, observed: “We barely have campaign signs.”TOEING THE BIDEN LINE MORE CLOSELYThe Harris campaign declined to provide specific answers to detailed questions about her energy policy and how her past statements align with her current approach, but suggested that she would adhere more closely to the policies of the Biden administration than some of her policies in California or when she first sought the presidency in 2019.President Joe Biden talked tough on fighting Big Oil but did little to restrict fossil fuel output. U.S. oil and gas output have reached record highs under his administration, and top energy companies Exxon (NYSE:XOM) and Chevron (NYSE:CVX) both made record profits. Unlike governments in Europe, Biden never imposed a windfall tax on the earnings those companies made when oil and gas prices soared after Russia invaded Ukraine in 2022. As vice president, Harris has supported Biden’s landmark climate legislation, the Inflation Reduction Act (IRA).”As president, Kamala Harris will finish implementing the IRA and the bipartisan infrastructure law and build on their successes,” a campaign spokesperson said, referring to legislation that contains lucrative clean energy subsidy programs.She and Biden have sought to expand offshore wind energy and other renewables with lease auctions and subsidies, striking a contrast with Trump, who has criticized offshore wind and other clean energy technologies and regularly states his support for the fossil fuel industry.HARRIS NO LONGER FAVORS A FRACKING BAN ON FEDERAL LANDSThe Harris campaign has clarified her position on one issue. She no longer supports a ban on fracking on federal lands. Biden tried and failed to impose that ban, which was contested by several states and blocked by a federal judge in Louisiana.In 2019, Harris outlined a detailed energy and climate platform that supported the ban and opposed all new fossil fuel infrastructure projects.As a U.S. senator and presidential candidate in 2019, Harris supported a Democratic resolution to create a “Green New Deal,” a sweeping progressive effort to shift the country toward renewable energy.As California attorney general from 2011-2017, Harris won multimillion-dollar settlements with oil majors Chevron and BP (NYSE:BP) over pollution violations from underground fuel storage tanks. Stephen Brown, an energy consultant and former lobbyist with Tesoro, who had a large refining footprint in California, said Harris had not engaged constructively with the oil and gas industry during her years on Capitol Hill from 2017-2021.”I can’t say that we were tremendously welcomed in her office by either her or her staff, and so there wasn’t a lot of engagement,” he said. “So fast forward to what it is today, and it’s sort of an open book. It’s an open question.” In Pennsylvania – a must-win state for both Harris and Trump, locked in a close race – she has won the endorsement of all the major labor unions. The state is the nation’s second largest producer of natural gas and hopes to capitalize on increased demand from Europe for liquefied natural gas, or LNG, exports. Biden paused all new LNG export permits earlier this year and the Harris campaign declined to say whether she will lift the pause and encourage new facilities. Rob Bair, president of the Pennsylvania State Building & Construction Trades Council, whose members work in the state’s power plants, refineries and natural gas fields, said he had spoken with the Harris team and is confident she will pursue an “all the above” energy policy, but he acknowledged some clarity would help him to persuade members to vote for her. “Would it be great if she came out and said, ‘I love fracking, I want LNG exports, I want more nuclear facilities’? Sure, but that’s not realistic,” Bair said. The American Fuel & Petrochemical Manufacturers, an influential refining trade group, has embarked on an 8-figure ad campaign in battleground states on the potential pitfalls of electric vehicle mandates. “Until the vice president says otherwise, we have to believe she still stands for everything that was in her 2019 policy plan and for every policy she cosponsored as a senator,” said Chet Thompson, AFPM President and CEO. More

(Reuters) – Leveraged loan deals are expected to pick back up after a stabilization in markets over the past week, although some investors say they are cautious about junk-rated loans if the economy weakens.Borrowers pulled back on leveraged loan deals last week, following disappointing jobs data on Aug. 1 and Aug. 2 that raised forecasts for aggressive interest rate cuts and spurred concerns about lower-rated debt.A total of six leveraged loans worth $3.3 billion sold last week, which falls well short of the $10 billion weekly average this year and is the worst week for issuance outside the holiday-shortened first week of July, according to PitchBook LCD data.One junk-rated loan deal sold on Monday, airline JetBlue Airways (NASDAQ:JBLU)’ five-year term loan, according to PitchBook LCD. JetBlue originally sought a $1.25 billion loan, but downsized it to $750 million and upsized its bond offering to $2 billion from $1.5 billion, according to Informa Global Markets. JetBlue did not immediately respond to a request for comment.At least two leveraged loan deals hit the market on Tuesday, including a $160 million add-on to virtual dataroom Datasite’s cross-border term loan and a $253 million repricing of for-profit education operator Adtalem Global Education’s term loan, according to PitchBook. Datasite and Adtalem did not immediately respond to a request for comment.Lower rates can be good news for highly indebted companies. “There’s no doubt if the Fed ends up cutting more as is priced in currently, that’s going to be a big relief for (those) borrowers,” said Hans Mikkelsen, credit strategist at TD Securities.”But (investors) can now expect to earn less going forward because of that, (and) there’s going to be less availability of financing in the leveraged loan market (as a result),” he said. Leveraged loan funds reported $3.1 billion in outflows last week, which is the most since March 2020, according to JPMorgan. That includes a record $2.4 billion outflow from exchange-traded funds.The Morningstar LSTA US Leveraged Loan Index fell 0.55% on Aug. 5, the worst daily performance for the index since the collapse of Silicon Valley Bank in March 2023. The index has since clawed back these losses.”For leveraged loans, a wave of volatility did throw a wrench into the works for the loan primary… forcing several opportunistic transactions to the sidelines,” said Marina Lukatsky, global head of credit research at Pitchbook.These included deals for investment firm Focus Financial Partners (NASDAQ:FOCS), theme park owner SeaWorld (NYSE:PRKS) Entertainment (owned by United Parks & Resorts Inc.), and wireless provider SBA Communications (NASDAQ:SBAC), according to Lukatsky. The companies did not immediately respond to a request for comment.”I think we will see a pickup in primary issuance in both markets,” said Jeremy Burton, portfolio manager for U.S. high yield and leveraged loans at PineBridge Investments. “In the loan market, there were a number of repricings (and) refinancings that were either pulled or just didn’t launch…we could see some of those come back,” he said.A gap between net loan supply and investor demand since the Fed began hiking rates in 2022 should sustain demand for new loan deals through the end of this year, according to Lukatsky. She estimated that investor demand this year exceeded net loan supply by at least $130 billion as of July 31.But headed into 2025, further signs of an economic slowdown and aggressive Fed rate cuts could prove detrimental to certain leveraged borrowers’ refinancing or new loan plans.”Getting away from (last) week, I think investors will be focused on the potential for a slowing in the economy,” said PineBridge’s Burton. More

TOKYO (Reuters) -Japan’s Prime Minister Fumio Kishida said on Wednesday he would step down next month, succumbing to public disaffection over political scandals and rising living costs that marred his three-year term, and setting off a scramble to replace him.”Politics cannot function without public trust,” he told a press conference to reveal his decision not to seek re-election as the leader of the ruling Liberal Democratic Party (LDP).”I made this heavy decision thinking of the public, with the strong will to push political reform forward.”The LDP will hold a contest in September to replace him as president of the party, and, by extension, as prime minister.Kishida’s ratings dipped after he took office in 2021 following revelations about the LDP’s ties to the controversial Unification Church.His popularity took another hit when a slush fund of unrecorded political donations made at LDP fundraising events came to light.He also faced public discontent as wages failed to keep pace with rising living costs as Japan finally shook off years of deflationary pressure.”An LDP incumbent prime minister cannot run in the presidential race unless he’s assured of a victory,” said Koichi Nakano, a professor of political science at Sophia University.”It’s like the grand champion yokozunas of sumo. You don’t just win, but you need to win with grace.”His successor as LDP leader will face the task of restoring the public’s confidence in the party and tackle the rising cost of living, escalating geopolitical tensions with China, and the potential return of Donald Trump as U.S. president next year.MONETARY POLICY AND MILITARY BUILDUPThrough his stint as Japan’s eighth-longest serving post-war leader, Kishida broke from previous economic policy by eschewing corporate profit-driven trickledown economics to set his sights on boosting household income, including wage hikes and promoting share ownership.He led Japan out of the COVID pandemic with massive stimulus spending and also appointed academic Kazuo Ueda as head of the Bank of Japan (BOJ) to guide the country out of his predecessor’s radical monetary stimulus.In July, the BOJ unexpectedly raised interest rates as inflation took hold, contributing to stock market instability and sending the yen sharply higher.Kishida’s departure could mean tighter fiscal and monetary conditions, depending on the candidate, said Shoki Omori, chief Japan desk strategist at Mizuho Securities in Tokyo.”In short, risk-assets, particularly equities, will likely be hit the most,” he said.Kishida’s premiership was also marked by a changing security environment that spurred Japan to revisit its traditionally pacifist policy.He unveiled Japan’s biggest military buildup since World War Two with a commitment to double defence spending aimed at deterring neighbouring China from pursuing its territorial ambitions in East Asia through military force.At Washington’s prodding, Kishida also mended Japan’s strained ties with South Korea, enabling the two and their mutual ally, the United States, to pursue deeper security co-operation against the threat from North Korea’s missile and nuclear weapons programs.”Personally, I wish he continued a little bit more as prime minister,” said Naoya Okamoto, a 22-year-old office worker in Tokyo, the capital.”Maybe he was stressed (with the low ratings), and with all the circumstances around him, I guess he has no choice but to step down.”NEXT LEADERFormer defence minister Shigeru Ishiba has already thrown his hat in the ring as a prospective replacement for Kishida, saying he would like to “fulfil his duty” if he gained enough support, public broadcaster NHK said.Other names floated as potential contenders include Foreign Minister Yoko Kamikawa, Digital Minister Taro Kono, and former Environment Minister Shinjiro Koizumi.Experts say the LDP will have to pick a fresh face that breaks from the scandals if it is to survive a general election due by the third quarter of 2025.”If the LDP picks its next leader in a way that disregards public criticism against political funding scandals, the party could suffer a crushing defeat,” said political analyst Atsuo Ito.”The party must choose someone young who has no ties with the present administration and thus can present a new LDP.” More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

$75 per monthComplete digital access to quality FT journalism with expert analysis from industry leaders. Pay a year upfront and save 20%.What’s included Global news & analysisExpert opinionFT App on Android & iOSFT Edit appFirstFT: the day’s biggest stories20+ curated newslettersFollow topics & set alerts with myFTFT Videos & Podcasts20 monthly gift articles to shareLex: FT’s flagship investment column15+ Premium newsletters by leading expertsFT Digital Edition: our digitised print edition More

The Panama Canal is struggling to persuade traders in liquefied natural gas and food commodities such as grains to return to the trade route after they were forced out by a historic drought last year.The 110-year-old canal, through which goods ranging from US LNG to Latin American crops have for decades reached the rest of the world, was forced to cap crossings last July because of a lack of rainfall needed to operate its locks. It hopes to return close to capacity in September after months of higher rainfall.But only 13 LNG ships crossed the canal last month, fewer than half the number in July 2022, according to shipping analysis group Marine Traffic. Transits by dry bulk ships also dropped 35 per cent to 129 over the same period.Officials in Panama have shrugged off the impact, as other types of ships, such as container vessels, used the waterway at normal levels and the canal’s income rose thanks to intense bidding for a limited number of slots.But the development highlights how increasing supply chain disruptions, including those linked to climate change, threaten to reshape and drive up the cost of global trade.It comes amid broader uncertainty over the future of the canal — an important source of income for the Central American nation that handles about 5 per cent of global maritime trade — as officials grapple with lower rainfall and local demands to protect drinking water supplies. Last summer’s drought was blamed on the natural weather phenomenon El Niño, but rising temperatures are expected to continue to affect water supplies.Roar Adland, head of research at shipbroker SSY, said the canal was simply “a less attractive option than in the past” for lower-value goods, as it struggled to offer the same cost and time savings as before.Because the canal has forced all customers to pre-book slots since the drought, businesses faced “an extra cost and a loss of flexibility [compared with] the past when you could just show up and wait in a queue,” he added.“This may mean structurally lower transits for the kind of low-value, time-insensitive cargoes typically transported by [dry bulk ships].”At its peak, the canal allowed upwards of 36 vessels to cross per day, but a lack of rainfall forced restrictions that pushed the number down to 20 in January this year. The cost of transiting the canal also rocketed, with one Japanese shipowner paying almost $4mn to skip the queue, the canal said in November. This meant that despite the drought, the canal’s revenue rose 15 per cent in the year to September 2023, with 3 per cent revenue growth forecast for the following fiscal year.Panama Canal Authority director Ricaurte Vásquez said that while officials could not control the rain, the canal was focused on reliability. The authority will review prices next month.“Continuing to raise prices indefinitely is not the way forward, and we are very careful to keep the Panama Canal as a relevant transit route for the whole world,” he said. Ricaurte Vásquez: ‘Continuing to raise prices indefinitely is not the way forward.’ More