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MARKETS SLIDE AS UK BANKS CANCEL DIVIDENDS AMID COVID-19 WOES


Photograph: James Veysey/REX/Shutterstock



Allianz’s chief economist, Mohamed El-Erian, fears that companies who can’t access loans, or issue debt, will face solvency problems soon.


Speaking on CNBC, El-Erian explained here are two groups of companies right now.

One has access to the debt market, and “they are taking on a ton of debt... building a ton of cash”. That will help them through the Covid-19 crisis, but such a debt pile will hurt their credit worthiness in future.

Those on the other side have an immediate problem - no access to loans or debt issuance.

“For them, a liquidity problem will become a solvency issue,” says El-Erian.

This means a reversible shock will become a permanent capital impairment shock

The markets are still working through this issue, he adds, but the upshot is “lower valuations from here”.


Read full article here: https://www.theguardian.com/business/live/2020/apr/01/markets-covid-19-recession-factories-uk-banks-cancel-dividends-coronavirus-business-live


An article by theguardian.com

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