The Wall Street Journal - 07.10.2019

B10| Monday, October 7, 2019 THE WALL STREET JOURNAL.

Monday

Consumer credit
July, prev. up $23.29 bil.
Aug., exp. up $18.0 bil.

Tuesday

Producer price index
All items, Aug. up 0.1%
Sept., expected up 0.1%
Core, Aug. up 0.3%
Sept., expected up 0.2%

Earnings expected*
Estimate/YearAgo($)
Domino’s Pizza2.07/1.95

Wednesday

Mort. bankers indexes
Purch., previous up 1%
Refinan., prev. up 14%

EIA status report
Previouschangein stocksin
millionsof barrels
Crude oil up 3.1
Gasoline down 0.2
Distillates down 2.4

Wholesale inventories
July, previous up 0.2%
Aug., expected up 0.4%

Thursday

Initial jobless claims

Previous 219,000

Expected 219,000

EIA report: natural gas

Previouschangein stocksin

billionsof cubicfeet

up 112

Consumer price index

All items, Aug. up 0.1%

Sept., expected up 0.1%

Core, Aug. up 0.3%

Sept., expected up 0.2%

Earnings expected*

Estimate/YearAgo($)

Delta Air Lines2.27/1.80

Friday

Import price index

Aug., previous down 0.5%

Sept., exp. down 0.1%

Univ. of Michigan

Consumer Sentiment

Index

Sept., final 93.2

Oct., prelim. 92.0

Earnings expected*

Estimate/YearAgo($)

Fastenal 0.36/0.35

• FACTSET ESTIMATES EARNINGS-PER-SHARE ESTIMATES DON’T IN-
  CLUDE EXTRAORDINARY ITEMS (LOSSES IN PARENTHESES)  ADJUSTED
  FOR STOCK SPLITNOTE: FORECASTS ARE FROM DOW JONES WEEKLY
  SURVEY OF ECONOMISTS Analysts predict Domino’s Pizza will report quarterly earnings of $2.07 a share on Tuesday, up from $1.95 in the same period a year ago.

ANDREW HARRER/BLOOMBERG NEWS

MARKETS

tions in the U.S. also are ex-

pected to win relief.

Under a proposal released a

year ago, the Fed would divide

large U.S. banks into four cate-

gories based on their size and

other risk factors. Regional

lenders would be either en-

tirely free from certain capital

and liquidity requirements or

see those requirements re-

duced.

“All but the very biggest

banks doing business in the

United States will receive sig-

nificant regulatory relief,” said

Karen Petrou, head of Federal

Financial Analytics, a regula-

tory advisory firm. Ms. Petrou

said it is impossible to fore-

cast how much relief specific

lenders will receive until the

details of the final rules are

given.

The Fed on Thursday also

said it planned to ease re-

quirements that large banks

plan annually for their own

demise, completing a measure

on what are known as living

wills that it formally floated in

the spring.

The central bank in April

proposed requiring the largest

U.S. banks, includingBank of

America Corp., JPMorgan

Chase& Co. andCitigroup

Inc., to produce living-will

plans every four years rather

than every year. Every two

years banks would file pared-

down versions of the plans,

addressing capital and liquid-

ity, core parts of their wind-

down strategies and any major

shifts in their operations.

While no one rule change

so far has been monumental,

the collective changes repre-

sent a significant step to

soften the impact of the Dodd-

Frank law, signed in 2010 to

ward off another financial

meltdown.

A law signed by President

Trump in May 2018 eased re-

strictions for banks with less

than $250 billion in assets, the

impetus for a series of regula-

tory changes.

The plans have divided the

Fed, with Trump-appointed

regulators and an official nom-

inated by President Obama

taking opposite sides.

Supporters say the efforts

would cut the regulatory bur-

den while maintaining the

most stringent requirements

for firms that pose the great-

est risks.

“We’ve been working on a

regulatory restructuring that

is aggressive in its scope but

responsible in its substance,”

Fed Vice Chairman Randal

Quarles said this summer.

Fed governor Lael Brainard

has dissented. The Obama ap-

pointee said the policy propos-

als under consideration

“weaken the buffers that are

core to the resilience of our

system” and raise “the risk

that American taxpayers again

will be on the hook.”

The Fed also has several

unfinished items on its to-do

list that other regulators have

already completed. These in-

clude measures to ease com-

pliance with the Volcker rule,

which limits speculative trad-

ing with banks’ own funds.

WASHINGTON—The Federal
Reserve is expected this week
to complete some of the most
significant changes to bank
rules since President Trump
took office, setting up a new
way of deciding which large
banks are hit with its toughest
regulations.
The Fed said last week that
it would vote Thursday on a
measure to ease liquidity and
capital rules for the country’s
large banks, signing off on a
plan that may lower regula-
tory costs for regional U.S.
lenders under the $700 billion
asset line.
Foreign banks with opera-

BYANDREWACKERMAN

Banks Expected to Get Regulatory Relief

THE TICKER|

Market events coming this week

nance or otherwise raise funds

because China’s official stance

was supportive, given infra-

structure investment remains

vital to keeping the economy

humming.

The blizzard of sales is

partly about refinancing: A re-

cord 2.1 trillion yuan of debt

from local government financ-

ing vehicles has either ma-

tured this year or will by year-

end, according to Wind, a data

provider.

Next year, another 1.7 tril-

lion yuan comes due. Offshore

debt maturities are rising, too,

and will hit $25.3 billion in

2021.

This type of debt issuance

took off when local authorities

were barred from borrowing

directly from banks or bond

markets. From 2015, Beijing

has allowed regional govern-

ments to sell “special purpose

bonds” directly, to fund public

works, with the aim of gradu-

ally replacing this off-balance-

sheet debt.

But, said Ms. Li, “the cur-

rent scale of special-purpose

bonds issued by local govern-

ments is not enough to cover

the funding needs of all these

projects.”

That is partly because only

provincial-level governments

and a few municipalities are

allowed to issue local govern-

ment bonds, while a lot of in-

frastructure projects are car-

ried out at much lower levels.

Investors’ enthusiasm has

risen. Amid a broader bond-

market rally, average yields on

five-year debt with an AA do-

mestic credit rating issued by

local government financing ve-

hicles across China have fallen

to 4.21% from 4.68% at the end

of last year. Bond prices rise

when yields decline. The issu-

ers include borrowers from af-

fluent areas such as eastern

Zhejiang province, as well as

those from less developed re-

gions, such as Inner Mongolia

in the north.

On a relative basis, borrow-

ing costs have fallen, too:

Yields are now about 1.2 per-

centage points above those on

corresponding Chinese gov-

ernment bonds, the narrowest

gap in nearly three years. This

gap, known as the credit

spread, measures the extra re-

turn investors demand for in-

vesting in riskier corporate

bonds rather than safer gov-

ernment debt.

The comparative appeal of

these bonds has also risen as

defaults on bonds issued by

private companies have

climbed sharply. These debt-

ors have limited access to

loans from China’s banks,

which are mostly state-backed,

and are less likely to secure

tax breaks.

Corporate bonds with a face

value of 122.3 billion yuan

have defaulted so far in 2019,

up 35% year over year. Of the

150 bonds that have gone sour

this year, all but nine were is-

sued by private firms.

“The continued rise in de-

faults on corporate bonds is-

sued by other types of compa-

nies also has boosted

investors’ sense of security”

about bonds from local gov-

ernment financing vehicles,

said Meng Huan, a bond-fund

manager at Shanghai Yunhan

Asset Management Co.

Many funding vehicles rely

on government subsidies to

stay afloat, and none have

ever defaulted. However, ana-

lysts say default isn’t a purely

financial question. Some other

government-related issuers

have failed to repay investors

recently, such as aluminum

makerQinghai Provincial In-

vestment GroupCo.

“Beijing’s policy priority of

maintaining financial stability

also offers some sense of secu-

rity to investors,” said Ms. Li

of S&P Global Ratings. She

added that the local govern-

ment funding vehicles play a

very important role in the cap-

ital market and financial sys-

tem.

The funding vehicles are

also seen as crucial to the rep-

utation of local officials, who

would probably do everything

possible to keep them in busi-

ness.

“Nobody wants to be the

first to default, and no local

officials want to lose their

jobs because of that,” said a

Beijing-based head of bond

underwriting at a large Chi-

nese brokerage firm.

SHANGHAI—The invest-
ment arms of China’s cities
and provinces are selling debt
at a record pace to fund roads,
railways, utilities and ports, as
they seek to shore up growth
by spending more on infra-
structure.
Smaller cities and counties
in China have long used local
government financing vehicles
to raise money via debt that is
kept off the books of the mu-
nicipalities themselves. The
borrowers are often heavily
indebted and lack formal state
backing, although they are
typically seen as carrying an
implicit guarantee that Beijing
would bail out investors if
debts can’t be repaid.
Even so, some investors
have viewed them as one of
China’s riskiest categories of

bonds. In 2014, for instance,
Beijing—concerned about debt
buildup and a lack of transpar-
ency—imposed a short-lived
ban on debt issuance of this
sort by the investment arms of
cities and provinces.
However, as the central
government has relaxed its
stance on debt buildups, inves-
tors are warming to the fund-
ing vehicles, effectively bet-
ting state support will be
there if needed.
Local government financing
vehicles have issued 2.37 tril-
lion yuan ($332 billion) of do-
mestic bonds this year. That
total is up 38% from the same
period in 2018, and is poised
to break the full-year record of
2.56 trillion yuan set three
years ago.
Overseas issuance in dollars
has hit $23 billion: up 56%
year over year and nearing
2018’s full-year record of $24
billion.
Laura Li, a Hong Kong-
based analyst at S&P Global
Ratings, said this was a good
time for the borrowers to refi-

BYSHENHONG

China’s Riskiest Form of Government Borrowing Booms

Investors bet state support will be there for infrastructure financing vehicles if needed. Work is done on a bridge in Jiangsu province.

AGENCE FRANCE-PRESSE/GETTY IMAGES

Currencies

U.S.-dollarforeign-exchangeratesin lateNew Yorktrading

US$vs,

Fri YTD chg

Country/currency inUS$ per US$ (%)

Americas

Argentinapeso .0173 57.657053.2

Brazilreal .2465 4.0562 4.5

Canadadollar .7512 1.3312–2.4

Chilepeso .001399 715.00 3.0

Colombiapeso .000291 3434.50 5.8

EcuadorUS dollar 11 unch

Mexicopeso .0512 19.5156–0.7

Uruguaypeso .02688 37.200014.9

Asia-Pacific

Australiandollar .6768 1.4775 4.2

Chinayuan .1399 7.1485 3.9

Hong Kongdollar .1276 7.8394 0.1

Indiarupee .01412 70.825 1.8

Indonesiarupiah .0000707 14135 –1.7

Japanyen .009352 106.93–2.4

Kazakhstantenge .002570 389.14 1.2

Macaupataca .1240 8.0645–0.1

Malaysiaringgit .2389 4.1856 1.3

New Zealanddollar .6317 1.5830 6.4

Pakistanrupee .00641 156.00011.6

Philippinespeso .0193 51.695–1.5

Singaporedollar .7254 1.3785 1.1

South Koreawon .00083881192.25 7.0

Sri Lankarupee .0055069181.59–0.7

Taiwandollar .03237 30.892 1.0

Thailandbaht .03286 30.430–5.8

Vietnamdong .00004310 23201 0.03

US$vs,

Fri YTD chg

Country/currency inUS$ per US$ (%)

Europe

Czech Rep.koruna .04268 23.429 4.5

Denmarkkrone .1470 6.8023 4.5

Euro areaeuro 1.0980 .9108 4.5

Hungaryforint .003301 302.96 8.2

Icelandkrona .008078 123.79 6.6

Norwaykrone .1099 9.0955 5.3

Polandzloty .2541 3.9356 5.2

Russiaruble .01547 64.661–6.6

Swedenkrona .1016 9.841611.2

Switzerlandfranc 1.0043 .9957 1.4

Turkeylira .1756 5.6962 7.7

Ukrainehryvnia .0407 24.5940–11.3

UKpound 1.2334 .8108 3.4

Middle East/Africa

Bahraindinar 2.6525 .37700.01

Egyptpound .0613 16.3081–9.0

Israelshekel .2875 3.4779–7.0

Kuwaitdinar 3.2873 .3042 0.3

Omansul rial 2.5970 .38510.01

Qatarrial .2747 3.641 0.1

Saudi Arabiariyal .2666 3.7513–0.01

South Africarand .0665 15.0447 4.8

CloseNet Chg% ChgYTD%Chg

WSJ Dollar Index91.54 –0.14–0.15 2.09

Sources:TullettPrebon,DowJonesMarketData

Fed Vice

Chairman

Randal Quarles

called the new

oversight plan

‘aggressive’ but

‘responsible.’

Vehicles that borrow

on behalf of counties

and citiesoftenlack

formalstatebacking.