PPCC: Pisitófilos Creditófagos. Verano 2023

[Cadavre Exquis]

https://cincodias.elpais.com/economia/2023-06-30/el-ahorro-de-las-familias-fija-maximos-desde-2021-con-un-118-de-su-renta-disponible-en-terminos-ajustados.html

Saludos.

[Cadavre Exquis]

https://cincodias.elpais.com/economia/2023-06-30/casi-cuatro-millones-de-viviendas-en-espana-estan-vacias-mas-del-14-de-todo-el-parque.html

Saludos.

[Cadavre Exquis]

https://www.diariovasco.com/san-sebastian/oferta-vivienda-alquiler-boom-turistico-20230701064352-nt.html

Saludos.

[Cadavre Exquis]

https://www.diariovasco.com/economia/mercados/euribor-despide-junio-encima-valor-alto-2008-20230630113255-ntrc.html

https://www.diariovasco.com/economia/inflacion-sigue-senda-reduccion-cae-eurozona-20230630114723-ntrc.html

https://www.diariovasco.com/economia/vivienda/millar-vascos-acogen-ayuda-hipoteca-impulsada-gobierno-20230701120235-nt.html

Saludos.

[BENDITALIQUIDEZ]

Jerome Powell (abajo, en "filter name" ponéis "powell"):

https://www.oge.gov/web/oge.nsf/Officials%20Individual%20Disclosures%20Search%20Collection?OpenForm#134


Declaración de 2023, respecto al año 2022, dinero en cuentas (cash accounts)

1.9 U.S. bank #1 cash account N/A $500,001 -
$1,000,000
Interest $5,001 - $15,000

2.1 U.S. bank #1 cash account N/A $50,001 -
$100,000
Interest $1,001 - $2,500

3.11 U.S. bank #1 cash account N/A $100,001 -
$250,000
Interest $201 - $1,000

4.12 U.S. bank #1 cash account N/A $500,001 -
$1,000,000
Interest $5,001 - $15,000

24 U.S. bank #1 cash account N/A $1,000,001 -
$5,000,000
Interest $15,001 -
$50,000

25 U.S. bank #2 cash account N/A $50,001 -
$100,000
Interest None (or less
than $201)

26 U.S. bank #3 cash account N/A $250,001 -
$500,000
Interest None (or less
than $201)

29 U.S. Brokerage #1 Cash Account N/A $1,001 - $15,000 Interest None (or less
than $201)

No se puede saber exacto porque solo dan horquillas pero tirando por lo bajo, unos 3.451.000$ en efectivo en cuentas, tirando por lo alto, unos 7.565.000$ en cuentas.

En 2020:

1.9 U.S. Bank #1 Cash Account N/A $250,001 -
$500,000
Interest $5,001 - $15,000

2.1 U.S. Bank #1 Cash Account N/A $50,001 -
$100,000
Interest $1,001 - $2,500

3.11 U.S. Bank #1 Cash Account N/A $15,001 -
$50,000
Interest $201 - $1,000

4.12 U.S. Bank #1 Cash Account N/A $1,001 - $15,000 Interest $2,501 - $5,000

28 U.S. Bank #1 Cash Account N/A $100,001 -
$250,000
Interest $1,001 - $2,500

30 U.S. Bank #2 Cash Account N/A $15,001 -
$50,000
Interest None (or less
than $201)

31 U.S. Bank #3 Cash Account N/A $100,001 -
$250,000
Interest None (or less
than $201)

34 U.S. Brokerage #1 Cash Account N/A $1,001 - $15,000 Interest None (or less
than $201)

Tirando por lo bajo, unos 582.000$, tirando por lo alto, unos 1.230.000$ en cuentas.

Unas 6 veces menos liquidez en 2020 que en 2022.


Aparecen todas las inversiones que tiene Powell, tiene un maremágnum acojonante de fondos, decenas de ellos, seguramente el tío mete todo lo que le sobra en fondos y reinvierte todos los dividendos e intereses desde hace décadas, bonos, bolsa, todo alcista, reinvierte todos los rendimientos siempre, pero ahora tiene más liquidez de lo acostumbrado.

Ah, y en junio de 2022 liquidó toda su cartera de bonos regionales norteamericanos, podéis ver que es un "siemprecomprista" de manual, no se llega a tener semejante cartera híperdiversificada (pero todo en dólares) si no se lleva comprando y comprando durante décadas.

Aquí podéis ver el sentimentalismo con el que se deshizo de sus bonos: https://extapps2.oge.gov/201/Presiden.nsf/PAS+Index/56F642D0F9B84D2985258886002ED470/$FILE/Jerome-H-Powell-07.01.2022-278T.pdf

Entre 1.165.000$ y 2.400.000$ en bonos regionales USA liquidados, probablemente de ahí venga su subida de liquidez en 2022.

Obviamente, a finales de 2021 hubo polémica con las operaciones personales en bolsa de los miembros de la FED:

https://www.cnbc.com/2021/10/21/fed-to-ban-policymakers-from-owning-individual-stocks-restrict-trading-following-controversy.html

Con lo cual Powell no puede liquidar así como así toda su enooooorme cartera de fondos alcistas, pero es significativo que un tío que no tenía nunca liquidez y reinvertía y reinvertía en lo que fuera (alcista) todos los intereses y dividendos que cobraba, ahora acumule más efectivo que nunca.

[Cadavre Exquis]

Del informe de Hartnett de este jueves pasado...

BBQ Sauce

• 3.4%...US unemployment Apr’23 lowest since 1969 (all-time low 0.7% in April 1929);
• 20.8%...China's youth unemployment May'23 at record high;
• $2.1tn…US budget deficit past 12 months (8% of GDP) largest in 60 years outside of war or recession (Chart 2);
• $6.9tn…proposed 2024 Federal budget would make US government 3rd largest economy in world;
• 89…central bank interest rate hikes YTD, down from 292 in 2022;
• 2%...Spain 1st economy to see headline inflation back to 2% (though core still 6%);
• 20%...food price inflation in the UK;
• $57,200…average annual rent for one-bedroom apartment in Manhattan (Chart 5);
• $1.1tn…JGBs purchased by BoJ past 12 months, that’s 24% of Japan's GDP (Chart 3);
• $189bn…US construction spend on manufacturing (reshoring) 2x past year (Chart 4);
• 26%...appreciation of Mexican peso vs Japanese yen in H1’23;
• -8.4%...commodities worst performing asset H1'23 (was best in 2021 & 2022);
• 349mn bbls…US Strategic Petroleum Reserve lowest since Aug'83 (was 582mn pre-war – Chart 7);
• $750bn…YTD inflow to money market funds (AUM now $7.8tn – Chart 8​);
• $578bn…YTD outflow from deposits at US banks (Chart 9);
• 28…S&P 500 index returns negative YTD excluding top 28 names;
• $4.1tn…YTD market cap gain of Big Tech 7, that’s greater than GDP of Germany;
• $7.0tn…AAPL+MSFT+GOOG market cap exceeds Emerging Markets (>6.5bn people);
• 236…US corporate bankruptcies between Jan-Apr'23, have doubled from prior year;
• 2024 is…election year in Taiwan on Jan 13th , Russia Mar 17th , EU Jun 6th , US Nov 5th .

Winners & Losers: winners…US Big Tech Magnificent Seven 62%, semis 41%, homebuilders 35%, Nikkei 27%, EU luxury 26%, Mexican peso 14%; losers…US regional banks -32%, oil -14%, EU REITs -13%, China HY bonds -10% YTD.

Saludos.

[Maloserá]

Jerome Powell (abajo, en "filter name" ponéis "powell"):

https://www.oge.gov/web/oge.nsf/Officials%20Individual%20Disclosures%20Search%20Collection?OpenForm#134


Declaración de 2023, respecto al año 2022, dinero en cuentas (cash accounts)

El gobernador de la FED puede administrar sus inversiones durante su mandato? Yo había asumido que los tenían que dejar en custodia en un fondo ciego o como se llamen. No se como de ciegos seran, pero al menos para mantener la apariencia.

[Lem]

El governador de la FED puede administrar sus inversiones durante su mandato? Yo había asumido que los tenían que dejar en custodia en un fondo ciego o como se llamen. No se como de ciegos seran, pero al menos para mantener la apariencia.

los miembros de la Fed pueden manejar sus propios fondos. de hecho ha habido varios escándalos recientes con los presidentes regionales.

en Investopedia:

Federal Reserve Tightens Rules on Trading by Officials

More prohibited investments, more disclosures, more officials subject to them

The Federal Open Market Committee (FOMC) announced on Feb. 18, 2022, that it had voted unanimously a day earlier to adopt formally a set of comprehensive new rules to govern the investment and trading activity of senior officials of the Federal Reserve System (FRS). These rules, first announced on Oct. 21, 2021, "aim to support public confidence in the impartiality and integrity of the Committee's work by guarding against even the appearance of any conflict of interest," per the Fed's press release.1

The new rules were crafted in response to scandals that forced the resignation of two regional Federal Reserve Bank presidents. Both had made trades while the COVID-19 crisis unfolded in 2020 that had the appearance of being based on their inside knowledge of Federal Reserve policy initiatives.

[...]

edit: ya enlazaba BENDITALIQUIDEZ a algo similar. so much for my reading abilities...

[Derby]

En portada de la versión online del Financial Times:

https://www.ft.com/content/c407fdb0-12cc-41cc-a732-554393011f40

Bond fund giant Pimco prepares for ‘harder landing’ for global economy

CIO Daniel Ivascyn says the market is ‘too confident in the quality of central bank decisions’

The world’s largest active bond fund manager says markets are too optimistic about central banks’ ability to dodge a recession as they battle inflation in the US and Europe.

Daniel Ivascyn, chief investment officer at Pimco, which manages $1.8tn of assets, said he was preparing for a “harder landing” than other investors while top central bank chiefs prepare to continue their campaign of interest rate rises.

“The more tightening that people feel motivated to do, the more uncertainty around these lags and the greater risk to more extreme economic outlooks,” Ivascyn said in an interview with the Financial Times.

He noted that when rates have risen in the past, a lag of five or six quarters for the impact to be felt has been “the norm”.

“We would argue that the market may still be too confident in the quality of central bank decisions and their ability to engineer positive outcomes,” he said. “We think the market is a bit too optimistic about central banks’ ability to cut policy rates as quickly as the yield curves are implying.”

The US Federal Reserve, the European Central Bank and the Bank of England have all been rapidly raising rates after criticism that they had been too slow to react as inflation gathered pace.

At a conference in Sintra, Portugal, this week, the heads of all three indicated more action is likely to be needed while inflationary pressures persist. On Friday, the Nasdaq Composite stock market index recorded its strongest first half of the year in 40 years, in part on expectations that US interest rates would soon peak.

But core inflation, which is used as a gauge of underlying price pressure because it strips out volatile food and energy prices, has hovered around 5 per cent in the US and eurozone in recent months, while surging as high as 7.1 per cent in the UK for the year to May.

Ivascyn said: “Today we have a real legitimate inflation problem. It will likely be harder for central banks to cut policy even if the economy is weakening as long as inflation is comfortably above their [2 per cent] targets.” 

Pimco, which is owned by German insurer Allianz, is repositioning funds to be “more defensive and more liquid” as it draws back investors following a terrible year for bond funds in 2022.

The California-based manager suffered €75bn of outflows last year, but Ivascyn said flows had “materially improved” as investors grab the higher yields now on offer. Pimco has attracted €14bn of assets in the first quarter of this year, Allianz has reported.

While Pimco thinks a “soft landing” is the most likely outcome for the US economy, Ivascyn said the group is avoiding areas of the market that would be most vulnerable in a recession.

Favouring high-quality government and corporate bonds for now, he is waiting for company credit ratings to be downgraded, which he said will prompt forced selling among vehicles such as collateralised loan obligations in the coming months and years. That will be the time to snap up bargains, he said.

“A great trade will be to take advantage of the violent repricing of the public markets and then wait for private markets to adjust over the next few years and then rotate into what should be a really attractive opportunity,” he said.

“Hold some cash because we think the next two, three years is going to be quite target rich for opportunities in the higher yielding space.” 

However, he cautioned this cycle might be different to previous ones. Central banks may be less willing to provide support for fear of fuelling rising prices, while the fact that so much risk has been transferred to private markets would slow down the deterioration of credit valuations, but not prevent it.

“This could be more of an old fashioned cycle that lingers for a few years with inflation high but policymakers don’t come to the rescue,” he said.

Pimco’s move to safer bonds is part of a wider industry shift towards higher quality fixed-income assets. The latest survey of fund managers by Bank of America showed investors were the most overweight in investment-grade bonds compared with their high-yield counterparts since 2008.

Even for investors who do not think central banks will be able to bring inflation back down to target, Ivascyn said fixed income provided the best value we have seen for “many, many years”, with real inflation-adjusted yields in the US at levels not seen since the global financial crisis.

“You can be defensive in terms of interest rate risk, inflation risk, credit risk and generate a very, very attractive return,” he said.

“Which is different from saying ‘buy everything, it’s all going to be fine’.”

[Lem]

https://www.diariovasco.com/economia/mercados/euribor-despide-junio-encima-valor-alto-2008-20230630113255-ntrc.html

https://www.diariovasco.com/economia/inflacion-sigue-senda-reduccion-cae-eurozona-20230630114723-ntrc.html

https://www.diariovasco.com/economia/vivienda/millar-vascos-acogen-ayuda-hipoteca-impulsada-gobierno-20230701120235-nt.html

Saludos.

Euríbor opresor!

[Maloserá]

Más de lo mismo. 13 millones de adultos pasando apuros económicos serios en UK. No encuentro como han hecho la encuesta - si han contado en una familia que pasa apuros a los dos por ejemplo. En cualquier caso y sumando a dependientes, nos sale asi a ojo que entre un cuarto y un tercio de la población británica o más están pasando apuros serios. Me gustaría ver los datos agrupados por edad y si son propietarios o alquilados.

Esto en un país que con todo lo que ha llovido sigue siendo una de las mayores economías del mundo, mas o menos 5a o 6a en PIB nominal. Y que durante una generación - prácticamente siempre con pleno empleo o cerca - ha incrementado la deuda pública del 20 y algo % del PIB al 100%, en el mismo tiempo en el que la vivienda ha triplicado su precio en términos reales. Y nada, la solución que dan los responsables del informe... es que el gobierno suplemente los ingresos o que se facilite perdonar deudas.

https://www.theguardian.com/business/2023/jul/02/almost-13-million-adults-now-struggling-to-pay-bills-debt-charity-warns

Heidi Chow, executive director of Debt Justice, said: “The government is turning a blind eye to the colossal household debt crisis that is engulfing millions of people at breakneck speed.

“Instead of ignoring the problem, they need to raise incomes, boost the protections for people in arrears and write off the unpayable debts to give everyone that needs it a fresh start.”

[Derby]

Yo recibí el mensaje de que había sobrepasado el límite de mensajes leídos 

https://www.nytimes.com/2023/07/01/business/twitter-rate-limit-elon-musk.html

Musk Says Twitter Is Limiting Number of Posts Users Can Read

The change on Saturday came as thousands of users complained about getting an error message that they had “exceeded” their “rate limit.”

(...) Mr. Musk, who said on Friday that “several hundred organizations” were taking Twitter’s data in a process called scraping and that “it was affecting the real user experience,” did not say how long the limits would last or what could prompt him to lift the restriction.

He originally said that verified accounts would be limited to reading 6,000 posts per day, unverified accounts to 600 posts and new unverified accounts to 300 posts.

About two hours later, he bumped those limits to 8,000 for verified, 800 for unverified and 400 for new unverified — before raising them again early Saturday evening to 10,000, 1,000 and 500.

“Rate limited due to reading all the posts about rate limits,” Mr. Musk said on Twitter.

The billionaire has been vocal about his dislike for organizations that scrape Twitter and use tweets for research or to train artificial intelligence programs.

But the change on Saturday prompted frustration on the platform among some users, with many questioning why their online activity would be so drastically curtailed.

The phrase “rate limit exceeded” trended on Twitter, spurring memes on the site about people who were inconvenienced by the new policy. Downdetector, a website that tracks reports of malfunctions on several websites, showed that user reports of Twitter problems surged on Saturday.(...)

[Derby]

https://www.economiadigital.es/economia/verano-caro-precios.html

Las vacaciones más caras de nuestras vidas: los vuelos suben un 24% y los hoteles, un 15%

El turismo afronta una temporada alta resiliente ante la inflación, pese a una subida de los precios superior al IPC

[Derby]

De aquellos polvos estos lodos....
El capitalismo ha fallado en proveer muchos elementos básicos. Leyendo el último mensaje de Asustadísmos me ha venido inmediatamente la imagen de los esclavos en las galeras:

https://www.youtube.com/watch?v=eiEtqe8dO3I&t=9s

https://www.elconfidencial.com/mundo/2023-07-02/aguas-residuales-inundan-playas-britanicas-funciona-privatizacion_3682735/

DEUDA DE 14.000 MILLONES DE LIBRAS
Las aguas residuales inundan las playas británicas: ¿funciona la privatización?

La industria del agua en el Reino Unido atraviesa su peor crisis desde su privatización en 1989. Se disculpa por "no actuar con la suficiente rapidez ante los derrames

La icónica costa de Blackpool se ha tenido que cerrar a los bañistas que deseaban darse un chapuzón en el mar después de que la Agencia de Medio Ambiente haya detectado la bacteria E.Coli tras una fuga de aguas residuales. No es un caso aislado. Los británicos están viviendo el junio más caluroso desde que comenzaron los registros, pero la posibilidad de irse a la playa o el río no es una opción porque muchas zonas del país presentan aguas con impurezas procedentes de vertidos de aguas residuales.

Es el iceberg de la peor crisis que atraviesa el sector del agua en Reino Unido desde su privatización en 1989, una situación que podría acabar con la intervención de Thames Water, la mayor compañía de suministro del país, cuya deuda supera los 14.000 millones de libras (16.292 millones de euros).

Las empresas de la industria han emitido una disculpa pública por "no actuar con la suficiente rapidez" ante los derrames que están alterando la vida de los ciudadanos en pleno verano. En 2022, se bombearon aguas residuales sin tratar a ríos y mares durante 1,75 millones de horas, un promedio de 825 veces al día. El sector ha anunciado un paquete de inversión de 10.000 millones de libras para "la mayor modernización de alcantarillado desde la era victoriana".

Pero la polémica viene con letra pequeña. Esta renovación podría suponer un aumento en las facturas de los hogares de hasta un 40%, lo que ha alarmado al Gobierno. Después de que el pasado mes de abril los precios ya subieran hasta un 11% en algunas zonas, a partir del próximo año las facturas anuales podrían tener un aumento promedio de alrededor de 450 a 680 libras, más la inflación. El ministro del Tesoro, Jeremy Hunt, se ha reunido este miércoles con el responsable del regulador de agua Ofwat para evaluar la situación. ¿Qué es lo que está pasando?

Apenas tres años de su nombramiento, la consejera delegada de Thames Water, Sarah Bentley, presentaba este martes su dimisión, incrementando aún más las dudas sobre la supervivencia de la compañía, que consiste en un conjunto de fondos de capital privado, pensiones e infraestructura. El Gobierno está evaluando planes de contingencia para la intervención. Según Sky News, se debate colocarla en un régimen de administración especial (SAR) que en la práctica supondría su nacionalización temporal. La revelación de la noticia ha reabierto el feroz debate sobre la privatización de la industria del agua del país, que en los últimos años no para de protagonizar controversias y escándalos.

El sistema actual de monopolios privados se remonta a 1989, cuando la primera ministra conservadora Margaret Thatcher vendió la industria pública de agua y alcantarillado en Inglaterra y Gales por 7.600 millones de libras. Prometió que conduciría a una nueva era de inversión, mejoraría la calidad del agua y ayudaría a reducir las facturas. Su Gobierno también canceló todas las deudas y estableció Ofwat, un organismo para regular la industria. Los partidarios argumentan que el sector ahora es significativamente mejor, aunque reconocen que aún se necesitan mejoras.

Water UK, el organismo de la industria que representa a las empresas, dijo en el 30 aniversario de la privatización en 2019 que la situación había "mejorado enormemente" con una caída en los problemas de suministro, la contaminación y las fugas gracias a una inversión de casi 160 mil millones de libras durante décadas. También afirmó que "las facturas promedio de hoy son en general las mismas que hace 20 años, una vez que se tiene en cuenta la inflación".

Sin embargo, los críticos aseguran que la privatización ha llevado a facturas vertiginosas, bajo rendimiento y años de inversión insuficiente, y afirman que se ha priorizado la paga de los ejecutivos y accionistas a expensas de los clientes, que sufren desde hace tiempo problemas de vertidos y fugas.

Las empresas de agua acumularon una deuda de 54.000 millones de libras desde la privatización, pero pagaron dividendos a los accionistas por valor de 66.000 millones de libras, según un análisis publicado por The Guardian el año pasado, con un 20% de las facturas destinadas al servicio de la deuda o al pago de dividendos en promedio.

El propio regulador Ofwat ha sido acusado de carecer de la mano dura necesaria para enfrentarse a las empresas, por lo que son muchos, entre ellos los liberales demócratas, los que piden que sea abolido y "reemplazado por un nuevo organismo independiente con poderes reales".

La mayoría de los británicos (un 63%) apoya la nacionalización de la industria, entre ellos, el 58% de los votantes conservadores, según una encuesta de YouGov. Con todo, parece haber poco apetito por tal movimiento por parte del Gobierno, que se ha limitado a aumentar las sanciones con multas ilimitadas para las empresas que contaminen. Por su parte, los laboristas han retrocedido en su apoyo a la política.

La mayor parte de Reino Unido tiene un sistema de alcantarillado combinado —que data de la época victoriana—, lo que significa que tanto el agua de lluvia como las aguas residuales (de inodoros, baños y cocinas) se transportan por las mismas tuberías a una planta de tratamiento.

Según la Agencia de Medio Ambiente, la capacidad se puede exceder en ocasiones durante las fuertes lluvias. Esto podría provocar la inundación de viviendas, carreteras y espacios abiertos, por lo que el sistema está diseñado para desbordarse ocasionalmente y descargar el exceso de aguas residuales directamente al mar y ríos. Las compañías de agua son las que controlan los vertidos mediante el uso de unos monitores.

Pero un análisis elaborado por el partido de los Liberal-Demócratas reveló el año pasado que 1.802 de estos aparatos proporcionaron información durante menos del 90% del tiempo, lo que significa que los ciudadanos podrían estar nadando entre desechos humanos sin tan siquiera saberlo.

El año pasado, tres miembros franceses del Parlamento Europeo escribieron a la Comisión Europea pidiéndole que tomara medidas para evitar que Reino Unido contaminara el Canal de la Mancha y el Mar del Norte. Argumentaron que, desde el Brexit, Reino Unido "ha optado por reducir sus estándares de calidad del agua".

Mientras que los británicos eran parte de la UE, tenían que cumplir con la Directiva Marco del Agua, que solicita a los Estados miembros que elaboren planes de gestión de cuencas fluviales para lograr un buen estado ambiental. Pero una vez fuera del bloque, Londres puede imponer sus propias normas. Y el problema es que no están funcionando como deberían.

A finales de 2021 —año en el que los británicos salieron a efectos prácticos de la UE—, a algunas compañías les resultó más difícil obtener productos químicos para el tratamiento del agua debido a la interrupción de las cadenas de suministro en los puertos.

La Agencia de Medio Ambiente decidió entonces relajar las restricciones, permitiendo a las empresas "descargar efluentes sin cumplir con las condiciones" de sus permisos, que normalmente requieren que el agua sea tratada mediante un proceso de varios pasos. Los ciudadanos ya se quedaron el verano pasado sin poder bañarse en muchas de las playas, pero esto no afectó a las bonificaciones anuales de los ejecutivos del sector.

[Derby]

https://www.ft.com/content/6c0b1144-89d1-434e-960c-ac298ceee781

Seven common misconceptions about the Thames Water crisis

According to an ex banker who designed capital structures for privatised water companies

Tim Short was an investment banker at Credit Suisse First Boston where he specialised in Whole Business Securitisations, including for water companies. He has PhDs in physics and philosophy and has published several books, most recently the financial thriller Cash-Trap.

If Thames Water is crushed by its debt pile the water will run out

It’s important to be clear about which debt we are talking about. Thames Water relies heavily on securitisation; in the jargon this is a Whole Business Securitisation. The paper is nearly all ringfenced in a security package at what’s called OpCo, short for operating company. The OpCo has manageable debt levels of around 0.75 of Regulated Capital Value at investment grade. The RCV can be thought of as the critical assets the company needs to provide safe clean water. That means you could sell the assets and pay off all the debt in OpCo. Whatever happens, there’s no obvious risk to supply.

There’s far too much debt relative to income

Yes there is — £14bn of it — but it’s at the holding company level. The HoldCo owns the OpCo but it’s extremely constrained in its ability to extract dividends. There are typically about 30 covenants designed to limit dividend extraction and very prominent among them is “doing stuff the regulator doesn’t like.”

Foremost in the public interest are ensuring continuity of supply and avoiding bailouts. Even if we let everyone invested at HoldCo level lose out, neither worst-case-scenario has to happen.

The privatised water utilities have given money to investors instead of funding improvements

It’s only fair to note that they have done both. And actually, all the water companies are quite keen on making infrastructure improvements. That’s because it’s cash neutral for them, since the costs are passed through in bills. Also it’s quite interesting work, and it’s much easier for the management from a PR perspective if they are seen doing more rather than less.

Regulator Ofwat tells the companies how much investment is required. It’s quite keen to do a lot of that, in my experience, but it’s restricted by the twin facts that fixing infrastructure is seriously expensive and all the costs go into bills. Defra estimates the cost of eliminating untreated wastewater discharges at between £350bn to £600bn and that is not possible at any time, least of all now.

Thames Water was designed purely to extract cash flow and give it to shareholders

It’s the regulator who says what the dividends are going to be. That number is subject to negotiation between the water companies and their investment bank advisers, but basically it is the lowest number consistent with finding people to hold the paper. Herein lies what may be the most significant risk in this episode. If the current equity holders are written down to zero, you may be left with a critical infrastructure sector that no one is prepared to own. But that will be nothing to do with the capital structure, which actually helps here if this is your concern. The current story is about the prospect of dividends being locked up by the securitisation to protect water supply; it’s not about the capital structure generating inappropriate dividends.

Water companies should never have been allowed to fund dividends with debt

You have to fund the entire capital structure with either debt or equity. Debt is cheaper than equity, so more debt reduces your weighted average cost of capital and is therefore cheaper overall.

This shouldn’t work. at least according to the Modigliani-Miller theorem. If you increase the amount of debt, equity is taking more risk and should therefore demand higher dividends. That looks convincing but doesn’t seem to actually happen much in real life.

Some people argue that the amount spent on dividends should be less than that spent on infrastructure improvements. That may or may not be true, but in one sense it’s beside the point. The investment and return levels defined by the regulator are unaffected by the capital structure. The evidence for over-reliance on debt hangs on whether water company dividends increased in absolute terms after the securitisations occurred, not that dividends were paid and were in some ratio to infrastructure spending.

Now that interest rates are going up they are screwed

This is less of a problem than it looks. All of the income of a water company is set by the regulator and increases each year using the formula RPI + K. The K adjustment may be positive or negative and is a matter of negotiation with the regulator. As a consequence, much of the debt is also RPI linked. That’s handy because there is heavy demand for RPI-linked paper because lots of people want that protection but not many issuers can provide it.

There’s no justification for complexity of Thames Water’s capital structure

It’s not that complex to a specialist. Many times in finance you are going to see a lot of SPVs and capital structures have a lot of bonds in them. That’s increased here by a phenomenon called reverse inquiry.

Normally, syndicates have the job of selling paper to the usual suspects. Sometimes those suspects call up and say they would really like a piece of solid asset-backed paper paying 3.745 per cent for 4.7 years and can you get some. Since they have those specific requirements, they are prepared to receive maybe 50 bps less than the going rate for the paper and the water company has the shelf already stacked up, so they are happy to issue bespoke paper. They just saved you, the customer, 50 bps on £30mn for 4.7 years.

Those calling for water companies to carry less debt within simplified structures need to understand the trade-offs involved. In particular they need to distinguish between debt in the HoldCo and OpCo, since this is what insulates essential services from the consequences of financial engineering, and they need to accept that bills will rise if you have more equity in the capital structure. Because equity costs more than debt.

My own experience involved structuring a WBS for a major water company that showed the group was worth much more than hitherto suspected, so the investment bank that employed me chose to sell it. On one Sunday, by completing the securitisation analysis, I created £236mn of value for the vendors. Some people will argue that this is not real money or value, and fair enough. But those subsequently employed in projects funded by that cash flow, and the many pensioners who were indirectly invested in the vendor, might think differently.