Hefty Corporate Bankruptcy Jump Seen

Most of a 17 percent rise next year will happen in the metals, mining, energy sectors, and real estate and closely related industries, a forecastin...
Stephen TaubDecember 4, 2006

U.S. corporate bankruptcies will rise by 17 percent in 2007 after falling an estimated 20 percent in 2006, Global Insight, a financial forecasting firm, predicts .

Most of the increase will happen in the metals, mining, and energy sectors, as well as in real estate and closely related industries, the firm thinks. The industries related to real estate include mortgage banking and residential construction.

The fallout from declining real estate markets will also compound the risk facing regional banks and mortgage-related institutions that have large exposure to the real estate markets, real estate brokers, and developers, Global Insight asserts.

Further, the firm warns that while the banking sector overall will benefit from continued economic expansion and reasonably strong financial asset markets, it faces growing pressures from an inverted yield curve and stiff competition for loans and deposits.

Overall, Standard & Poor’s has been warning for months that credit quality will deteriorate somewhat in 2007. It recently predicted the speculative-grade bond default rate will edge up slowly from its 2006 trough of an estimated 1.4 percent to 2.4 percent by mid-year and 3.2 percent by year-end 2007. S&P also warned the junk bond default rate for U.S. leveraged loans would increase as well.