Next Wave of Financial Crisis Approaching: BOE Warns An Imminent Private Equity Crash, China Just Sounded a Warning Bell For What’s Coming Our Way, Morgan Stanley: The Central-Bank-Inspired “Omnishambles” Is Closer Than Most Think, DEUTSCHE BANK: Only Jesus Can Save The Euro Area

Private equity crash could trigger next wave of financial crisis, Bank warns

Bank of England fears that larger private equity deals done in the boom years ‘pose a risk to the stability of the financial system’ as refinancing looms

The Bank of England warned on Thursday that the next phase of the UK’s six-year financial and economic crisis may be triggered by the collapse of debt-laden companies bought by private equity firms in the boom years before the crash.

In its latest quarterly bulletin, Threadneedle Street said the need over the next year to refinance firms subject to heavily leveraged buyouts posed a systemic threat.

The Bank added that it would use its new role as the watchdog of the City to monitor private equity deals in future “episodes of exuberance” to prevent a repeat of the debt-driven takeover boom in the run-up to the banking crisis.

“In the mid-2000s, there was a dramatic increase in acquisitions of UK companies by private equity funds,” the Bank said.

Morgan Stanley: The Central-Bank-Inspired “Omnishambles” Is Closer Than Most Think

It seems more likely to Morgan Stanley’s Gerard Minack that central bankers may win the battle: sustaining recovery in developed economies with extraordinarily loose monetary policy. For a while this would go hand-in-hand with better equity performance. The battle is against a crisis caused by too loose monetary policy, elevated debt and mis-priced risk. Ironically, he notes, central bankers may overcome these problems by running even looser monetary policy, encouraging a new round of levering up, and fresh mis-pricing of risk. However, winning the battle isn’t winning the war. If central bankers do win this round, the next downturn could be, in Minack’s view, an omnishambles. In short, it seems more likely that central bankers may add another leg to the credit super-cycle. The key question for investors in this scenario is when (and how) this cycle may end, and Minack’s hunch is that this cycle is already closer to 2006 than 2003.

China Just Sounded a Warning Bell For What’s Coming Our Way

Let’s wind the clock back to 2008.

The world was thought to be ending. Lehman went bust. Markets were plunging. Everyone was scared that growth was over. It was as though the global economy was grinding to a halt.

But then China’s stock market bottomed. The Chinese Government announced a massive stimulus plan to turn its economy around. And sure enough the Chinese economy took off again.

A few months later, the US markets bottomed courtesy of extraordinary stimulus from the US Federal Reserve. Three months after that, the US economy was showing what everyone claimed were “green shoots.”

And the world began to gradually shift towards growth and increased confidence.

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