Companies Are Going Broke Gradually, Not Suddenly
Like a US recession or China’s post-Covid rebound, a wave of corporate defaults was anticipated this year — but didn’t happen. That doesn’t mean it won’t.
The Chrysler Building, shrouded in smoke from last summer’s wildfires in Canada.
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Lots of things were supposed to happen this year, but didn’t. With only weeks to go, neither the recession in the US nor the dramatic post-Covid rebound in China has come to pass. But perhaps the strangest non-event has been the widely anticipated wave of corporate defaults. That doesn’t mean that problems aren’t coming. Oleg Melentyev of Bank of America points out that the bankruptcy of WeWork happened “relatively quietly,” even though it was the largest US company to go bust since the Global Financial Crisis, while the Austrian property group Signa, whose assets include a share in New York’s Chrysler Building, last week became Europe’s biggest post-GFC insolvency. A major repricing of the credit markets to account for those awaited defaults has also failed to happen. But if widespread corporate failures did arrive, they might provide just the catalyst to bring along the much-delayed recession. It’s important to understand why.