Kamakura Corporation reported Monday that the Kamakura index of troubled public companies showed dramatic improvement in April after reaching its worst point in the current recession in March. The Kamakura global index of troubled companies decreased by 2.2% to 22.1% of the public company universe. The 2.2% decline in the index is the 12th largest decline in the 229 month history of the troubled company index. Kamakura defines a troubled company as a company whose short term default probability is in excess of 1%. The all-time high in the index was 28.0%, recorded in September 2001. Credit conditions are now worse than credit conditions in 89.9% of the months since the index’s initiation in January 1990. The all-time low in the index was 5.4%, recorded in April and May, 2006. The index is based on expanded coverage of more than 24,000 companies in 30 countries, an increase of more than 300 firms since the previous month. Kamakura reported that the expanded corporate coverage had no significant impact on the level of the index. The increase in coverage this month is predominately made up of German, Austrian and Swiss public firms.
Separately, it was reported that China Construction Bank (Asia) in Hong Kong has licensed Kamakura Risk Manager for market risk management via Kamakura’s long time distribution partner Fiserv, Inc. “Managing market risk accurately and in a timely manner is becoming more complex as financial instruments, trading methods and corporate structures continue to change,” said Michael Leung, chief information officer for CCB (Asia). “KRM’s integrated tools and multiple methodologies will help us analyze and control market risk more efficiently for trading and non-trading products.”
Commenting on the troubled company index, Kamakura’s president Warren A. Sherman noted, "In August 2008 Kamakura cited R. H. Donnelley as showing one of the sharpest increases in default risk that month. The firm defaulted in April,” said Sherman. "This month, among rated public companies, the firms showing the sharpest rise in short term default risk were Seat Pagine Gialle spa in Italy, Dune Energy Inc., Barzel Industries, and Citadel Broadcasting Corp. In April, the percentage of the global corporate universe with default probabilities between 1% and 5% decreased by 0.4% to 13.4%. The percentage of companies with default probabilities between 5% and 10% was down sharply by 0.9% to 3.6% of the universe in April. The percentage of the universe with default probabilities between 10 and 20% was down 0.2% to 2.7% of the universe. The percentage of companies with default probabilities over 20% was down by a significant 0.6% to 2.5% of the total universe in April."
The Kamakura index uses the annualized one month default probability produced by the best performing credit model of the Kamakura Risk Information Services default and correlation service. The model used is the fourth generation Jarrow-Chava reduced form default probability, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The countries currently covered by the index include Australia, Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hong Kong, India, Ireland, Israel, Italy, Japan, Luxemburg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, United Kingdom, and the United States.
The Company added that ceo Dr. Donald R. van Deventer and other members of senior management are now maintaining an active blog on key risk management issues. Recent blog entries include the following stories:
• Taylor Swift and Rating New Issues of Structured Products: A Great Business or a Fairy Tale?
• The Case-Shiller Home Price Index for Los Angeles: A Turn-Around is Near
• Improving on the Fed's Supervisory Capital Assessment Program, Step by Step
• A 4 Question Pass/Fail Test on Risk Management for CEOs and Members of the Board of Directors
• Risk Veterans: Back to the Future for the Risk Business
• Cash Flow at Risk: Liquidity Risk Lessons from President William Jefferson Clinton
• Why Would An Analyst Cap Default Rates in a Credit Model?
• Modeling Default for Credit Portfolio Management and CDO Valuation: A Menu of Alternatives
• CDO Valuation: What to Expect While You're Expecting
• Building A Default Model: Lessons Learned About How Much Data Is Necessary
• Making Sense of the FASB Staff's April 9 Pronouncements on Valuation and Other Than Temporary Impairment: What's Right and What's Wrong
• The Copula Approach to CDO Valuation: A Post Mortem
• Default Risk and Equity Portfolio Management: A Mission Critical Combination
• Is Your Value at Risk from Value-at-Risk? Beware...
• Emerging Best Practice in Funds Transfer Pricing for Asset and Liability Management Quasar Capital Management Launches in Paris Using Imagine Software