Kamakura Troubled Company Index Increases 2.04% to 9.03%
Kamakura Corporation reported Tuesday that the Kamakura troubled company index ended the month of August at 9.03%, an increase of 2.04% over the past month. The index reflects the percentage of the Kamakura 36,000 public firm universe that has a default probability over 1.00%. An increase in the index reflects declining credit quality while a decrease reflects improving credit quality.
As of the end of August, the percentage of the global corporate universe with default probabilities between 1% and 5% was 6.91%, up 1.34% from the end of July; the percentage of the universe with default probabilities between 5% and 10% was 1.33%, up 0.36%; the percentage between 10% and 20% was 0.57%, up 0.23%; while the percentage of companies with default probabilities over 20% was 0.22%, up 0.11% from the previous month. The index is up 4.67% over the past year was at this level last in September 2011.
At 9.03%, the troubled company index rose to the 50th percentile of historical credit quality (with 100 being best all time) over the period from January 1990 to the present. Among the ten riskiest firms in July, six each were from the United States, three from Greece and one from Australia. The riskiest company on the list was American Apparel Inc. (APP).
Martin Zorn, President and Chief Operating Officer for Kamakura Corporation, said Tuesday "Market turmoil was the dominant story as the month of August came to a close. While the old joke that the stock market indexes predicted nine of the last five recessions is often told, one cannot help but notice the jump in Kamakura default probabilities ("KDPs") and especially in the troubled company index. The Kamakura model has been very accurate in providing early warning of the 'next business cycle in the making'. The upward bias in the index over the past twelve months should cause credit managers to look more closely at their current portfolios."
The Kamakura troubled company index measures the percentage of more than 36,000 public firms in 61 countries that have annualized 1 month default risk over one percent. The average index value since January, 1990 is 11.48%. Since November, 2010, the Kamakura index has used the annualized one month default probability produced by the KRIS version 5.0 Jarrow-Chava reduced form default probability model, a formula that bases default predictions on a sophisticated combination of financial ratios, stock price history, and macro-economic factors. The version 5.0 model was estimated over the period from 1990 to 2008, and includes the insights of the worst part of the recent credit crisis. The 61 countries currently covered by the index are Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Brazil, Canada, Chile, China, Colombia, Cyprus, Denmark, Egypt, Estonia, Finland, France, Germany, Greece, Hong Kong, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Malta, Mexico, the Netherlands, New Zealand, Norway, Oman, Pakistan, Peru, the Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, the United States, and Viet Nam.
To follow the troubled company index and other risk commentary by Kamakura on a daily basis, please follow
Kamakura CEO Dr. Donald van Deventer (www.twitter.com/dvandeventer),
Kamakura President Martin Zorn (www.twitter.com/riskmgrhi), and
Kamakura's official twitter account (www.twitter.com/KamakuraCo).
About Kamakura Corporation
Founded in 1990, Honolulu-based Kamakura Corporation is a leading provider of risk management information, processing and software. Kamakura was named to the World Finance 100 by the Editor and readers of World Finance magazine in 2012. In 2010, Kamakura was the only vendor to win 2 Credit Magazine innovation awards. Kamakura Risk Manager, first sold commercially in 1993 and now in version 8.1, is the first enterprise risk management system with users focused on credit risk, asset and liability management, market risk, stress testing, liquidity risk, counterparty credit risk, and capital allocation from a single software solution. The KRIS public firm default service was launched in 2002. The KRIS sovereign default service, the world's first, was launched in 2008, and the KRIS non-public firm default service was offered beginning in 2011. Kamakura added its U.S. Bank default probability service in 2014. Kamakura has served more than 330 clients ranging in size from $1.5 billion to $1.6 trillion in assets. Kamakura's risk management products are currently used in 43 countries, including the United States, Canada, Germany, the Netherlands, France, Austria, Switzerland, the United Kingdom, Russia, the Ukraine, Eastern Europe, the Middle East, Africa, South America, Australia, Japan, China, Korea, India and many other countries in Asia.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.