US household debt reaches record high in Q2

US household debt rose slightly in the third quarter, reaching the highest level ever as record-low interest rates continue to fuel a surge in home loan borrowing – especially among consumers with good credit.

Total debt increased 0.6 per cent to $14.35 trillion from $14.27tn in the second quarter, the Federal Reserve Bank of New York said in a report published on Tuesday. The gain was led by a surge in mortgage loans, which were at $1.05tn, the second highest volume in the history of the data and second only to the historic refinance boom 17-years ago.

“Mortgage originations, including refinances, continued on their upward trend as homeowners continue to take advantage of the low interest rate environment,” said Donghoon Lee, research officer at the New York Fed, in a statement. “The data likely reflects improvements in economic activity and the labour market.”

Record-low mortgage rates have prompted Americans with good credit to refinance and cut their borrowing costs. But that opportunity hasn’t been available to everyone. About 72 per cent of home mortgages originated during the third quarter went to borrowers with a credit score above 760, the highest share ever recorded in figures dating to 2003, while less than 2 per cent were for borrowers with scores under 620, the lowest share recorded.

“We continue to see strong demand from clients to refinance mortgage and consumer debt,” Glenn J. Williams, chief executive of Primerica said on the firm’s earnings call on November 5.

The surge in home loans helped offset a decline in credit card debt. Balances on credit cards fell to $807 billion, the lowest total since 2017, the data show. A nationwide drop in travel, and the related spending that occurs for airline tickets, hotels and other vacation musts, bears much of the blame for less spending, according to Paul Siegfried, who oversees TransUnion’s credit card business. In recent years consumers typically ran up their card balances during the holiday shopping season in the fourth quarter, a trend that the coronavirus may interrupt.

About 54 per cent of respondents to a TransUnion survey late last month said the pandemic has affected their finances, and roughly half of those people said they expect to reduce their retail and discretionary spending.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

MATCH DETAILS

Chelsea 4

Jorginho (4 pen, 71 pen), Azpilicueta (63), James (74)

Ajax 4

Abraham (2 og), Promes (20). Kepa (35 og), van de Beek (55)

The years Ramadan fell in May

1987

1954

1921

1888

A%20QUIET%20PLACE

%3Cp%3E%3Cstrong%3EStarring%3A%3C%2Fstrong%3E%20Lupita%20Nyong'o%2C%20Joseph%20Quinn%2C%20Djimon%20Hounsou%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3EDirector%3A%20%3C%2Fstrong%3EMichael%20Sarnoski%3C%2Fp%3E%0A%3Cp%3E%3Cstrong%3ERating%3A%3C%2Fstrong%3E%204%2F5%3C%2Fp%3E%0A