FAST FIVE: $3 Trillion In New Liabilities Are About To Blindside Corporate Balance Sheets
Only leases that culminated in a purchase of the asset needed to be accounted for otherwise. “It's going to affect all companies' leverage.
As a result, retailers, restaurants, airlines and shipping companies that lease properties, airplanes, cars and ships will all be affected. But instead of just letting the new leverage “count”, and in keeping with the “ignorance is bliss” attitude we've adopted over the last several decades in the financial sector, the report suggests that analysts and investors will instead just change the way they think about leverage ratios in certain sectors to exclude the impact of the new debt. For years, analysts had been capitalizing leases by multiplying the annual rent expense by eight to try and estimate remaining lease payments.
But these estimates are likely going to look very different from the numbers that companies will be forced to put on their balance sheets. Todd Castagno, equity strategist at Morgan Stanley, told CNBC: “I do think people will have to adapt to new metrics – and they may be surprised.
The liabilities and assets that companies report may look very different from the ad hoc estimates that people have used in the past.
more of the same as central banks are forced to monetize even more debt to keep interest rates from rising to a level that sends the entire house of cards tumbling down.