2019 saw major problems at Boeing with all 737 MAX aircraft grounded indefinitely, and its CST-100 Starliner failing to reach the correct orbit. Banking problems showed up in China, in one bank in particular, and with knock-on effects on customer confidence in other banks. A mysterious spike in the overnight repo rate in the U.S. led to a huge increase in the amount of "Not QE" funding provided to overnight loan facilities by the Federal Reserve. The Woodford Equity Income fund suspended withdrawals and investors also rushed to pull money out of UK property funds. Banks experienced a 300% rise in IT failures, and recurring online banking outages have not gone unnoticed by many bank customers. The IMF warned of a global economic slowdown and said that failures in banking, insurance or funds could trigger a global panic. Global debt hit a record high.
Fund house M&G Investments suspended withdrawals from one of the UK's biggest commercial property funds, the £2.5 billion M&G Property Portfolio fund on 4th December, after a surge in investor redemptions.
The firm blamed ‘Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector’ for the situation. M&G's freeze of withdrawals also prompted the biggest day of outflows from other UK property funds of the year.
Global debt hit a record high of over $250 trillion in the first half of 2019, led by a surge in borrowings in the U.S. and China, according to a report released by the International Institute of Finance (IIF) on November 14th 2019, which showed that global debt surged by $7.5 trillion in the first six months of 2019.
The IIF said global debt was estimated to reach a record high of more than $255 trillion at the end of 2019.
Global Debt Spike Has Some Central Bankers Worried - pymnts.com, 9th September 2019
"the large debt prevents regulators from increasing interest rates"
3 reasons to fear America's massive $70 trillion debt pile - CNN Business, 17th July, 2019
"America's gluttony of loans could work against it if its fragile economic balance shifts"
The IMF reported that the global economy was in a synchronized slowdown in 2019, and they downgraded expected global growth to be 3% in 2019, down from 3.6% in 2018, which is the slowest since the financial crisis of 2008. Growth would recover to 3.4% in 2020, but that had been set at 3.6% in their previous six monthly report.
The IMF had also warned, in 2018, that failures in banking, insurance or funds could trigger a global panic. One thing that could trigger such failures is business failing to realise expected profits, making them unable to repay loans and causing share price losses.
Confidence in online banking took a hit with a 300% rise in IT failures monitored by the Financial Conduct Authority, reported at the FCA’s annual public meeting on July 17th.
Consumer group Which? found that FCA figures from October 2018 to September 2019 showed that major banks had suffered 265 IT shutdowns between them that prevented customers from making payments, including 133 incidents involving internet banking, 111 mobile banking failures and 90 telephone banking outages.
Online bank IT glitches seem to show up on a regular basis (every few days) now on downdetector.com.
Woodford Investment Management’s flagship equity income fund was originally suspended for 28 days in June after an influx of withdrawals, with the final straw possibly occurring after a meeting of Kent County Council's pension fund committee decided to redeem its £238 million stake from the fund.
The suspension was then extended to give its manager Neil Woodford time to reposition the portfolio. However, Link Fund Solutions, the fund’s authorised corporate director, decided that winding up the fund was in the best interest of investors.
In search of higher returns, funds may seek out small-cap stocks that offer higher returns for higher risk, as against big well-known mainstream stocks that can easily be traded but don't offer much more than average index returns. When it comes to sell, the small-cap stocks might turn out to be profitable only on paper, as a lack of buyers when a fund's portfolio floods the market results in a drop in the price.
Investors, including Kent County Council's pension fund, should find out on 13th January 2020 how much or little they will get back from their investment.
Woodford investors to start getting money back on 20 January - Joanna Faith, YourMoney.com, 16th December 2019
"In a letter to investors, Link Fund Solutions said the Financial Conduct Authority (FCA) has approved its request to wind up the fund... the winding up process will begin on 18 January and capital distribution will be calculated on 6 January. Link will write to investors on 13 January to tell them how much they will get back..."
Beware the liquidity iceberg - Jamie Hambro, FT, 13th December 2019
"The Woodford crisis arose from the fund’s overexposure to unlisted stocks that it struggled to sell when investors wanted their money back"
Baoshang Bank in China was seized by Chinese regulators in late May, due to "severe credit risks", forcing the People’s Bank of China to inject 600 billion yuan to sustain liquidity and introduce full guarantees for all retail deposits.
This has caused a knock-on effect on confidence, with Yingkou Coastal Bank experiencing a bank run and causing interbank lending interest rates to rise.
Four banks failed in the US, up from zero in 2018, but near a low since being over 150 in 2010. The question is whether this is a blip in the region of low failures, or the start of a rise?
The overnight repo rate leaped to a high of 10% overnight repo rate on September 17th from its normal 2-2.25%. It only fell once the Fed pumped roughly $75 billion into the markets immediately, and subsequently adding over $200 billion of liquidity.
In March, aviation regulators around the world, starting with the Civil Aviation Administration of China, grounded Boeing's fleet of 737 MAX aircraft after a fatal Ethiopian Airlines crash on March 10th, following the Lion Air Flight 610 crash on October 29, 2018.
In its Q3 earnings report, Boeing reported that it has added another $900 million in costs for the continued grounding of the 737 MAX fleet, bringing the total to $9.2 billion since the two fatal crashes which killed nearly 350 people between them. This could be further compounded by The Federal Aviation Administration who has proposed a $3.9 million fine for Boeing for alleged safety lapses in the production of several of its 737 NG airplanes. Boeing is facing lawsuits from airline pilots and families of victims, as well as airlines suing Boeing for 737 MAX-related losses.
Boeing suffered another high-profile setback when its CST-100 Starliner crew capsule failed to reach the International Space Station on its debut test flight (Source: Bloomberg).
Boeing grounds entire 737 Max crash aircraft fleet - BBC, 14th March 2019
"many countries banned the aircraft"
Boeing 737 Max: When will the doomed jet fly again after deadly crashes? - Independent, 28th October 2019
"the primary cause of the crash was Boeing’s flawed installation of an anti-stall system known as MCAS – compounded by a failure to tell pilots about its existence, purpose and potential problems"