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Company crashes set to hit record next year

By Richard Milne and Anousha Sakoui in London

Sunday Dec 7 2008 13:20

Record numbers of companies will go bankrupt next year with 200,000 
insolvencies in Europe alone and "an explosion" of failed businesses in the 
US, according to the world's largest credit insurer.

The US will see 62,000 companies go bust next year, compared with 42,000 this 
year and 28,000 last year, says a report by Euler Hermes, part of German 
insurer Allianz. 

The absolute numbers, however, pale in comparison with the figures from 
western Europe, where the larger number of small companies mean insolvencies 
are expected to rise by a third from 149,000 last year to 197,000 next.


"The financial crisis will increase the risk of bankruptcy dramatically, 
particularly next year," said Romeo Grill, chief economist at Euler Hermes. 
"There will be an explosion in the US but also big rises in Europe and 
especially the UK."

Mr Grill said he expected most company failures in Europe to be focused 
around the struggling car, retail and textile sectors as well as logistics.

The country with the highest number of insolvencies expected for next year is 
France with 63,000. But in Europe, Spain, Ireland and the UK are forecast to 
see the most dramatic rises. 

Nearly four times as many Spanish companies will go bust next year as in 2007 
while it will be nearly double in Ireland and the UK with 640 and 38,000 
businesses respectively.

Japan, the only Asian country in the survey, will also be hit with the number 
of bankruptcies rising from 14,000 last year to 17,000 next. All countries 
except Japan will see more insolvencies than in the previous downturn of 
2001-02.

The Euler Hermes report comes after Moody's, the ratings agency, forecast 
last month that defaults among companies with junk ratings below investment 
grade will rise from last year's 1 per cent to 10 per cent next year. But the 
Euler Hermes survey is more comprehensive as relatively few companies have 
any kind of credit rating. 

Companies around the world have complained about getting credit. The volume 
of new loans arranged for companies globally has fallen off a cliff this year 
and deteriorated even faster during the past two months. Syndicated lending 
to investment-grade and junk-rated borrowers has roughly halved in both 
Europe and the US compared with last year but remained stable in Asia, 
according to data providers Dealogic. 

One difference in this downturn is that larger companies appear to be 
suffering as much as their smaller counterparts. 

http://us.ft.com/ftgateway/superpage.ft?news_id=fto120720081330056529