U.S. Corporate Bankruptcies To Rise 17% in 2007

Global Insight, the world's leading company for economic and financial analysis and forecasting, announced today that U.S. corporate bankruptcies are expected to increase by 17% in 2007, after falling an estimated 20% in 2006. The majority of these increases are expected to occur in the metals, mining, and energy sectors, as well as in real estate and closely related industries, such as mortgage banking and residential construction.

The fallout from declining real estate markets will also affect areas of the financial sector, such as regional banks and mortgage-related institutions that have large exposure to the real estate markets, real estate brokers, and developers. The banking sector overall will be supported by continued economic expansion, albeit at a slower pace, and reasonably strong financial asset markets. Nonetheless, there are growing pressures from an inverted yield curve and stiff competition for loans and deposits. Further, the growth rate of demand for new loans is expected to slow in both consumer and commercial credit in 2007.

Within the industrial sector, the machine tools industry is vulnerable to slowing domestic growth and a weak domestic autos industry. Building materials and related chemicals industries are vulnerable to an adverse construction sector, while the U.S. textiles industry continues to see deadly competition from foreign suppliers.

The greatest improvement in credit quality in 2007 is expected to be in the telecommunication, utilities, insurance, and healthcare sectors. Strong growth in profits and free cash flow contribute to the improvement in telecommunication services' credit quality. Real revenue growth and profitability are high in comparison to most other sectors, driven by strong wireless growth.

Additionally, there is a wave of industry consolidation that is coinciding with improving pricing conditions, aggressive cost cutting, and a positive regulatory environment. The healthcare sector, in general, is also expected to fare relatively well, due in part to its defensive, non-cyclical characteristics and driven by its robust prospects for future earnings growth due to positive demographics, new technology, and pricing power. The insurance sector will benefit from fewer natural disasters in 2006, such as hurricanes, reasonably strong asset markets, and robust demand for products. In addition, the industry's pricing power remains strong, although it has slowed from previous years.

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