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Bankruptcy 'explosion'

31 Dec 08

Record numbers of companies will go bankrupt next year with almost 200,000 insolvencies in Europe alone, according to the world’s largest credit insurer

Record numbers of companies will go bankrupt next year with almost 200,000 insolvencies in Europe alone, according to the world’s largest credit insurer.

“An explosion” of failed businesses in the US will bring down 62,000 companies in 2009, compared with 42,000 last year and 28,000 in 2007, according to Euler Hermes, part of the German insurer, Allianz. Europe’s casualty list will be longer because the 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.”

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

France, with 63,000, is expected to have highest number of European insolvencies, but 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 numbers will nearly double in Ireland and the UK with 640 and 38,000 respectively.

In Japan, the only Asian country in the survey, bankruptcies will rise from 14,000 in 2007 to 17,000 this year. All countries except Japan will see more insolvencies than in the 2001-02 downturn.

Moody’s, the ratings agency, forecast last month that defaults among companies with junk ratings below investment grade will rise from 2007’s 1 per cent to 10 per cent this year. But the Euler Hermes survey is more comprehensive as relatively few companies have any kind of credit rating.

The volume of new loans arranged for companies globally plumeted in 2008, particularly in the last quarter. Syndicated lending to investment-grade and junk-rated borrowers roughly halved in Europe and the US, according to data providers Dealogic.

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Bankruptcy | credit crunch

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