By Stan Szymanski
I found a press release from an organization I had never heard of previously, DMSA during the latter part of October as I was doing a daily search for news on Evergrande. This is how I found out about Dr. Marco Metzler.
Notwithstanding the six articles that have I have previously written the issue on the Encouraging Angels blog about the dangers and bankruptcy of China Evergrande, Dr. Metzler has been the only financial person with the actual gravitas and moral fortitude to tell the truth about Evergrande while the worldwide financial press spent its time and newspaper (and blog) ink on the disinformation that the company had made interest payments when they had not. Today, he and DMSA declare that Evergrande is ‘officially’ bankrupt and here he shares the consequences of that news.
Dr. Metzler, can you give us the elevator rendition of your resume/CV so people have an idea of your background?
Sure! I am an investment banker and rating analyst with more than 25 years of work experience in the global insurance as well as the rating industry. As former CFO of Prisma Life Insurance AG in Liechtenstein, I managed around €1.2 billion in client assets.
After completing my PhD in Business Administration, I started my career in London as an analyst in several investment banks such as Deutsche Bank and UBS, before joining Fitch as Director of Ratings for international insurance groups and the German market. Here I was responsible for ensuring that Fitch's ratings, market research, expert commentary and analyst expertise were a valuable resource for global investors and insurance brokers. Furthermore, I have been awarded a significant reputation in the industry by predicting the default of German life insurance companies such as the Mannheimer LV in 2003. (https://www.manager-magazin.de/finanzen/artikel/a-254591.html)
Currently, I am self-employed with Dr. Metzler Rating Consulting (http://www.metzler-consulting.ch/) in Switzerland and hold advisory board positions in several companies (DMSA Deutsche Markt Screening Agentur and DFSI Ratings as well as DFSI Institut GmbH) and I am engaged as Managing Director of My Added Value GmbH in the InsurLab Germany Hub to launch a company that will allow insurers to offer banking services with a new technology.
Can you tell us about what you do in your practice and include the nature of your work with DMSA please.
DMSA Deutsche Markt Screening Agentur GmbH, is an independent data service that collects and evaluates market-relevant information on companies, products and services. DMSA sees itself as an advocate for consumers, private customers and intelligent investors. The customers are the focus of DMSA's work. For them, important and decision-relevant information is bundled and presented as market screenings. The aim is to create more transparency for consumers when selecting products, investments and services. I am a member of the advisory board of DMSA and advise the management on topics to chose for analysis and coverage.
The specter of the heavily indebted Chinese Real Estate developer Evergrande has been part of the financial landscape for some time. Can you tell us why it appeared on your radar screen and why it caused you enough concern at this point to where in October 2021 you and DMSA issued worldwide press releases to share your perspective?
Recently, I started to write a new report on Evergrande because I felt obligated to tell all people the truth and the full impact of an Evergrande default.
This was the kick-off of the DMSA Report: "The Great Reset - Evergrande and the Final Meltdown of the Global Financial System”, where your readers might know me from.
I have written six articles on Evergrande and raised concern that as soon as they missed the first interest payment that the company may bankrupt and with the miss of the second payment a week later wrote ‘Turn Out The Lights, The Party’s Over’-that institutional investors and public needed to rightly asses the potential risk that an Evergrande insolvency would pose not to just China, but externally-in my writings-to Americans-but really to people around the world. In macro economic terms, what is the risk that Evergrande poses to the rest of the world?
An Evergrande bankruptcy will significantly slow down Chinese economic growth. The economic problems in the China will then become much more apparent. Areas affected include (but not necessarily limited to : energy and raw material shortages, plant and port closures, and the overindebtedness of the state, companies, and private individuals. The debt ratio is already 230 percent of the country's annual economic output. This could have devastating consequences for the global economy. Supply chains could be put under even greater strain than they already are today - if they don't break completely. This, in turn, would then inevitably lead to galloping inflation in the USA and Europe.
The recent FED Stability Report just confirmed my concerns:
“Especially in the real estate sector, as exemplified by the recent concerns around China Evergrande Group. Stresses could, in turn, propagate to the Chinese financial system through spillovers to financial firms, a sudden correction of real estate prices, or a reduction in investor risk appetite. Given the size of China’s economy and financial system as well as its extensive trade linkages with the rest of the world, financial stresses in China could strain global financial markets through a deterioration of risk sentiment, pose risks to global economic growth, and affect the United States.” (FED Stability Report November 2021, page 66)
A bankruptcy of Evergrande has the potential to lead to extreme distortions of the global financial system - with bankruptcies of players that are still considered rock solid today. Triggered by a Chinese financial virus called Evergrande, the world may face a "Great Reset" - the final meltdown of the current global financial system.
In breaking news this morning Wednesday, November 10, 2021, DMSA has issued a press release stating that Evergrande is ‘officially’ bankrupt…what is meant by that statement, what actions come next? Why should people care about the Evergrande bankruptcy whether they live in Germany or the US?
In total, Evergrande would have had to pay $148.13 million in interest on three bonds no later than today. "But so far we have not received any interest on our bonds.. With banks in Hong Kong closing today, it's certain that these bonds have defaulted.
Particularly problematic for Evergrande: all 23 outstanding bonds have a cross-default clause. This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have 'default' status". However, this does not automatically result in a bankruptcy for Evergrande Group. To determine bankruptcy, a insolvency petition must be filed with the court. This can be done either by the company itself or by one or more of the company's creditors. DMSA is now preparing bankruptcy proceedings against Evergrande. We are already holding talks with other investors in this regard. We would be pleased if other investors were to join our action group.
A bankruptcy of Evergrande will put significant strain on the Chinese financial system. Given the size of the Chinese economy, and the extensive trade linkages with the rest of the world, this could weigh on global financial markets by worsening risk sentiment, pose risks to global economic growth and affect people in the United States or Germany. One can think of it like a domino and the first stone has fallen with this. Recent examples would be international companies such as Softbank and Element, which just today referred to a multiple billion-dollar losses.
Moreover, the economic problems in China will then become much more apparent. Keywords: Inflation, energy and raw material shortages, factory and port closures, and the over-indebtedness of the state, companies and individuals. The debt ratio is already 230% of the country's annual economic output. This could have devastating consequences for the global economy and bring about a meltdown of the financial system.
One of the things I have brought out in my writing (Whistling Past The Graveyard) is that from a leaked 2018 letter that Evergrande has liabilities that involve more than 128 banks and over 121 non-banking institutions. The true extent of the nature and the sheer gross quantity of worldwide exposure to the developer is veiled to an extent. Can you speak to the known and possibly estimated amount of derivatives exposure that the world may have to Evergrande through CDS’s (Credit Default Swaps) and the like as it relates to global markets?
While more than 90% of Evergrande's creditors are from China itself, there are also many international creditors from the US and Europe. International investors alone have put around $23.67 billion into 23 bonds and three large loans issued by the lurching property developer. Among the already known institutional investors are well-known addresses such as Fidelity, Blackrock, UBS, Ashmore Group, Prudential, HSBC, Pictet, Vontobel, BNP and Allianz. However, by far not all international investors are known so far, but only 148 investors (see list of investors: http://www.dmsa-agentur.de/download/20211024_DMSA_EVG_RR_en.pdf) with increased reporting obligations, such as fund companies, who have invested a total of 3.44 billion US dollars. There could still be some negative surprises here.
Evergrande still has about a $4 billion market capitalization and $90 billion in debt on its balance sheet, but $300 billion including unpaid bills. The CDS exposure is still unknown but will have a potentially huge impact in an Evergrande bankruptcy.
In one of our conversations you said “remember we all have a mission in life”…At Encouraging Angels we certainly believe that…Can you please elaborate on why that is so important and what your faith means to you?
I recently had an event in my life that enabled me to see things differently resulting a change of my life. I am very grateful for this happening to me. As I did in the past with the bankruptcy of Mannheimer Life insurance company I have a talent in analyzing facts and macroeconomic developments and to speak out things nobody wants to do. Focusing again on my talents from the past times I felt recently obligated to speak out in public about the implications of the Evergrande default. This will not be the end of my mission. As the markets will collapse soon people will need guidance in the difficult times ahead of us. In this situation I will have the task of being a lighthouse to give people a target for reaching a safe harbor in very rough waters. Some people will make it but many will not. After the storm we have to regenerate new economic system which is build on trust an honor and in balance with the nature and God.
Dr. Metzler, thank you so much for sharing your time, talent and your unique perspective with us today. Is there anything you would like to share in closing?
As I was obliged to go public on my mission we now need more good souls to stand up and start acting as a lighthouse to save the people who are deserving it. We need also to team up bringing the truth to the public as we see the old economic system falling. There will be a great opportunity after the "Great Reset" to rebuild a better world. This should be everybody`s mission now.
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All rights reserved.
Stan Szymanski (or Encouraging Angels) is not a medical doctor. This is not medical advice. In all matters pertaining to the health and care of a human being consult a medical doctor. This is not legal, financial or personal advice. Consult appropriate professionals in those fields for that type of advice.
