ABN Amro’s warning visualized: is a wave of company defaults coming?!

Last Thursday I wrote upon a report of the ABN Amro, warning that a wave of company defaults is coming in The Netherlands.

Yesterday, the Dutch Central Bureau of Statistics (www.cbs.nl) presented its monthly data on defaults of companies. This gave me the opportunity to collect 20 years of default data from their wonderful Statline database (statline.cbs.nl) and put this in one tell-tale chart. After looking at this chart, I’m sure that ABN Amro is right and the worst is yet to come:

Private and company defaults in The Netherlands 1993-2012
Data courtesy of statline.cbs.nl
Click to enlarge

This chart contains a 3m moving average of the statistical data. The reason for using a moving average is: the number of defaults that can be handled in a month is dependent on the number of weekdays in this particular month, as courts of justice can only handle bankruptcy cases during weekdays.

While the absolute peak of company bankruptcy cases was in June 2009 (699), the moving average is currently higher than ever during the last 20 years. During 2008 and the first half of 2009, the initial shock of the credit crisis caused a temporary peak in defaults: from 300 per month to more than 600 per month.

You could say that during this period the weakest companies were shaken out of the tree. Soon after the peak in June 2009, the number of defaults slowly dropped to (about) 500 per month, only to really pick up again in September 2011.

What is worrisome about the current peak in company defaults, is that these are not the weakest companies, like in 2008. To the contrary, these were (in general) strong companies that survived the first four years of the credit crisis, but have to give up after all as a result of (in many cases) four continuous years with red figures. This is the reason that I firmly believe – together with ABN Amro – that the number of defaulting companies will further increase during 2012 and 2013. The worst indeed has yet to come.

A remarkable fact is that the number of defaults among private persons and one man-businesses had a peak well BEFORE the start of the credit crisis in Europe (2008-2009) and has dropped since then, only to stabilize at a much lower level. What makes this fact extra special is that the peak in the number of bankruptcies is closely trailed by the peak in housing sales and housing prices in The Netherlands.

Number of private defaults vs average housing price
in The Netherlands 1995-2012
Data courtesy of statline.cbs.nl
Click to enlarge

Number of private defaults vs housing sales
in The Netherlands 1995-2012
Data courtesy of statline.cbs.nl
Click to enlarge

This proves in my opinion once more that it wasn’t the credit crisis that pushed the Dutch into a more austere spending behavior, but just the simple fact that the Dutch were fed up with excess borrowing and having too much credit. The dramatic drop in the number of defaults was a consequence of this changed behavior towards more austerity, in spite of the credit crisis.