How Optimistic Earnings Forecasts Are Kept in Check

Consensus earnings estimates, prominently quoted at major media outlets such as CNBC, Bloomberg, and the Wall Street Journal, play an important role in capital markets by providing investors with a proxy for earnings expectations.  The common belief is that they are formed by simply taking an average of all analyst forecasts. However, to what extent is this true?  Unsophisticated investors know little about the process, while sophisticated investors typically know only what consensus vendors such as Institutional Brokers’ Estimate System (I/B/E/S), whose estimates CNBC uses to identify earnings misses, state in their marketing materials. Specifically, I/B/E/S claims it “removes’ stale … Read more

The Human Factor in Corporate Loan Quality

The syndicated loan market is one of the largest sources of financing for U.S. firms. This market has experienced tremendous growth over the past 20 years. In fact, some recent estimates suggest that U.S. firms obtain over $1 trillion in new syndicated loans each year and that this represents more than 50 percent of total equity and debt issuances.[1],[2]

The primary players in the syndicated loan market are large banks that have developed strong reputations over time, likely due to their performance in issuing high quality loans. These banks employ loan officers and corporate bankers who screen … Read more