ftalphaville.ft.com
"FT analysis: Banks carry $40bn of high-yield debt
Amid concerns about a possible credit contraction -
exacerbated this week when banks abandoned attempts to sell
$20bn of debt for the Chrysler and Alliance Boots LBOs - an FT
analysis shows that leading banks’ balance sheets in recent
weeks have absorbed more than $40bn of high-yield, buy-out
related debt intended for sale to investors.
The biggest lenders to private equity buyers are large
commercial banks such as JPMorgan Chase, Bank of America and
Citigroup. But investment banks, led by Goldman Sachs, have
dramatically scaled up their commitments to LBOs this year.
According to regulatory filings, Goldman, Morgan Stanley,
Lehman Brothers and Bear Stearns had combined non-investment
grade commitments of about $180bn at the end of May, $80bn
more than at the end of February, the bulk of these relating
to LBO commitments, the FT notes.
Goldman had non-investment grade commitments of $71.6bn and
Morgan Stanley $34.8bn. Lehman said its “non-investment-grade
contingent acquisition facilities” were $43.9bn, while Bear
Stearns disclosed “contingent commitments” of $20.8bn. None of
the banks would say what had happened to their level of
commitments since the end of May.
Bankers say the combined figure of $180bn appeared high in
relation to the estimated $300bn that all lenders have
committed for leveraged buy-out deals in the US for the rest
of the year.
The size of the commitments raises questions about potential
losses if the banks are unable to sell the debt to investors
at the terms agreed when the deals were done.
Such concerns, alongside diminishing investor appetite for
complex debt securities and problems in the US mortgage
market, will undoubtedly continue to weigh on bank stocks."
High yield corporate spreads are up 250 basis points since
May, or doubled, whatever way you put it. -g-
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