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To: maceng2 who wrote (169712)	6/2/2002 4:57:23 PM
From: maceng2	Respond to of 436258

Bankers' boom valuations are attacked By Gary Silverman in New York Published: June 2 2002 20:14 \| Last Updated: June 2 2002 20:14 US regulators are uncovering fresh evidence that bankers, like stock market investors, erred by embracing "new economy" valuation methods during the 1990s boom. The regulators are discovering large losses on loans secured by "enterprise value" - a form of collateral that boiled down to a company's expected value in a sale. Such calculations were typically based on the market values implied by recent mergers and acquisitions in a borrower's industry. This methodology became increasingly popular among bankers as deal prices soared. Some regulators warned bankers at the time that they should be demanding more tangible forms of collateral. They are now pointing to the rising losses as a lesson for lenders. "A lot of the loan losses you have seen banks take - and they are on the rise - are associated with this issue," said David Gibbons, who oversees credit issues for the Treasury agency involved in this review. "It's not like they are writing off hard assets." Evidence of losses on loans secured by enterprise value is being unearthed as bank regulators conduct their joint annual credit review of big syndicated loans. The review is meant to make sure that banks holding pieces of the same loan account for it in the same way and, if necessary, acknowledge credit problems. The review is still under way and final results, which are compiled after an appeal period for banks, are unlikely to be made public before September. However, Mr Gibbons said problem loans probably would increase from last year's levels and the loss of enterprise values would play a big role in that rise. "There's not a lot of enterprise value left and that's the reality," Mr Gibbons said. In many such cases, "you have to say there is nothing there - nothing but air." Mr Gibbons said the use of enterprise values in lending became widespread during the 1990s and was not confined simply to hot sectors such as telecommunications. Last year, regulators issued a warning suggesting that banks were fooling themselves if they thought enterprise value could be maintained once a company's cashflow deteriorated. The problem, regulators said, is that after a company's cashflow deteriorates, its market value will probably fall as well, no matter what price it might have fetched in the past. news.ft.com