Major Banks Shy Away From Leveraged Loans American Banker (10/04/00) Vol. 104, No. 40 p.1; Rehm, Barbara A.
Regulators have become increasingly wary of lenders'
high-cost loans. In light of this, lenders have pulled away from
risky borrowers. The effort, led by Chase, has been aimed at
ending leveraged lending's sensational growth. According to
Thomson Financial Securities Data, leveraged loans are defined as
credits priced 125 points or more over the London interbank
offered rate. Through Sept. 30, leveraged loans totaled $285.4
billion--down 0.6 percent from the same period last year.
Between April 1 and Sept. 30, leveraged lending was at $188
billion, down 8.7 percent from the same time frame in 1999. In
1995, the leveraged lending base was at $81.8 billion. However,
the loans grew an astounding 75 percent in 1996, 55 percent in
1997, 49 percent in 1999, and 22 percent in 1999. Those
increases over the years were the reason federal regulators
issued credit warnings from 1995 to 1998. The Office of the
Comptroller of the Currency specifically focused its efforts on
leveraged lending in May 1999. David D. Gibbons, deputy
comptroller for credit risk, directly attributed the recent
decline in leveraged loans to both increased scrutiny by
examiners and a rising number of defaults. Currently, Chase and
Bank of America have a combined leveraged loan holding of 42
percent. However, this figure is down almost 52 percent from