Exclusive: Wall Street banks take heart from leveraged loan exams

Tue Aug 5, 2014 1:08am EDT
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By Greg Roumeliotis

NEW YORK (Reuters) - Wall Street banks have found a U.S. review of their junk-rated loans to have yielded similar results to last year, easing some concern among bankers about a crackdown on one of their most lucrative businesses.

The Office of the Comptroller of Currency, the Federal Reserve and the Federal Deposit Insurance Corp, in an annual process called the Shared National Credit (SNC) review, examined bank portfolios for compliance with guidelines on leveraged loans that limit how much debt a company can take on.

Contrary to some bankers' expectations that excessive violations would be discovered, the SNC review's findings are comparable to last year's, according to banking sources. The sources didn't provide details on the review's findings.

"Our banking members have said that the SNC review has gone mostly as expected, and is mostly in line with last year," said Meredith Coffey, executive vice president of the trade group Loan Syndications & Trading Association.

That suggests a benign outcome for the industry, were it to be confirmed by regulators. It could provide banks with a measure of relief at a time when many of their historically profitable businesses are under pressure.

Making junk-rated loans to companies is a lucrative, high-margin business for major Wall Street banks. Last year leveraged loans generated $1.47 billion in fees in the United States alone. The top five issuers of such loans so far this year have been JPMorgan Chase & Co (JPM.N: Quote), Bank of America Corp (BAC.N: Quote), Wells Fargo & Co (WFC.N: Quote) , Credit Suisse Group AG CSGN.VX and Deutsche Bank AG (DBKGn.DE: Quote).

The last SNC review was published in September 2013 and covered $800 billion of $3 trillion in credit commitments, with a focus on leveraged loans. Regulators also expressed dissatisfaction with the results of that review.

The 2013 SNC review found that "criticized" assets, which are considered by regulators to be problematic, represented 10 percent of the SNC portfolio, down from 11 percent in 2012 but twice the percentage of pre-financial crisis levels.   Continued...

A Wall Street sign is pictured in the rain outside the New York Stock Exchange in New York June 9, 2014.     REUTERS/Carlo Allegri/Files