Banks face US fines over LBO loans

Wed Jun 4, 2014 3:21pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Natalie Harrison, Michelle Sierra and Lynn Adler

NEW YORK, June 4 (IFR/TRPLC) - Wall Street banks are bracing for a clampdown and even fines if regulators determine they have violated guidelines aimed at stamping out reckless underwriting on leveraged buyout debt.

US regulators are looking at deals arranged between October 2013 and March 2014, when, according to data from Thomson Reuters Loan Pricing Corp, more than 24 buyouts had leverage above the official six-times limit.

Another 19 buyouts since March have also breached that limit, which was set by the Office of the Comptroller of the Currency (OCC), the FDIC and the Federal Reserve as the absolute maximum acceptable level.

While the review is routine - an annual exercise dubbed the Shared National Credit (SNC) - banks fear regulators will be keen to make examples of any institutions flouting the new guidelines, which were set in place in March last year. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For list of buyouts click on: ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

"Banks were soundly warned in the last review that if they could not show that they were sticking to the guidelines, that they would be punished," said Paul Forrester, a partner at Mayer Brown.

He and others believe that, in addition to the six times leverage ceiling, regulators will also scrutinise how many loans breaching the limit will be permissible on each bank's books.

"The OCC has signaled that rare is closer to never, and we read that as one or maybe two," one senior debt capital markets banker told IFR, speaking on condition of anonymity.

The OCC and Fed were not immediately available to comment.   Continued...