U.S. banks are pulling back from lending to European businesses during the coronavirus pandemic, fueling concerns that Wall Street could quietly withdraw to its home market in a repeat of the latest financial crisis.
Bankers, advisers and business executives said U.S. lenders have become more cautious about underwriting bilateral and syndicated loans to large corporate clients in the region in recent weeks.
In Germany, JPMorgan recently withdrew from talks about an additional line of credit for BASF, the world’s largest chemicals group, according to people involved in the transaction. Likewise, Bank of America (BofA) has lent half as much as the six other international banks that took out a state-guaranteed loan of 3 billion euros to sportswear giant Adidas.
Goldman Sachs – which helped underwrite a € 3.5 billion syndicated loan for Italian-American automaker Fiat Chrysler this month – did not participate in a similar $ 12 billion facility. euros for its German rival and long-time customer Daimler, leaving other lenders to make up the difference.
“We are increasingly seeing an ‘America first’ attitude among the big US banks,” said an adviser directly involved in bank-corporate negotiations in Germany. “These are not just idiosyncratic cases: there is a clear pattern. “
In the first quarter, the combined market share of the five big U.S. banks in syndicated loans in Germany fell by more than a third to 14.6%, according to data from Refinitiv. This period only captures the onset of the pandemic.
“Each bank is under the tutelage of its national regulators, who in times of crisis show a huge domestic bias,” said Jan Pieter Krahnen, director of the Center for Financial Studies at the University of Frankfurt. “This strongly influences risk management and regional exposure, which comes at the expense of overseas customers.”
The trend has caught the attention of European regulators. “We have received many signals that foreign lenders are starting to withdraw from the German market,” said a senior surveillance official. “We cannot force them to lend.
In the UK, JPMorgan withdrew from a recent £ 324million debt and equity bailout for airport concession operator SSP, despite being the company’s corporate broker . Only British banks remained in the consortium.
At events and publishing group Informa, JPMorgan and BofA turned down a request for a short-term loan and were not underwriters of a £ 1billion stock offering, although the latter had been the UK firm’s broker for 10 years. BofA also refused a possible capital increase for the struggling cinema chain Cineworld.
The drop in lending has raised concerns in Europe about the reliability of US banks in a crisis. One of the reasons Berlin politicians approved merger talks between Deutsche Bank and national rival Commerzbank last year was the desire for a “national champion” who would continue to lend in times of stress.
German companies wishing to use large government guaranteed loans are particularly difficult as they need the support of their existing lending group to access funds from the public development bank KfW.
KfW can support up to 80 percent of new syndicated loans. But KfW insists that private sector banks shoulder the remaining 20 percent and guarantee existing lines of credit, which must be used first.
“If a bank in an existing consortium goes out of the box, it’s not only that the others have to fill in the blank, but some of them may also start to have doubts,” said a person familiar with such questions. negotiations.
While travel group Tui and sportswear maker Adidas have secured large state-backed union loans, up to 20 blue-chip companies are still in talks, people familiar with the negotiations said.
Negotiations on a syndicated loan backed by KfW to steelmaker Thyssenkrupp have been suspended, pending commitments from JPMorgan and Goldman, according to two people familiar with the matter. Thyssenkrupp declined to comment.
BofA, Goldman Sachs and JPMorgan declined to comment on specific clients, but pointed out that they had increased their lending globally in recent weeks. As data shows BofA’s share of syndicated loans has declined, the U.S. bank has pointed out that it has come second in the euro-denominated bond rankings since March 18, when debt markets reopened. after the initial shock of the coronavirus.
JPMorgan said: “We provided over $ 25 billion in new credit to customers in March alone, almost half of which was in Europe. Our commitment to businesses in the region remains unwavering.
Senior executives at US banks have said that compared to US customers, European companies have used more of their lines of credit, reducing banks’ appetite for new loans. They also generally wished to borrow money over longer time horizons, while US companies viewed bank lending more as a “gateway to the markets.”
A European executive from a US bank said: “We have the same standards and procedures for all of our customers, and geography does not matter. However, the executive added that profit margins on loans were much higher in the United States than in Europe, demand for credit was skyrocketing everywhere, and bank balance sheets were an increasingly scarce resource. “Each credit decision must be properly justified internally. “
Some US bankers have said that European lenders are acting “recklessly”, loading their weak balance sheets with riskier loans that could turn into problems in years to come. “I don’t understand why Europeans want to do these things,” said a senior investment banker. Additional reporting: Arash Massoudi. – Copyright The Financial Times Limited 2020