Wall Street Banks Heed Fed’s Risky Loan Warnings
By Craig Torres and Nabila Ahmed
U.S. banking regulators summoned Wall Street’s biggest lenders to New York’s Pierre hotel in November to hammer home a message that had gone largely unheeded for more than a year: Stop arranging risky corporate loans that were inflating another credit bubble, or potentially face fines or suspensions. The warnings from the Federal Reserve and Office of the Comptroller of the Currency are starting to sink in. Debt levels for companies funding takeovers in the leveraged-loan market fell in the fourth quarter for only the second time since 2012, according to Standard & Poor’s Capital IQ. Banks including JPMorgan Chase & Co. are passing on risky debt deals again this year, most recently a $445 million loan for an acquisition by KKR & Co.’s Alliant Insurance Services, according to two people with knowledge of the deal. The crackdown may reduce loan issuance by as much as $80 billion in 2015, according to Bank of America Corp. “There were repeated attempts made to make it clear what the expectations were,” Martin Pfinsgraff, the senior deputy comptroller for large bank supervision at the OCC in Washington, said in a telephone interview. “Ultimately, all the banks got clarity.” The pressure from regulators “has worked very well,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics Inc., a Washington consulting firm whose clients include the world’s largest banks. “Regulators are making it clear that they mean what they say so that banks understand evasion has consequences.”