Market Update: EMEA Bank Lending Falls Sharply

July 05, 2012

A 34 percent year-on-year decline in the first half reflects the effects of the eurozone crisis, bank capital preservation and a lack of M&A transactions. 

Investment 209Syndicated loan volume in Europe, the Middle East and Africa (EMEA) fell by 34 percent in the first half from the same period in 2011, according to Thomson Reuters Loan Pricing (LPC) data released last week. This was the lowest level since 2003, the company said.

The second quarter saw a bit more activity than the first, with $187 billion of loans versus $155 billion in the first three months. But the second quarter still trailed the year-earlier period by one-third. Stripping out below investment grade deals, the quarter-to-quarter uptick was even larger, with the second quarter seeing 40 percent more investment grade business than the first.

Leveraged loan volumes fell 29 percent year-on-year in the first half to $57 billion, a figure that still was larger than new junk bond issuance, which saw $37.6 billion of issuance. Both the junk and the high-grade bond markets slowed as the eurozone crisis gathered steam.

A big factor in the slowdown was the sharp decline in leveraged M&A. This was particularly apparent toward the end of the first half, as volatility heightened investor risk aversion, making it difficult to raise the needed funds. Banks’ need to build their core capital ratios despite significant damage from holding peripheral sovereign credits was another limiting factor.

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