Chart of the day: The alarming fall in syndicated lending
Email 
Print
The chart of the day comes from Thomson Reuters LPC, and shows total global volume of syndicated lending, on a quarterly basis, going back to 2003.
Syndicated lending is the big and boring part of the bank-loan market — the bit where huge corporations borrow so much money that they need to line up a consortium of banks to get the deal done. As you can see, in boom years syndicated lending can reach $1 trillion per quarter, so this is an enormous market. And as you can also see, very clearly, it seems to have fallen alarmingly this year — not the kind of thing you want to see in a global economy which is supposed to still be in the early stages of a recovery.
The big picture here is that in healthy years, the world does about $800 billion or more in syndicated lending per quarter; of that, somewhere north of $400 billion comes from the Americas. By that criterion, the global lending market has been healthy since the fourth quarter of 2010.
But it’s not any more. Total lending in the first quarter of 2012 was just $646 billion, down 20% from the first quarter of 2011, and down 29% from the previous quarter. The Americas also saw their lowest total since the third quarter of 2010, but there the really bad news is hidden elsewhere: a good 70% of total issuance in the Americas is refinancings, where companies roll over their existing debt. Just 30% of the total is represented by new money coming in to the market.
And if you think things are bad in the Americas, they’re much worse in Europe.
This all bodes ill for the global economy, as it’s a very clear sign that banks are putting the brakes on lending money to even their biggest and best corporate customers. And it also implies that the rebound in lending that we saw in 2010-2011 might have been a little bit artificial, comprising in large part a backlog of deals which simply couldn’t get done at the height of the financial crisis.
Now that the urgent refinancings are largely out of the way, banks are showing no real appetite to lend new money to anybody. They’re not lending here, and neither are they lending in the rest of the world. The quid pro quo of the global bank bailouts was always that in return for getting recapitalized, the banks would turn around and start lending again. That hasn’t happened. And insofar as it did happen, the era of revitalized bank lending already seems to have come to an end.
Comments RSSPost Your Comment
This is when seasonal adjustments are nice. As you can see, it often drops from Q4 to Q1 (’04, ’05, ’06, ’07, ’08, ’11, ’12). I think that this is a part of the natural business cycle. Did you just ignore this, Felix?
@DoubleDeuce: While your point about seasonality is insightful, perhaps you could have observed that (1) the magnitude of the 1Q12 decline was MUCH more significant than the Q1 declines in ’04-’07, (2) Q1 in ’04-’07 Q1 declined to about the level of the prior Q3, while 1Q12 was well below Q311, (3) Q111 did not decline from Q410, and was in fact higher than Q310, and (4) Q108 is irrelevant in determining normal bank lending.
A longer data series would be interesting: while it does appear that there is some seasonality to syndicated loans, it also appears that the Q112 decline swamped any seasonality.
Is it a clear sign that “banks are putting the brakes on lending” or that, perhaps, borrowers are not attempting to borrow? The clear thrust of the posting is the former, with some scolding included. Evidence either way, please.
I’m not sure syndicated loans count as the “big and boring part of the bank-loan market.” They are big, but my understanding is the the majority of syndicated loans are tied to transactions (mostly LBOs, some more vanilla M&A).
The run-up in lending ’04-’07 in this view is an indication of the outsized role of private equity during those boom years, with too many funds spending too much money at too high leverage.
I see the ’10-’11 totals here as more of an echo boom as some of that PE debt got rolled over. If you look at the long term trend here we’ve gone from about $380B in Q1 2003 to $620B in Q1 2012. That’s about 5.6% p.a. growth, which is way faster than GDP has grown.
This seems to be a necessary correction as the market works out the remnants of a period of excess that we don’t want to go back to.
Mr Salmon:
Global bond issuance hit record levels in Q1.
What @alea said. This is the capital markets disintermediating the banks, particularly in Europe. You cannot make this a comment on the health of the economy based on this chart, unless you factor in other sources of borrowing.
I’ve long thought that the entire economy could stand to be more funded by equity and less by debt, to increase the cushion for loss before you start hitting defaults (which create counterparty risk towards people a creditor may’ve borrowed from). To the extent that companies are using their record profits and gigantic cashpiles as a _substitute_ for borrowing, this doesn’t strike me as a problem. I think you’re probably right that there’s risk aversion at play, and it’s still true that smaller companies are having more trouble funding good investments than they used to (and arguably more trouble than they ought to), but we ought to be careful about suggesting that things just ought to go back to the way they were in the mid-’00s. Maybe some of these measures of debt generation OUGHT to come down, in the long run.
“I’ve long thought that the entire economy could stand to be more funded by equity and less by debt”
Hard to justify that to shareholders when debt is so cheap… That said, I do prefer to invest in companies that are not leveraged excessively.
Alea hit the nail on the head. Bonds beat loans like a drum as investment instruments. Bonds issuance across all grades are at or near all time highs.
Goverments are telling big banks point blank to increase their capital ratios. The fastest way to boost your capital ratio is to not renew your least profitable customers loans.