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  • BenGrahamMan BenGrahamMan Sep 29, 2000 10:37 PM Flag

    Probe into telecom bank loans pt 1



    Probe into telecom bank loans
    By James Mackintosh,
    Aline van Duyn and Dan Roberts
    Published: September
    28 2000 19:55GMT | Last Updated: September 29 2000

    European banking regulators are
    probing $171bn (E194bn) of new loans made to European
    telecommunications groups, fearing that the banks have lent too much
    money to the sector.

    The worries - sparked by
    loans to fund the cost of third generation mobile phone
    licences in Europe - were discussed at a meeting of
    international financial regulators two weeks ago. Several
    European banking regulators have since launched inquiries
    and are now questioning the banks they oversee.

    Sir Howard Davies, chairman of the UK's Financial
    Services Authority, this week described the level of
    lending by European and US banks as "a matter of great
    concern to regulators" because of the risks the banks are
    taking with one sector.

    Regulators elsewhere in
    Europe went further, likening the concentration of debt
    to the run-up to the 1992 property crash and the
    1998 hedge fund crisis, both of which caused major
    problems for banks.

    Regulators have traditionally
    taken a tough line with banks when they become
    over-exposed to one sector. They fear that if the telcoms
    sector is hit by unexpected financial problems, the
    extent of the banks' lending could cause wider

    The banks which have arranged the most
    loans to the telecom sector this year are Citigroup,
    Chase Manhattan, Morgan Stanley Dean Witter, Barclays
    and HSBC, according to data from Capital Loanware,
    the data provider.

    Although not an exact
    measure of exposure because loans are sold on or
    refinanced, it indicates the most active players.

    Almost 30 per cent of this year's international
    syndicated loan market - where the largest loans were
    arranged - was taken up by telecom debt. In Europe it was
    above 40 per cent.

    The watchdogs' inquiries
    could result in warnings to the most exposed banks to
    cut back lending to telecoms companies, further
    increasing their cost of borrowing.

    Raising new
    money has already become more costly for telecoms
    groups, after cuts in credit ratings led to higher
    interest rates on their bonds.

    Telecoms companies
    in Europe are particularly worried about any clamp
    down on new borrowing. They need well over E100bn more
    in order to fund the estimated extra E160bn cost of
    building networks to run third generation mobile services.

    "This [probing by regulators] could be a disaster,"
    said one UK telecom executive.

    A senior UK
    banker said: "It is our responsibility to make crystal
    clear that we know our exposures and we understand the
    risks". He added: "The [watchdogs'] concern is legitimate
    but any systemic risk [to the financial system] would
    come from outside chances such as the 3G network just
    being completed when boom, fourth generation arrives."

    But bankers are now having to explain to their
    regulators exactly how they are controlling the risks, in
    what Sir Howard called "much more rigorous analysis of
    those exposures".

    He told a seminar in Prague
    this week: "Financial sector exposures to the
    telecommunications industry . . . is a matter of great concern to
    regulators, certainly across Europe."

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