The US financial sector??s losses on large loans exploded over the past year, exceeding the combined losses since 2001, with hedge funds and other members of the ??shadow banking system? hit the hardest, according to an annual review by regulators.
The review is conducted each year by the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Office of Thrift Supervision and focuses on ??shared national credits (SNC)? ?? loans larger than $20m shared by three or more federally regulated institutions.
According to the review More than one in three dollars lent by non-bank institutions such as hedge funds, securitisation vehicles and pension funds, went sour, compared with 11.5 per cent for US banks.
The importance of these non-bank institutions was underlined by the review??s finding that they held 47 per cent of problem loans, in spite of accounting for only 21.2 per cent of the total loan pool.
Overall, the US financial sector??s losses on loans in early 2009 reached a record of $53bn, almost triple the previous high in 2002.
The number of loans edging into the danger zone has also surged.
Some 15 per cent of the $2,900bn SNC portfolio was classified as ??substandard? ?? the second of the four categories used by regulators ?? and worse, up from 5.8 per cent in 2008.
The pace at which loans got into serious trouble accelerated significantly. The dollar volume classed as ??doubtful? or loss-making increased 14-fold over the past year to $110bn. ??Doubtful? loans are so weak that collection or liquidation is highly improbable.
The review found that loans to media and telecommunications companies were proving the most troublesome, followed by the finance and insurance sector and real estate.
Underwriting standards had improved last year, but loans originated in the credit boom years before mid-2007 had continued to drag down the quality of the SNC portfolio, according to the official figures.
The results will increase fears that, in spite of a recovery in the shares and balance sheets of many banks, the epicentre of the crisis has moved to the hedge funds and investors that gorged on cheap credit in the run-up to the turmoil.
