Posted on 06/07/2007 7:53:01 AM PDT by TigerLikesRooster
Private equity deals getting riskier: lenders
Jill Treanor in London
June 7, 2007
ALARM bells have been sounded by two lenders about the way loans were being handed out to fund the booming private equity sector.
Royal Bank of Scotland, in the throes of a record-breaking takeover of the Dutch bank ABN Amro, admitted there were signs the market was getting "quite toppish", while Intermediate Capital warned it was turning away deals because they were too risky.
Riskier loans are being granted because banks are able to offload their exposure to rivals by forming large syndicates.
Debt is a crucial part of the way private equity deals are funded, but Sir Fred Goodwin, chief executive of RBS, said the bank should stay away from such deals and only grant loans where it was prepared to hold the ultimate risk.
He insisted he was not concerned about the bank's exposure. "There are no clouds on the horizon. I'm touching wood as I say that."
John Manser, the chairman of Intermediate Capital, also voiced concern about the perils of such deals. "We are finding ourselves turning down many more transactions because risk is not being recognised or properly priced, and there is often little or no margin for error," he said.
The UK's Financial Services Authority has already warned that the collapse of a private equity deal is inevitable and noted that banks are prepared to grant riskier loans because they are not left holding any of the original obligation in the event of a collapse. The chief City regulator is preparing to update its review of private equity risks.
Sir Fred was speaking as RBS issued a trading statement that confirmed its profits for 2007 are likely to top £10 billion ($23.6 billion).
He said the RBS-led consortium had held talks with Dutch regulators about its proposal to split ABN Amro among its bidding partners, which include Santander of Spain and Dutch-Belgian group Fortis.
RBS is particularly keen to take control of LaSalle, the US banking arm of ABN Amro, which is being sold to Bank of America.
Sir Fred said that while it would be "our preference" to have discussions with Bank of America about LaSalle, no such talks were taking place.
The deal to sell LaSalle is a crucial component of the proposal agreed by ABN Amro to sell the rest of its operations to Barclays, which would then become the fifth-biggest bank in the world.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.