With the annual review of syndicated loans nearing completion, bankers are starting to compare notes on ratings.
Though most bankers are reluctant to discuss the shared national credit exam on the record, officials at several large banks agreed that the process was exceptionally smooth this year.
Most declined to discuss what kind of feedback they have been getting from regulators, but during a second-quarter earnings conference call Thursday, Theodore Hoepner, the chief risk officer at Atlanta's SunTrust Banks Inc., said they did not mandate any downgrades or chargeoffs. Banks that sold loans to SunTrust had not given him any bad news either.
"We're not hearing much from our correspondents and other banks that we have syndicated credits with," Mr. Hoepner said. "We haven't had anything material reported to date - of course we don't get the actual results until late next quarter - but so far it looks pretty good."
But chairman and CEO Phillip Humann jumped in to temper the optimism about credits SunTrust bought from other banks. "I don't want to say we don't expect any downgrades," he said.
Each year the Office of the Comptroller of the Currency, the Federal Reserve Board, and the Federal Deposit Insurance Corp. review credits of $20 million or more held by at least three lenders. The review is important because examiners can downgrade a loan below a bank's own rating and force the lender to either boost reserves or even write the loan off.
Examiners are "still wrapping up at a couple of the larger institutions," Barbara Grunkemeyer, the OCC's deputy comptroller for credit risk, said last week. "We are hoping to have all the results in at the end of this week" but "it may trickle into next week."
Corporate borrowers' weakening health has given the shared national credit exam added significance the past three years.
Classified and special-mention credits jumped to 12.6% of the $1.9 trillion of loan commitments reviewed in 2002. Though that's below the 16% peak of 1991, credits classified as "loss" were a record $19.6 billion last year, against $3.5 billion in 1991 and $8 billion, the previous record, in 2001.
"Bear in mind that one of the things that was a big contributor to the losses last year was one name, and I'm not sure there's a name out there like Enron that's going to have such a big impact," Ms. Grunkemeyer said.
But because the data are still being gathered - and then must be aggregated - she isn't making any predictions about what the 2003 exam will reveal. Regulators probably won't deliver their formal report until September.
Bankers have gotten preliminary ratings on many of the credits for which they serve as agent banks, and have started calling participating banks to let them know how regulators rated the credit. All banks in the syndicate must apply the rating to their piece of the credit.
Jim Moss, a managing director at Fitch Inc. in Chicago, said he has not heard much bad news.
"The banks we have talked to, and we have talked to a good number of them, are saying very few ratings changes," he said. "The banks never come outright and say, 'There's a huge bubble coming through, and boy, we missed it,' but you go through the conversations enough years and you can get a feel for how the different years compare. This one feels better than last year's, feels better than the last couple of years."
David Hendler at Creditsights Inc. in New York is not as sanguine.
Much of the syndicated credits are to borrowers that he described as "broad-based, industrial, heartland America" companies in sectors like chemicals, general manufacturing, capital goods, diversified industrials, and paper and forest products.
These companies "have been trying to hang on by their fingertips, and we think they are running out of flexibility and are starting to have debt hiccups," Mr. Hendler said. Their woes have been overshadowed by the higher-profile blowups at companies like WorldCom and Enron.
"We had a temporary blip of relief because the high-profile leveraged companies flamed out to a large extent," Mr. Hendler said. "But now comes the second wave. Maybe it is not going to be as bad as the TMT explosion was, but it is still not going to make the numbers improve as much as would have been hoped." (TMT is for telecom, media, technology.)
Examiners focused more on loans above $50 million this year, using far more extensive sampling for credits between $20 million and $50 million.
"It really gets to the root of our supervision-by-risk type of approach," Ms. Grunkemeyer explained. "Relatively speaking, there's not that much risk" in the $20 million to $50 million portfolio "when you're talking about shared national credits and you've got $1 billion-plus credits."
Any investment-grade loan of $3 billion or more is individually reviewed, as are non-investment-grade credits above $1 billion.
Regulators also have industry teams for five sectors - telecom, energy, transportation (with special emphasis on airlines), computers, and electronics, and lodging and real estate - that work together to make sure credits are graded consistently.
Sandra Jansky, SunTrust's chief credit officer, said: "This has been the quietest process that we've had in four or five years. The collective supervisory authorities have really focused this year and tried to do a better job of being more coordinated themselves, and I think that's why we've not heard as much as in prior years."
David Boraks contributed to this story.
