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Bankers usually salivate over a chance to grow loans and diversify beyond real estate. So why have only 36 banks signed on for BancAlliance, a co-op designed to give them a shot a bigger commercial loans?
January 11 -
As loan demand continues to weaken for community banks, third parties are stepping forward, pitching services aimed at connecting banks with prospective borrowers.
March 8
One of the biggest managers of collateralized loan obligations is trying to crack open a new market for loans: banks.
CIFC Corp. — which manages $11 billion of assets, most of it in CLOs — and investment bank Sandler O'Neill recently started pitching a service for banks that are too small to participate in the syndication of commercial and industrial loans.
It offers small to midsize banks an entrée to borrowers in more industries and in more places than they have on their own, said Peter Gleysteen, the president and chief executive of CIFC. Banks can lower their exposure to real estate and diversify their commercial and industrial loans as a result, he said.
It "is attractive for any bank south of the Top 20, but it's really targeted at the 100 or so healthy banks with between $1 billion and $100 billion in assets, give or take," he said.
"Basically these banks are deposit-rich and traditional bank asset-poor. In addition, all banks, but particularly the healthy ones, continue to want to reduce real estate-related loans as a percentage of assets and also their holdings of fixed-income securities like Treasuries, which pose future interest rate risk and have very low returns."
Sandler O'Neill, which advises banks across the country, identifies banks that might benefit from the service and suggests that they take a look at it.
"The loan-to-deposit ratio of the banking system as a whole is as low as it has been in 20 years," said Brian Sterling, the co-head of investment banking at Sandler O'Neill. "With spreads on securities also at historic lows, our bank clients are looking for ways to access loans and higher yields."
"Most medium-sized and large-sized companies get financing from larger banks." Gleysteen said. "The big banks reach down into regional marketplaces and take out the good borrowers," he said. "This has been going on for decades. This service completes the loop by making loans to larger companies available to regional and community banks with the ability to select loan originations nationally."
There are also online intermediaries. OBL Loan Participation Service, which lets members specify the types of loans they want to buy or sell using geographic region, dollar amount or industry type and alerts them when other banks post loans fitting these criteria. Boefly.com, takes a similar approach but works directly with business borrowers and the brokers that represent them.
CIFC's service differs from these others because it allows banks to participate in loans that are already being broadly syndicated. It also allows banks to lend to companies of all sizes. CIFC participates in syndicates with the 10 largest U.S. banks and with General Electric Capital Corp., one of the largest middle-market lenders in the U.S., Gleysteen said.
Before founding CIFC in 2006, Gleysteen spent 25 years at JPMorgan Chase & Co. and its predecessor institutions, Chase Manhattan Corp. and Chemical Banking Co. At Chemical he co-founded the global loan syndications business, and he was responsible for the corporate loan portfolio at both Chemical and Chase Manhattan. When Chase Manhattan and J.P. Morgan & Co. merged, Gleysteen became chief credit officer of the combined company.
Syndicated loans, which can range from $20 million to several billions of dollars, are typically too large to be held by a single lender. Chase, Chemical and other big banks started teaming up to make these loans in the 1980s. Then institutional investors such as pension funds, insurance companies and private investment funds were invited to participate. Before the financial crisis, CLOs were among the biggest investors, accounting for nearly half of all assets, but their investment capacity has diminished; they currently hold around 25% of total assets, according to Wells Fargo Research.
Though the syndicated loan market is eager for new investors to replace maturing CLOs, small banks were shut out because they cannot afford the minimum commitments. "Typically, the institutions that are invited to look at and make loans are consistent players taking co-lending commitments in multimillion-dollar increments," Gleysteen said. "That's just too big for most banks."
By contrast, CIFC "can take down $100 million in a single loan. We have wholesale access. Because of our investment capacity and size, we're at the front of the line. Someone who could put down $1 million, $2 million or $3 million … is further back."
Banks can piggyback on CIFC's participation in a syndicate with as little as $500,000. The firm constructs a loan portfolio as small as $50 million. Banks pay a fee which Gleysteen declined to share.
CIFC can also source loans for banks in the secondary market. Some banks want to assemble a portfolio right away, while others might prefer to assemble a portfolio over time through the new issue market, Gleysteen said. "Over time, most banks will prefer new issues with an occasional secondary loan, for portfolio management reasons.
"I'd characterize us as both a quality control filter and access channel for banks that subscribe to our service," Gleysteen said. "The only loans we'll recommend are the ones we'll be investing in ourselves." CIFC can provide ongoing portfolio management, oversight and advice, he said. Bank clients will also have access to its research on industries and individuals borrowers.
"As long as banks understand the loans they are underwriting and putting on their balance sheets, there is a great deal of appeal," Sterling said. "It's a way to put more liquidity into the market; it increases loan availability. It's also good for bank investors, as it generates additional earnings."
