Global Lending Contraction Continues

In an article in Wednesday’s Forbes, Liz Moyer, talks about bankers’ tendencies and eagerness to say they are lending their share of support to the economic recovery by extending credit. However, facts suggests otherwise. Globally, syndicated lending — a type of lending consisting of very large loans in which a group of banks work together to provide funds for one borrower — is down 49% through the first half of the current fiscal year, at $879 billion, the lowest volume in a decade.

From Forbes:

Despite what bankers say, lending continues to contract this year in the face of the economic slowdown.
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In the Americas region, syndicated lending fell 56% to the lowest level since the first half of 1994, according to Dealogic.

Loans to fund acquisitions….totaled $62 billion in the first six months of this year, down 67% from the same time last year. A big chunk of that $62 billion came from a single transaction–a $27.5 billion loan for Pfizer’s (PFE) purchase of Wyeth (WYE).

Loans to finance leveraged buyouts…totaled just $165 million. That’s the lowest volume since the last three months of 1985.
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In banking, there are always bright spots. Two strong areas of the lending markets were financing for distressed or bankrupt companies, and smaller so-called “club deals,” where the members of the lending group fully commit to the funding and don’t sell the loan to outside investors.

Club deal volume rose to $136 billion and made up 15% of total loan volume so far this year, its highest proportion on record, according to Dealogic. These deals tend to be smaller, in the $25 million to $150 million range.

emphasis added

While billions of dollars flowed into banks’ vaults, as a result of the multi-billion dollar bailout of the financial industry, billions of dollars are not flowing out at the clip they should, at least not to borrowers, at least not yet. That’s not to say banks aren’t doing anything with their money. They are buying equities and doing a lot of bond trading. And yes, you might say  that in a sense we have a reflationary type trade here.