-->Economy fuels another rise in problem loans
By Gary Silverman in New York
Published: October 8 2002 0:48 | Last Updated: October 8 2002 0:48



Growing economic weakness has helped fuel a fourth consecutive annual increase in problem loans held by major syndicated lenders, federal regulators are set to report.
The full results of the Shared National Credit review are to be released shortly but regulators said the underlying trends point to spreading credit problems for large lenders.
Wall Street analysts are particularly interested in this year's review because of several recent earnings warnings from big banks, including JP Morgan Chase.
The rise in problem credits was initially blamed on unwise underwriting decisions by bankers during the boom of the late 1990s. Bankers were particularly careless in lending to telecommunications companies.
Regulators said this year's survey found more evidence that a slower economy is contributing to credit problems, meaning bad loans are popping up in sectors more typically affected by swings in the economic cycle.
"You start to see a slowing economy," said David Gibbons, a credit-risk specialist at the Treasury Department's Office of the Comptroller of the Currency."There is quite a bit of overcapacity out there in a number of different industries."
The annual review examines large syndicated loans held by three or more lenders to make sure that problem credits are being properly recorded.
Last year, the review found a 93 per cent increase in"adversely rated" credits. The total was a record $192.8bn but the percentage of problem credits overall remained below the levels of the early 1990s. Mr Gibbons said this year's rise was not as dramatic as last year's in percentage terms but that it was"still a big number in dollar terms."
JP Morgan said last month that it expected its commercial credit costs would hit $1.4bn in the third quarter, reflecting"adverse developments" at telecoms and cable companies.
The review is conducted by the Federal Reserve, the OCC and the Fede ral Deposit Insurance Corporation.