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News Release 2010-115
September 28, 2010
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Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
The credit quality of large loan commitments owned by U.S. bank organizations, foreign bank organizations (FBOs), and nonbanks remained weak in 2010, but improved from 2009, according to the Shared National Credits (SNCs) Review for 2010.
Although 18 percent of all SNCs were criticized, the volume of criticized loans decreased more than 30 percent from record levels reported in 2009. The severity of classifications also improved, with $15 billion classified as loss, compared with $53 billion in 2009. A loan commitment is the obligation of a lender to make loans or issue letters of credit pursuant to a formal loan agreement.
Reasons for improvement included improved borrower operating performance, debt restructurings and bankruptcy resolutions, and improved borrower access to bond and equity markets. Industries contributing to improvement in credit quality included automotive, materials and commodities, and finance and insurance. The volume of poorly underwritten credits originated in 2006 and 2007 continued to adversely affect the overall credit quality of the portfolio. Refinancing risk within the portfolio is significant, with nearly 67 percent of criticized assets maturing between 2012 and 2014.
While nonbank entities, such as securitization pools, hedge funds, insurance companies, and pension funds, owned the smallest share of commitments, they owned the largest volume and percentage in dollar value of classified credits at $161 billion, or 52.9 percent of classified credits.
Other findings include (definitions used in the report can be found on page 4):
The SNC program was established in 1977 to provide an efficient and consistent review and classification of SNCs, which includes any loan or formal loan commitment, and any asset such as real estate, stocks, notes, bonds, and debentures taken as debts previously contracted, extended to borrowers by a federally supervised institution, its subsidiaries, and affiliates that aggregates to $20 million or more and is shared by three or more unaffiliated supervised institutions. Many of these loan commitments are also shared with FBOs and nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds.
In conducting the 2010 SNC Review, agencies reviewed $1.0 trillion of the $2.5 trillion credit commitments in the portfolio. The sample was heavily weighted toward non-investment grade and criticized credits. The results of the review are based on analyses prepared in the second quarter of 2010 using credit-related data provided by federally supervised institutions as of December 31, 2009, and March 31, 2010.