BNP Paribas’ European credit research team put out some interesting research late last week, in which they tallied banks’ exposures to two headline-grabbing sectors - the auto industry and shipping. In the first instance, BNP used banks involvement in syndicated lending and primary bond syndication to major car makers as a proxy for exposure to the sector, since “banks will only disclose actual exposures once the situation is dire, so we cannot give specific exposures.”
Their methodology was to take the total amount of syndicated loans given to GM and Ford for each bank since 2005, and to focus on GM and Ford (to the exclusion of Chrysler).
Findings:
two US banks (JPM and Bank of America), two Europeans (Barclays and Deutsche Bank) and one Japanese (Sumitomo Mitsui) form part of the top five lenders.
Whereas US banks lend proportionally more to GM and GMAC, European banks are more exposed to Ford.
In addition, we looked at which banks were lead manager on bond issues by GM and Ford since 2005. The banks the most involved in bond mandates are among the most involved in loan syndications, which does not come as a surprise as bond mandates can be perceived as a reward for banks for lending money to corporates
And chart:
But reader, beware, since “it is hard to draw any tangible conclusions on which banks are most exposed for the following reasons”:
A bank having been part of loan syndication may either have sold on this exposure to the market or hedged it. Therefore residual exposure could be minimal. We understand from loan syndication experts that banks involved in large loans would typically retain 5%-10%. However, this could have been hedged or provided for. Assuming that Barclays (the most exposed of the Europeans, on which we have a Hold recommendation) would have retained 10% of the €2.5bn syndication and that it would not have hedged, this would amount to around 0.8% of Barclays’ equity at end June 2008, which is not significant.
A bank involved in bond issuance for these firms may have kept some bonds and may be more involved in market making on the secondary market in these bonds — and therefore have more inventory. However, similarly, this exposure could have been hedged.
Other exposures than via lending and bonds could be in credit lines. For example, we understand Citi is the lead manager on the GMAC $13bn facilities. While secured, there could be concerns about residual value. While the sector as a whole is exposed, we simply cannot draw any conclusions for specific banks at this stage
Fortunately for those of us who do in fact like conclusions, the section on shipping is more forthright (emphasis FT Alphaville’s):
The Baltic Freight Index has fallen significantly in recent weeks. While banks say that the index is a spot rate and that their borrowers have long-term contracts negotiated at other rates, it does not bode well for the industry. Moreover, we see the risk that some of these contracts may be renegotiated.
The most exposed are Deutsche Schiffbank, DVB and Danish Ship Finance. However these are not heavy issuers in the bond market and we do not cover them.
Of the more “liquid” names, HSH Nordbank (HSHN) and NordLB are those for which we would be more concerned.
Shipping lending represents 7.4x HSH Nordbank’s equity at end 2007, and 3x that of NordLB at end June 2008. This falls to 1.4x for DNB Nor Bank at end Q3 08, 1.1x for Lloyds at end Q2 08 (but please note that it includes transport, distribution and hotels, so this is not comparable) and 76% for Nordea at end Q3 08. The exposure is more significant for HSH Nordbank and NordLB.
Finally, DnB NOR is 34% owned by the Norwegian government and otherwise healthy, so we are not overly concerned.
And chart:
