What links Hershey to the eurozone debt crisis? Well, aside from making a product that cracks under pressure, the confectioner has recently renewed a syndicated lending deal that Nomura’s analysts say augurs further European bank deleveraging.

Although European banks can now post lower rated collateral to access ECB funds, continuing funding pressures, EBA requirements and Basel regulations will ensure further sell-offs. We’ll know more later on Thursday, when EBA stress test results are disclosed. Thus far, European banks have announced around €1,200bn worth of planned sales and run-offs, as this chart from Nomura depicts:

Some quick observations from the chart: French and UK banks account for over half the planned deleveraging, Italian banks are about to get rid of €50bn or so of US dollar denominated “toxic assets”, and Dexia is the big white block on the right hand bar.

And the buyers at this fire sale? Nomura writes that it’s the mid-level US banks that are picking up the commercial and “other loan” markets where European banks are disproportionately present. In particular, the syndicated commercial loan markets will be fruitful for banks such as US Bank and PNC. As an example, Nomura uses a recent deal by Hershey (keep in mind that this is bank research):

To give a specific example, Hershey recently renewed its USD 1.1bn five year credit agreement from December 2006.

Highlights include:

• Barclays removed from the original agreement.
• UBS, BofA and Citi all move down the commitment level ranking.
• US Bank (USB) is a new addition to the lending group at USD 75m.
• PNC moves up the commitment ranking to USD 135m from USD 85m.

Although Hershey is just one example, it squares with banks’ recent comments. USB mentioned on the 3Q conference call that it is winning new business from corporates that previously were at foreign banks. PNC also noted at a recent industry conference that it added 1,000 new clients in the corporate segment in 2010 and being on pace to exceed this number in 2011. USB and PNC only have a small share of the syndicated loan market and FITB is just 0.1%, so we believe that there is lots of room to grow akin to what Wells Fargo has done over the past few years.

Full note in the usual place.

Related links:
Nomura on European bank deleveraging and US loans – FT Alphaville
Here comes the (cross-border) bank deleveraging – FT Alphaville

This entry was posted by John McDermott on Thursday, December 8th, 2011 at 17:30 and is filed under Capital markets. Tagged with Banks, European bank deleveraging, hershey. Edit this entry.