Big Banks Put The Brakes On Retailer Loans

2. November 2017.








The country’s largest banks, JPMorgan Chase & Co., Bank of America and Citigroup, are reducing loans to retailers at a time when the industry is also facing doubts from bond investors.

According to TheStreet, JPMorgan, the largest U.S. bank by assets, cut its total exposure to consumer and retail companies by 3.6 percent last quarter to $87 billion as of September 30.

In addition, Bank of America lowered its retail exposure by 7.7 percent, while Citigroup cut consumer, retail and health loans and commitments to 16 percent of its overall corporate portfolio, down from 17 percent on June 30.

Retailers have struggled in recent years due to a drop in consumer spending and a shift toward online shopping. The third quarter saw defaults from major companies including J. Crew, True Religion and Toys “R” Us.

These issues have also had an impact on retailers’ credit ratings. Just this week, Standard & Poor’s lowered Under Armour’s credit rating by one notch to BB, a sign that the retailer faces conditions that could affect its ability to pay back debt.

“Smaller, highly leveraged retailers are struggling to keep up, which is pushing defaults and downgrades higher,” Moody’s Investors Service, another credit rating firm, wrote in a report. Loans and commitments to the retail industry represent about 58 percent of banks’ total equity base, on average, according to the report.

Another factor that banks have to worry about are the loose loan terms to retailers, which have reduced the protections that lenders typically might use to get their money back. The disturbing trend “puts lenders at much greater risk if borrowers come under stress,” Moody’s analysts wrote.

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