Magazine article American Banker

Bankers Are Warned: Compete with Wall Street or Perish; Secondary Market for Commercial Loans Called Desperate Need

Magazine article American Banker

Bankers Are Warned: Compete with Wall Street or Perish; Secondary Market for Commercial Loans Called Desperate Need

Article excerpt

Bankers Are Warned: Compete With Wall Street or Perish

NEW YORK -- U.S. commercial banks run the risk of growing obsolete if they fail to compete with the more ambitious and efficient investment banks, industry leaders warned Thursday.

To survive, said George J. Vojta, executive vice president of Bankers Trust Co., Bankers must begin accumulating assets that are less risky and more liquid than traditional commercial loans. "If that is not managed well, the results can range from disastrous to fatal," he said, addressing an American Banker conference on "Restructuring the Banking Industry."

Mr. Vojta, whose firm is viewed by some as the model for commercial banks entering the investment banking field, said the development of a secondary market for commercial loans is needed desperately for banks to compete with Wall Street for high-quality tradable assets. "I hope we will have a secondary market for loans that is the functional equivalent to the government securities market," Mr. Vojta said.

In its present form, the secondary loan market, estimated at about $70 billion to $80 billion, is loosely organized and dominated by a handful of the nation's largest banks. Bankers Trust, whose participation in the area has grown with the overall market, bought and sold about $10 billion in loans last year, up from about $2 billion three years ago.

What Mr. Vojta envisions is a secondary market in which loans are repackaged and treated as securities whose values are regularly pegged to the market. Someday, he said, they might be assigned grades for their creditworthiness, in much the same way Moody's Investors Service and Standard & Poor's Inc. rate corporate debt securities.

Mr. Vojta likened the market's development to the recent emergence of the Euromarket. So far, he said, U.S. regulators "are just watching" to see what happens.

At Chemical Bank, loan sale business has been given a top priority, said Alan H. …

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