Revamped Latin Loans: A Peril Disguised
Holland, Kelley, American Banker
Lenders upgrading the classification of their loans to certain Latin American countries are enjoying windfall gains in their reserve accounts.
But one respected banking analyst contends that the loans remain significantly under-reserved, considering their large secondary-market discounts.
Four major lenders - BankAmerica Corp., Chase Manhattan Corp., Chemical Banking Corp., and Bankers Trust New York Corp. - have started counting restructured Brady Plan loans to Mexico and Venezuela as "nonrefinancing-country assets."
Loans on Accrual Status
The accounting change reflects the facts that Mexico and Venezuela have completed their refinancing efforts under the international debt renegotiation plan named for Treasury Secretary Nicholas Brady and that their loans to those countries are now accruing interest.
Accordingly, the bank lenders have flet justified in reducing the reserves they hold against Brady Plan bonds.
But in so doing, the published ratios of their loan-loss reserves to nonrefinancing-country assets "may be seen as overstated," argued Raphael Soifer, an analyst at Brown Brothers Harriman & Co.
Getting down to cases, Mr. Soifer said, these banks are overstating their ratios (or understating their reserves) by anywhere from $274 million in the case of Bankers Trust New York Corp. to $948 million at Chemical Banking Corp.
Loans Swapped for Bonds
"Clearly, the banks are getting away with something," Mr. Soifer concluded.
The situation has developed in the wake of debt negotiations with Mexico and Venezuela. Several banks have agreed to swap loans to those countries for bonds that offer lower interest payments or an extended repayment period.
And in the fourth quarter, as the political and economic climates in those countries improved, banks deciced to reclassify the bonds. …