You have heard of bridge loans for buying a home. They are also big money when it comes to buying a company in a leveraged buyout.
You gotta love charts like this - and you gotta wonder how the trend could continue.
Burning Bridges? Top 3 Banks May Soon Show
Wall Street Journal
July 18, 2007
As the country's three biggest banks start reporting second-quarter earnings, investors should be asking their CEOs some tough questions about the industry's $33 billion game of hot potato.
That's how much money banks extended in leveraged-buyout-related bridge loans in the first half of 2007, according to data compiled from Reuters LPC.
Bridge loans are short-term financing given to fund leveraged buyouts until long-term loans can be arranged. When times are good, banks sell the loans to pension funds, hedge funds and others, getting rid of the risk. When times are bad, the banks sit on the loans -- and the associated risk -- because nobody else wants them.
In all of last year, banks extended just $12.9 billion of bridge loans. So the jump has been huge, but the total amount is still below the $48 billion of such loans Reuters calculates from the buyout heyday of 1988.
Some of today's deals are running into trouble as a flood of new issues come to the market and debt investors get choosier about what they're willing to buy. So which banks could be left holding the potato?
The bank earnings parade this week starts with J.P. Morgan Chase & Co., a major player in the LBO bridge bonanza and the big daddy of leveraged loans to companies. It's followed by Bank of America and Citigroup.
