Risky corporate loans: ECB ready to crack down on Deutsche Bank and BNP Paribas

Written November 28, 2022 at 06.55Updated November 28, 2022 at 07.03.

The European Central Bank (ECB) is taking action. Eight months after a warning letter sent to the heads of the major European banks, the institution is carrying out its threats: according to the Bloomberg agency, the banking regulator in the eurozone will set capital requirements higher for a handful of lenders – including BNP Paribas or Deutsche Bank – which he accuses of having ignored his warnings, and for not reducing their exposure to leveraged loans.

In the definition followed by the ECB, these are loans equivalent to more than six times the Ebitda of companies (a concept close to operating income), which is used in particular in takeover arrangements by private equity funds. Very lucrative for the banking institutions that establish them, they also involve a certain amount of risk. This is especially the case if the bank is forced to place the debt on the market at a discount, as in the case of Elon Musk’s acquisition of Twitter.

Leave a Comment

%d bloggers like this: