Alarm bells have been sounded by two lenders about the way loans were being handed out to fund the booming private equity sector, reports the Sydney Morning Herald.
Royal Bank of Scotland, in the throes of a record-breaking takeover of the Dutch bank ABN Amro, admitted there were signs the market was getting “quite toppish,” while Intermediate Capital warned it was turning away deals because they were too risky.
Riskier loans are being granted because banks are able to offload their exposure to rivals by forming large syndicates.
Debt is a crucial part of the way private equity deals are funded, but Sir Fred Goodwin, chief executive of RBS, says the bank should stay away from such deals and only grant loans where it was prepared to hold the ultimate risk.
He insisted he was not concerned about the bank’s exposure. “There are no clouds on the horizon,” he says. “I’m touching wood as I say that.”
John Manser, the chairman of Intermediate Capital, also voiced concern about the perils of such deals.
“We are finding ourselves turning down many more transactions because risk is not being recognised or properly priced, and there is often little or no margin for error,” he says.