DJ Salomon Research Team Sees

DJ Salomon Research Team Sees $33B In Loan Defaults In '2001

By Tara Siegel Of DOW JONES

NEWSWIRES NEW YORK (Dow Jones)--Guessing which American corporation is next in line to declare bankruptcy and which banks have loaned them money has become a daily routine on Wall Street. And Salomon Smith Barney's bank equity research team has done its part of the figuring. After a couple of months of research, headed by bank analyst Ruchi Madan, Salomon culled a "watch list" of national credits that may default this year, and estimated how much individual banks may be at risk. Bankers were a bit more lax in their lending standards around 1996 to 1998 -the very loans that began causing problems in the face of a healthy economy last year, and which are expected to continue to be troublesome.

Loan defaults are expected to hit about $33 billion this year, with about $29 billion likely to occur in the first half, Madan found. She expects about $9.7 billion to show up in last year's fourth quarter, for a total of $23 billion in 2000. "We found that most regional banks have low risk to large national credits, and that for most large banks, the earnings risk is properly reflected in our (earnings) projections," Madan wrote in the report. Some of the largest loans on the "watch list" include Xerox Corp.'s (XRX) $7billion, J.C. Penney Co.'s (JCP) $6 billion and Finova Group Inc.'s (FNV) $4.7billion. The largest credits faced by asbestos-liability claims include Owens-Illinois Inc. (OI) with $4.5 billion in loans, Crown Cork & Seal Co.(CCK) with $2.5 billion, and Federal-Mogul Corp. (FMO) with $1.75 billion.

So in whose books are the potentially troublesome loans lurking? Bank of America Corp. (BAC) is estimated to have credit exposure of $4billion to Salomon's $51 billion watch list, $1.3 billion of which is asbestos-related. Factoring in likelihood of default, Madan estimates exposures of $2.8 billion; that translates into losses of an estimated $1.9 billion, assuming a loss of 25% on total exposures, she said. Bank of New York Co. (BK) is seen with $150 million in commercial credit costs. Bank One Corp. (ONE), with an exposure of $2.2 billion - or $1.4 billion factoring in probability of default - is forecast to incur $875 million in credit costs. Comerica Inc. (CMA) is seen having a $296 million credit exposure to the watch list, or $220 million on a weighted basis factoring in probability of default; Fleet Boston Financial Corp. (FBF) comes in at $977 million, with $545million on a weighted basis; First Union Corp. (FTU) is estimated with total exposures of about $1.1 billion, or $719 million on a weighted basis. J.P. Morgan Chase & Co. (JPM) has loan exposure of about $2.1 billion to the watch list, or $1.4 billion on a weighted basis. Key corp (KEY) is at $435million total, with a weighted exposure of $253 million. National City Corp. (NCC) has a total exposure of $147 million, or $123 million weighted; PNC Financial Services Group Inc. (PNC) has a total exposure of $300 million or $183 million on a weighted basis; State Street Corp. (STT) has a $98 million total exposure, or $61 million weighted. The combined entity from the proposed merger of U.S. Bancorp (USB) and Firstar Corp. (FSR) is estimated to have a weighted exposure of about $250 million, Salomon figures. Wachovia Corp. (WB) has a total exposure of about $382 million, or $243 million on a weighted basis. Wells Fargo & Co. (WFC) is projected to have $209 million in credit exposures to the watch list, or $178 million on a weighted basis.

Madan cautions that quantifying the potential size and risk of credit quality has "proven to be an art, not a science." However, she concluded that the end of "credit fear seems to be in sight, assuming a soft economic landing." The Credit Watch List Salomon's entire credit watch list includes: Ackerley Group Inc. (AK), AK Steel Holding Corp. (AKS), Ames Department Stores Inc. (AMES), Amsted Industries, private, Aurora Foods Inc. (AOR), Bethlehem Steel Corp. (BS), Bridge Info Systems, private, Bridgestone, Firestone, Burlington Industries Inc. (BUR), Chesapeake Corp. (CSK), CSK Auto Corp. (CAO), Crown Cork & Seal Co., Dade Behring, private, Diamond Brands, private, Finova Group Inc. Federal-Mogul Corp., Graham Packaging, private, J.L. French Automotive, private, J.C. Penney Co. Other companies on the list are: Kaiser Aluminum Corp. (KLU), Loews Cineplex Entertainment Corp. (LCP), Meridian Automotive Systems, private, National Steel, private, New Regency, private, Owens-Illinois Inc. (OI), PG&E Corp.(PCG), Pliant Corp. (Hunstman Packaging), private, Quality Distribution, private, Rhythms Net Connections Inc. (RTHM), Rite Aid Corp. (RAD), Sealed Air Corp. (SEE), Shopko Stores Inc. (SKO), Sierra Health Services Inc. (SIE),Edison International (EIX) unit Southern California Edison, Teligent Inc.(TGNT), Tenneco Inc. (Tenneco Automotive) (TEN), Thermadyne Holdings Corp.(TDHC), Totes Isotoner, private, USG Corp. (USG), U.S. Office Products Co.(OFIS), W.R. Grace & Co. (GRA), Xerox Corp.