Citigroup reported on Friday that it had written off $110 million in leveraged loans during the third quarter, as its Wall Street rivals minimized their exposure to the industry.
Following the publication of the company’s third quarter earnings, Mark Mason, who is chief financial officer at Citigroup, told reporters, “We took around $110 million in total between markdowns and losses on loans in the leverage space.”
Due to the difficulty of selling high-risk debt to investors and other lenders due to rising interest rates, U.S. banks wrote down $1 billion in leveraged and bridge loans in the second quarter.
The $8.55 billion in loans and bonds financing the leveraged takeover of business software giant Citrix Systems Inc. were sold in September, which served as a highlight of this.
According to Reuters, a group of banks led by Bank of America, Credit Suisse, and Goldman Sachs lost $700 million on the transaction.
Soon after, a group of banks led by Bank of America and Barclays abandoned plans to sell $3.9 billion in debt to finance Apollo Global Management’s acquisition of Lumen Technologies’ telecom and broadband operations because they were unable to secure sufficient investor interest.
In the wake of losses incurred on the Citrix and other transactions, banks have since backed away from leveraged financing as investors lost interest in riskier, floating-rate leveraged loans amid swift interest rate increases and recessionary fears.
For instance, JPMorgan, a significant participant in leveraged lending this year, mainly stayed out of the market.
On a conference call with analysts, Jamie Dimon, the CEO of JPMorgan, stated that “there are no real levels of loan write-down this quarter, and the market isn’t yet to clear.” “Our portion of it is minuscule. We therefore feel very at ease.”
In the third quarter, Morgan Stanley reduced its exposure to leverage.
The Wall Street juggernaut is spearheading a group of banks to lend $12.5 billion to finance Tesla CEO Elon Musk’s acquisition of Twitter Inc., the largest social media company.
The turbulence in the market for leveraged finance is also having an impact on mergers and acquisitions, which experienced a significant slowdown in the third quarter.
