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Hedge-fund buys hint at an end to the credit crisis
12.05.08
Hedge funds and other institutional investors have begun buying leveraged loans and asset-backed securities that have been sitting on banks' balance sheets since the start of the subprime crisis last summer.
This is widely seen as another indicator that the credit crunch may be coming to an end. It comes as HSBC and Barclays were expected to reveal further losses and writedowns from toxic loans, but on a scale that would also suggest the worst may be over. Analysts expect HSBC to reveal writedowns of between £1.8 billion and £2 billion today, with Barclays revealing some £750 million of toxic loan losses later this week.
If the appetite for banks' debt and asset-backed securities proves sustained, it will not only help repair their balance sheets but could also kick-start the private-equity market and mergers and acquisition activity.
Among investors reported to have started buying such loans are $12 billion (£6.1 billion) UK fund manager Centaurus Capital and US private-equity firm Cerberus Capital.
A spokesman for Centaurus said: "The banks need to unload their inventory or they cannot do deals. The market has started to move and we have bought quite a few of the loans. But we have cherry-picked. The environment is still very risky."
Prices on leveraged loans have increased by as much as 10% in recent days, taking them back to around 90%-plus of face value.
