Syndicated lending in Europe may be blossoming at a perfect time for banks, because two reports suggest the domestic market is stagnating.

A report by Standard & Poor's suggests that defaults - 104 companies with $38.4 billion in debt in 1999, the highest since 1991 - show no signs of declining. Because the loan market is private, the number of corporate bond defaults is usually the best gauge of corporate loan risk.

Nicholas Riccio, an analyst with S&P, attributed the increase in defaults to investors' hunger for fatter returns. Investors have shown a greater willingness to invest in start-ups and entrepreneurial companies, Mr. Riccio said. "In the 1990s a substantial number of new issuers were smaller firms, many with relatively short track records and sometimes engaged in risky businesses."

The combination of investor greed and business risk has translated into a higher default rate even as the economy continues to expand, S&P said.

A second report, based on a new survey of large-cap companies by the Association of Financial Professionals (formerly the Treasury Management Association), found that bank financing will drop to 37% of total corporate debt, from the current 43%, in the next 24 months.

That would continue a trend that started last year. Loans constituted 51% of corporate debt at the end of 1998.

The survey, conducted from Dec. 9 to Dec. 16, polled 200 executives of companies with $250 million or more of revenue. Respondents said bank consolidation and the growing attractiveness of commercial paper and bonds will slow growth for lenders.

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