A rising tide of corporate defaults may signal trouble for U.S. banks, especially Bank of America Corp., according to a report by Standard & Poor's.
At the pace marked through the first six months, corporate defaults this year would be a record 110 companies with $41 billion in debt, S&P said. The current record was set in 1991, when 65 companies defaulted on $19.8 billion. Though the report examined only companies rated by S&P, the survey is considered to be a strong indication of the U.S. corporate credit picture.
Nicholas Riccio, an analyst with S&P, said that the defaults have been driven by "the market's increased appetite for risk, as well as the fallout from the Asian and Russian economic crises."
S&P said in a separate report that problem loans rose less sharply, to 0.91% in the first half, from 0.81% a year earlier. The rate was tempered by falling consumer and real estate defaults, according to S&P.
The study also pointed out that nonperforming loans at Bank of America outpaced other banks, rose to $3.1 billion in the first half, up 10.7% from yearend. But the Charlotte-based bank was not alone, S&P said.
"Corporate default rates in the U.S. have risen sharply, foreshadowing credit problems for banks," said analyst Tanya Azarchs. "They may be a symptom of the end of a boom in lending to very risky borrowers that gave such companies access to more credit that ever before." -- David Weidner