Syndicated lending volume declined sharply for the first time in three years in the quarter that ended March 31 as the pace of corporate mergers and credit refinancings slowed.

Lending volume dropped to $143.9 billion, down 24% from a year earlier and 34% from the previous quarter, according to Loan Pricing Corp., New York.

Refinancing deals tumbled to $43 billion in the first quarter, from $77 billion in the fourth quarter of 1995. During the same period, general corporate deals fell to $72 billion, from $111 billion.

Bankers said the drop in demand could lead to a rise in bad loans if bankers are forced to take risks in order to meet budgetary goals that exceed even last year's record level.

Nonetheless, bankers said, more than enough banks are players, even with consolidation in the industry, to spread the risk around.

"It would take a lot of bad deals to torpedo this market" because of the lower exposures banks have to most credits, said Bram Smith, head of loan syndications at Morgan Stanley & Co.

"A slowdown in corporate mergers and acquisitions and investment grade refinancings sucked the life out of the first quarter," said Peter Schellbach, a senior market analyst at Loan Pricing Corp.

"We are in a climate which is, from a lender's perspective, suffering the double whammy of lower volumes coupled with tighter returns," added Bruce Ling, head of loan syndications at Credit Suisse. "This is clearly a function of supply and demand."

Mergers and acquisitions volume and refinancings, both of which drove last year's record $817 billion of loan syndications, were less robust.

"We've seen a lot of the refinancings in the high-yield area be put behind us," Mr. Ling said. "All we have to look to to increase the supply component is the mergers and acquisitions activity."

Fortunately for bankers, however, mergers, at a veritable standstill compared with last year, have already started to pick up.

Indeed, after $106 billion of mergers were proposed during the first quarter of 1996, more than $35 billion of deals were announced from April 1 to April 11, according to Securities Data Corp., an affiliate of the American Banker.

Chemical Banking Corp. returned to the lead position in Loan Pricing's ranking of syndicated lenders, after finishing second to Citicorp in the fourth quarter of last year.

Because Chemical's merger with Chase Manhattan Corp. did not occur until the end of the first quarter, volume for the two companies was compiled separately.

Chemical acted as agent on 65 deals for a total volume of $34.6 billion, a 17% market share.

Its nearly $35 billion of volume was 23% less for the New York bank than in the 1995 first quarter, when it led $46 billion of deals.

Chemical bankers, however, said this year's first quarter had not really been a slower period for them.

"For us, the first quarter was one of the most active quarters we've ever had," said James B. Lee Jr., now the head of global investment banking at Chase Manhattan Bank and formerly in the same post at Chemical.

The bank cited multibillion-dollar deals it led for Deere, General Motors Corp., and IBM for which it did not receive credit from Loan Pricing. The data firm said it has not changed the way it calculates deal volume and would not comment on particular transactions.

Citicorp was ranked second, with 41 deals and a volume of $20.5 billion, a 10% market share.

BankAmerica Corp. moved into third place, from fifth during the fourth quarter, by leading 57 deals totaling $19 billion, a 9% market share.

J.P. Morgan & Co. followed closely behind BankAmerica, with 25 deals and $18 billion of volume, also a 9% market share.

NationsBank Corp. rounded out the top five, with 53 deals, $10.8 billion, and a 5% market share.

Chemical led the largest deal of the quarter, an $8 billion loan for Lucent Technologies, the AT&T spinoff.

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