The US Federal Reserve has asked Credit Suisse Group AG to immediately address problems relating to the bank’s underwriting and sale of leveraged loans, or high-interest-rate loans used by private-equity firms to finance deals, the Wall Street Journal reported, citing a source familiar with the matter.
Officials at the Federal Reserve and the Office of the Comptroller of the Currency are using private communications with banks to rein in relaxed underwriting and debt-laden deals and plan to take action on a firm-by-firm basis if required, WSJ reported.
In a letter to Credit Suisse, known as a Matters Requiring Immediate Attention, found problems with the bank’s adherence to guidance issued last year, warning banks to avoid deals that included too much debt or too few protections for the lenders in case of a default, the report said citing the person familiar with the matter.
The Fed’s letter to Credit Suisse comes as regulators, some of whom have been taken aback by the lack of response to their guidance, are preparing to take tougher action against firms that don’t follow Washington’s marching orders, according to people familiar with the matter.
It is unclear if other banks beyond Credit Suisse have received such a letter.
Officials at the Fed and the Office of the Comptroller of the Currency are using private communications with banks to rein in relaxed underwriting and debt-laden deals, according to people familiar with the matter. People familiar with regulators’ thinking said they plan to take action on a firm-by-firm basis when they see compliance problems. Among the options in the regulators’ arsenal: issuing warning letters like the one sent to Credit Suisse or lowering a bank’s supervisory rating, a move that could lead to limits on asset growth. If less formal actions fail, regulators have the power to issue cease-and-desist orders that carry the risk of fines, up to a maximum of $1 million a day.
Credit Suisse has underwritten or sold close to $9 billion of loans marketed to US investors for the purposes of leveraged buyouts in the year to date, giving it a market-dominating 13.4% share, according to data provider Dealogic.
Credit Suisse and the Federal Reserve could not immediately be reached outside regular business hours.
Reuters reported in January that US prosecutors had initiated an examination of Credit Suisse documents, including internal emails, to establish whether a bank committee charged with overseeing the quality of home loans ignored red flags to the detriment of mortgage investors.
