Ratings agency Standard & Poor's (S&P) has warned that loan default rates are on the march in the United States and are headed back to the peak recorded in 1991.
Its warning follows a series of alarm bells rung this month by bank analysts. They said bad loans in the US would eat into bank earnings - including the profits of HSBC, which generates 12 per cent of group profit from US operations.
S&P yesterday said loan defaults, which had already been climbing before the September 11 terror strikes, 'will now be very close to the 1991 all-time peak'.
The US economy was clearly in recession and although this was expected to be relatively mild and end early next year, there was a high risk of a longer and deeper downturn.
In its last quarterly review of default forecasts, S&P projected default rates of 3.6 per cent for the year for all issuers, and 8.6 per cent for 'speculative graders'. The third-quarter review just completed has prompted an increase in these forecasts to 3.8 per cent and 9.4 per cent respectively.
'In dollar terms this represents approximately US$100 billion, more than double the US$42.3 billion [in defaults] in 2000,' S&P said.
The survey revealed 50 US companies defaulted on their loans in the third quarter, representing US$20.4 billion of debt. Prominent, with 20 per cent of the defaults, were telecommunications companies.
