Hedge Fund Reader : Loans recklessly disbursed by large banks to hedge funds

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October 17, 2005

Loans recklessly disbursed by large banks to hedge funds

There seems to be a bubble build-up in the lending made by banks to hedge funds. As per some conservative estimates, a small group of big banks including JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse have over $500bn at risk in hedge funds where the amount has been recklessly invested. It is believed that this has been borrowed by funds keen to "leverage" their investments, raising concerns over the level of lending, from the US Securities and Exchange Commission (SEC) and the Financial Services Authority (FSA) in London. Such lending’s by banks have garnered interest since, there are hedge funds going bust every month, Bayou to Wood River. Even Refco, a futures trader may soon file for bankruptcy, for funneling of funds by its CEO into his holding banks. The situation seems dreary for the hedge funds and banks, which may have to face tighter norms and regulations in the future. Independent Online Reports:

It has calculated that a small group of big banks have over $500bn at risk in hedge funds. These are believed to include JP Morgan Chase, Deutsche Bank, UBS and Credit Suisse. These companies refute suggestions that the exposure could be a problem. "All of our lending is secured," said a spokeswoman for a leading European bank.

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October 17, 2005 in Gossip & Scandal, Regulation, Strategy | Permalink