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A chink of light for the loans market


The European loans market is suffering dark times, with volumes at decades-long lows. But next year has the potential to bring some much needed light, if only banks can hold their nerve.

Loans bankers are an optimistic bunch, frequently sure that good times are just around the corner for their market, regardless of evidence and experience.

Many big banks fell short of their lending budgets by 20% or more in 2018 and this year is only going to get worse in absolute terms. European volumes have reached about $550bn-equivalent so far this year, down from roughly $850bn for the same period last year, according to Dealogic.

In some banks, syndicate desks have been cut down to size. A raft of senior emerging market loans bankers with an eastern Europe focus left their positions at the start of the summer at ING, in the most prominent example.

But a confluence of factors has the ability to turn 2020 into a stellar year in the European market and all those Pollyanna loans bankers into soothsayers.

The first reason is the conclusion of the Brexit saga. UK prime minister Boris Johnson is going to war with rebels in his own Tory party and the rest of parliament this week as he seeks to push through Brexit by October 31, regardless of whether there is a deal in place or not.

Wherever you stand on Brexit, it’s tough to deny the increasingly desperate calls for clarity from the UK’s business sector. Johnson’s crude looking approach seems destined to provide that clarity, even if it it brings some economic pain in the process.

This will open the floodgates for UK investment and capital expenditure again, either because UK assets become so cheap that acquisitive foreign companies won’t be able to help themselves, or because the UK economy will finally have some certainty of direction, meaning companies can commit to borrowing plans.

Second, there is a wave of loan refinancings to replace debt taken out three years ago due next year. There will also be a hefty number of companies wanting to lock in another five year revolving credit facility in 2020 if the conditions are good.

For the first time in a long time, things could be looking up for loans.