Tags: corporate | borrowing | growth | economic

Banks: Corporate Borrowing Isn't Being Used for Organic Growth

By    |   Wednesday, 09 July 2014 02:42 PM

While bank lending to businesses has reached a record high, companies aren't using the loans to grow their internal operations.

Rather they're using them to return money to shareholders through share buybacks and dividend increases and to pay for acquisitions, bankers tell the Financial Times. So they say the lending increase doesn't indicate an acceleration in economic growth.

Commercial and industrial loans outstanding climbed to a record $1.7 trillion in May, up from a post-financial crisis low of $1.2 trillion in 2010, according to the Federal Reserve Bank of St. Louis.

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"Loan growth doesn't seem to be driven by the underpinning of an economic recovery in terms of new warehouses and [capital expenditure]," a senior executive at a large U.S. bank tells the Times. "You don't see the foundation, the real strong demand."

It's not just corporate loans that are at an all-time high. So is corporate bond issuance.

So far this year through June 18, investment-grade companies, including financial institutions, issued $624.2 billion of bonds, an all-time peak for the period and up from $570.4 billion in the year-earlier period, according to Dealogic, Institutional Investor.com reports.

Much of that capital too is being used for share buybacks and acquisitions. The heavy issuance of debt for those purposes could put upward pressure on bond yields, Alan Shepard, a portfolio manager at Madison Investment Advisors in Madison, Wis., tells Institutional Investor.com.

Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000

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Economy
While bank lending to businesses has reached a record high, companies aren't using the loans to grow their internal operations.
corporate, borrowing, growth, economic
251
2014-42-09
Wednesday, 09 July 2014 02:42 PM
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