Tags: Bill Gross | bank | loan | bubble

Pimco's Bill Gross: Bank Loan Market Has Entered Bubble Territory

By    |   Wednesday, 02 July 2014 04:10 PM

Many financial commentators are concerned about banks loosening their standards on loans, and Bill Gross, chief investment officer at Pimco, is one of them.

"There are bubbly aspects in the terms and conditions of bank loans," he told CNBC.

Financial institutions are issuing covenant-lite loans at a record pace. Covenants are financial restrictions placed on companies that borrow to give lenders assurance that they will receive their money back. Covenant-lite loans carry fewer of these restrictions.

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


U.S. cov-lite loan issuance totaled $83.6 billion for 2014 through mid-June, up 41 percent from $59.4 billion in the same period of 2013, according to Dealogic, CNBC reports.

"There can be easy types of covenants and restrictions," Gross said. "Certainly the Fed sees, and we see as well, that over the past 12 to 18 months those standards have eased and perhaps are a little bit bubbly."

He maintains that the prices of most risk assets stand at a "normal level if the new neutral [level for federal funds] stays low at 2 percent, which is where we expect."

The Office of the Comptroller of the Currency, which regulates banks, also is concerned about the easing of banks' lending policies.

"Competition for limited lending opportunities is intensifying, resulting in loosening underwriting standards, particularly in indirect auto and leveraged lending," according to the OCC's semiannual risk report. "Easing in underwriting and increased risk layering is also occurring in commercial loans."

Editor’s Note:
Retire 10 Years Earlier With These 4 Stocks


© 2021 Newsmax Finance. All rights reserved.


   
1Like our page
2Share
StreetTalk
Many financial commentators are concerned about banks loosening their standards on loans, and Bill Gross, chief investment officer at Pimco, is one of them.
Bill Gross, bank, loan, bubble
257
2014-10-02
Wednesday, 02 July 2014 04:10 PM
Newsmax Media, Inc.
 
Newsmax TV Live

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved