NEW YORK – Top banks from New York to Frankfurt to Tokyo are owed about $4.5 billion by telecommunications company WorldCom Inc. (WCOM), which disclosed one of the biggest accounting scandals ever.
The banks have parceled the loans out among themselves, limiting possible losses. Industry sources also believe banks have cut off further credit. Still, bad loans are a grave concern after a string of large U.S. corporate bankruptcies and bank losses in economically troubled Argentina.
"The only issue is that you have all the accounting concerns with all borrowers that you have to address," said Andy Collins, an analyst at U.S. Bancorp Piper Jaffray. "I mean, how many Fortune 500 names used Andersen as an auditor?"
WorldCom, a U.S. long distance carrier, said Tuesday that $3.8 billion of expenses had been booked improperly, inflating its cash flow and profits.
J.P. Morgan Chase & Co. Inc. (JPM), Citigroup Inc. (C) and Bank of America Corp. (BAC) were leading banks on a $2.65 billion line of credit drawn down by WorldCom last month, the loan-tracking service Loan Pricing Corp. said Wednesday.
New York-based Loan Pricing collects, analyzes and publishes loan data in databases and publications.
The loan was then syndicated to about 25 of the world's biggest banks, including Germany's Deutsche Bank AG, ABN AMRO Holding NV of the Netherlands and Japan's Bank of Tokyo-Mitsubishi, curbing the loss any one bank would take on, Loan Pricing said.
WorldCom also owes about $1.5 billion under an accounts receivables securitization program, which enabled it to use customer bills as collateral to borrow money, Loan Pricing said. J.P. Morgan and Citigroup were the lead banks on this loan, Loan Pricing said. And WorldCom unit, Intermedia Communications, owes another $350 million in a loan deal arranged by Bank of America with Canada's Toronto-Dominion Bank and Bank of New York Co. , Loan Pricing said.
But analysts downplayed the risk to banks. J.P. Morgan, the No. 2 U.S. banking company, said its exposure to WorldCom is very small and it would have no material effect on earnings.
The bank declined to disclose the size of its loan, but Collins estimated WorldCom losses could dent J.P. Morgan's earnings by 4 cents a share, or $80 million based on the bank's outstanding shares. This amounts to about 8 percent of the $982 million, after charges, the bank earned in the first quarter.
Citigroup declined to comment on its exposure, while Bank of America said it was against its corporate policy to comment on customer relationships.
Some of the banks originally participating in the loan may have sold their WorldCom debt because of the rocky outlook for the telecommunications sector.
Of WorldCom's $2.65 billion credit line, Collins estimated Bank of America Corp. and J.P. Morgan could have the largest share of exposure, at an estimated 10 percent, with Citigroup Inc. at 7 percent and FleetBoston Financial Corp., Bank One Corp. and Wells Fargo & Co. Inc. with 3 percent exposure.
WorldCom also has a $1.6 billion credit facility, available through June 8, 2006, and a $3.75 billion facility available until Sunday, Loan Pricing said. The company does not appear to have borrowed from these lines, it said. Industry sources believe those credit lines are no longer available to WorldCom because of the accounting disclosures.
Before the announcement, WorldCom was trying to renegotiate a $5 billion secured credit facility from its bankers, Loan Pricing said.
British bank Barclays Plc also has a $100 million exposure to Worldcom, a banking source said. But the loan is part of a credit line that WorldCom has not drawn down yet, the source said.