Commercial Banks Speed Up Sale of Their Troubled Loan Portfolios.(Brief Article)

Hoping to avoid protracted credit problems, some commercial banks are selling distressed debt faster than they have in the past, according to ratings agency Standard & Poor's.

"There's a new twist in the credit cycle, with banks proactively selling off their distressed loans and taking losses earlier," said Tanya Azarchs, managing director in financial services ratings at S&P.

Ms. Azarchs said that the banks she's examined have largely been selling off syndicated loans that did not involve real estate debt. To date, a significant volume of problem real estate loans has not surfaced, she said.

The distressed debt market requires a sort of equilibrium, she said. As long as buyers believe there is value in the loans and they can acquire the debt at a discount, banks will find a market for nonperforming assets.

But if nonperforming loans continue to grow and the market cannot see a bottom, things could change.

"If there is too much distressed debt around, it may scare off purchasers," she said.

Bank One sold $375 million of nonperforming loans in the first quarter of this year, limiting nonperformers to 1.55% of the balance sheet (down from 1.77% had the loans not been sold). That of course pushed up the level of charge-offs for the bank.