Stephen Schwarzman takes to the WaPo op-ed page tomorrrow, to argue that regulatory uncertainty is to blame for the contraction of bank lending to small and mid-sized businesses. This matters, he says, because a failure to reverse the trend would equate to a reversal of economic recovery. He writes:
“These uncertainties, taken together, have severely hampered the ability of banking executives to plan how to run their businesses or even know what their businesses may include. Predictably, bankers are reacting to this unprecedented uncertainty by becoming conservative and cautious. The result is that there is less lending and less credit available.”
Schwarzman positions this message as coming from bank bigs themselves,many of who probably shared a banana or two during the recent World Economic Forum in Davos. And I don’t doubt it, nor Schwarzman’s assertion that continued lending declines could freeze what he terms an “incipient revival of the global economy.”
But here’s what I don’t get: Why doesn’t that same uncertainty apply to large-market bank lending? Big buyout bosses — including Schwarzman colleague Tony James — have been saying for months that debt is available and that leverage ratios have returned to historical averages of between 4x and 5x EBITDA.
At around this time last year, I posed the following hypothetical to a buyout firm CFO: “Imagine you had a quality deal in hand — strong company, reasonably priced, management buy-in, etc. What are the chances of securing even 40% of the purchase price via bank financing?” His reply: “Less than 50/50.”
I put that same question to managing directors from CCMP Capital and Hellman & Friedman during a conference panel last week, and they both expressed confidence that the banks would play ball.
What this means, of course, is that uncertainty isn’t causing banks to shut off the taps. Instead, it’s being used as an excuse for why they’re only serving certain types of customers. I could be wrong, but my best guess is that a removal of regulatory uncertainty would not cause most banks to significantly increase their lending to small and mid-sized businesses.
Maybe it’s really about needle-moving. Maybe it’s really about risk management. But the uncertainty argument just doesn’t wash — at least not so long as Blackstone and its peers can find debt to transact multi-billion dollar deals.