The U.S. Federal Reserve demanded Swiss lender Credit Suisse Group AG (CS) to immediately address problems with its underwriting and sale of leveraged loans, or high-interest-rate loans used by private-equity firms and others to finance purchases of companies, among other uses, the Wall Street Journal reported citing a person familiar with the matter.
The report indicated that the Swiss bank received a letter from the Federal Reserve in recent weeks. The letter to Credit Suisse, known as a Matters Requiring Immediate Attention, found problems with the bank's adherence to guidance issued last year, warning banks to avoid deals that included too much debt or too few protections for the lenders in case of a default.
Credit Suisse has underwritten or sold close to $9 billion of loans marketed to U.S. investors for the purposes of leveraged buyouts in the year to date, giving it a market-dominating 13.4% share, the report said citing data provider Dealogic.
According to the report, the Fed's letter to Credit Suisse comes as regulators, some of whom have been taken aback by the lack of response to their guidance, are preparing to take tougher action against firms that don't follow Washington's marching orders.
It is unclear if other banks beyond Credit Suisse have received such a letter.
Officials at the Fed and the Office of the Comptroller of the Currency are using private communications with banks to rein in relaxed underwriting and debt-laden deals.
Among the options in the regulators' arsenal: issuing warning letters like the one sent to Credit Suisse or lowering a bank's supervisory rating, a move that could lead to limits on asset growth. If less formal actions fail, regulators have the power to issue cease-and-desist orders that carry the risk of fines, up to a maximum of $1 million a day, the report said.
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