Syndicated loans: The big squeeze

For years, bankers have been waiting for the bargain basement pricing in the syndicated loan market to bottom. Now, thanks to the Asian financial crisis and, particularly, the troubles facing Japan's banks, it may finally have happened. The funding premium Japanese banks are paying in the market has widened spreads - and in some cases is forcing deals to be pulled altogether.

"Pricing is undoubtedly going up," says Fergus Elder, vice president in loan capital markets for JP Morgan London. Until recently, Japanese banks comprised up to 30% of many loan syndicates. But they are slowly retreating from the market. Already the phenomenon is having an impact on volume, which has dried up in the past three months.

Bankers say that, if volume returns, the better pricing will benefit stronger banks. But the fear is that the syndicated loan market will overreact and collapse altogether. "The Japanese are in the vanguard...