BofA Pays Price for Being Cautious on Leveraged Loans

(Bloomberg) -- Bank of America Corp. blames some of its investment bank’s earnings miss on avoidance of riskier loan deals as shadow banks get tougher. But since leveraged lending traffic cops stopped handing out tickets for infringing their own guidance months back, this seems like a self-imposed limit.

The Trump administration has long been telegraphing a loosening of rules on how banks arrange and syndicate leveraged finance debt. The U.S. Comptroller of the Currency Joseph Otting said in February that banks could do leveraged lending however they wanted, as long as it didn’t affect their soundness.

After getting that green light, many Wall Street underwriters got more aggressive in pursuit of profit. Regulated banks last quarter clawed back share of the LBO market from some of the non-banks who’d piled in when guidance was being still enforced.

Despite that, BofA Chief Financial Officer Paul Donofrio said today on a call that his bank is focused on less-leveraged deals and "responsible growth." Indeed, BofA wasn’t in Envision Healthcare’s recent debt financing, which was marketed at 6.9-times debt-to-Ebtida and therefore crossed the 6-times line that regulators had previously set as a recommended limit.

BofA spokesman John Yiannacopoulos declined to comment.

Continuing to heed a regulatory regime that is no longer being enforced while competitors don’t may be prudent long-term risk management. But it’s probably not going to help BofA boost profit, or win share of the high-fee U.S. leveraged finance business.

BofA posted a 29 percent decline in debt-underwriting revenue, almost twice the drop that had been estimated. The bank now ranks fifth for underwriting U.S. institutional loans. It’s typically a top three player but has fallen three places compared to the same time last year, Bloomberg league table data show.

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