SocGen, UBS See Clients Draw Down Credit Lines on Virus Impact

(Bloomberg) -- UBS Group AG and Societe Generale SA said they’re seeing clients drawing down credit lines as they seek to prepare themselves against the impact of the spreading coronavirus outbreak.

SocGen Chief Executive Officer Frederic Oudea said that large companies are beginning to access the funding even if they don’t need the cash now, according to comments made during a presentation at a conference organized by Morgan Stanley. UBS Chief Financial Officer Kirt Gardner said at the same event that the bank is also witnessing increased draw-downs of credit.

“They are trying to secure their liquidity and sometimes with no real need but as a way to gain even more confidence,” Oudea said, “But it is in a relatively irrational way.”

Companies the world over are bracing for a slump from the impact of coronavirus, which has grounded thousands of flights, emptied bars and restaurants and brought public life to a near-standstill. French companies aren’t the only ones adding to their cash reserves. German borrowers -- especially those in hard-hit industries such as tourism and travel -- are also drawing down credit lines, according to bankers familiar with matter, who requested anonymity.

Private equity firms Blackstone Group Inc. and Carlyle Group Inc. are also sending a message to portfolio companies that they should do whatever it takes to stave off a liquidity crunch. Worldwide, businesses have obtained more than $40 billion from lenders through existing revolving facilities or new loans since last week as the worsening pandemic upends the global economy.

Read more about companies tapping loans here.

Governments in Europe have already pledged more than 1 trillion euros ($1.1 trillion) in guarantees or loans to make sure businesses that face disruptions can keep operating and banks will keep lending. Regulators have eased capital demands and signaled flexibility on when lenders have to set money aside for bad loans, in another effort to keep credit flowing.

The conference is being held online only and there are no physical attendees at the event which usually takes place in London because of the coronavirus

Deutsche Bank Chief Transformation Officer Fabrizio Campelli also said at the conference that there have been draw downs across banks, but they’re well below stressed levels.

Banks themselves are starting to show the stresses of the virus and the downturn in markets and the economic outlook. Barclays Plc finance director Tushar Morzaria warned that the bank might struggle to reach its profitability target for the year while two of Singapore’s major banks delivered fresh warnings on the potential effect of the virus outbreak on their earnings. Spain’s Banco Santander SA said Tuesday it expects the coronavirus crisis to reduce full-year earnings by about 5% if the economy bounces back once the disease’s spread has been contained.

Oudea said SocGen is in a much stronger capital position than it was during the financial crisis, with a CET1 ratio -- a measure of financial strength -- of 12.7%. The minimum requirement for that metric, meanwhile, has dropped by a more than a percentage point after the European Central Bank last week announced measures to give banks more flexibility.

Gardner said that UBS built up $5 billion of CET1 capital over the past year and is in a position to withstand a “severe stressed scenario.”

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