[NYTr] Stop Borrowing, Bsanks Tell Brit Corporations

[All the News That Doesn't Fit]

Dow Jones Newswires via CNNMoney - Dec 3, 2007
http://money.cnn.com/news/newsfeeds/articles/djf500/200712021916DOWJONESDJONLINE000344_FORTUNE5.htm

Banks urge U.K. corporate clients to stop borrowing

Banks have asked top U.K. corporate clients not to draw on lending
facilities to which they are entitled in order to preserve their
balance sheets as they approach the financial year end.

The banks are urging some of their biggest clients not to draw on
standby credit facilities as the sub-prime crisis and squeeze on
interbank lending have affected banks' ability to fund themselves.

The problems started with the closure of the commercial paper market
as a means of cheap funding for companies in the summer. Banks have
to provide standby financing of up to 100 percent to backstop
commercial paper programs. With banks struggling for their sources
of financing through the interbank market, the drawdowns are having
a direct effect on their balance sheets.

Several bankers have said Citigroup is one of those most affected
and that the bank was asking some clients not to use standby
facilities, which are part of the normal relationship banking
arrangements made between banks and companies.

A Citigroup spokesman said: "Citigroup honors its commitments to
its clients but, as part of our normal business, we discuss with
clients the potential use of our balance sheet. This is standard
industry practice."

Simon Allocca, head of non-French corporate origination at BNP
Paribas, said: "By the end of the summer, the principal problem
facing banks was not U.S. sub-prime or collateralized debt obligation
exposure but the drawing down of standby loans and bilaterals. In
some cases banks are seeking to avoid further balance sheet capital
pressure by asking clients not to use their standby facilities."

Standby financing is typically for 364 days and when undrawn has a
zero risk weighting. When it is drawn, the risk weighting goes to
100 percent. This makes the sums involved significant. If a company
is unable to tap the markets for commercial paper to the tune of,
say, L4 billion (E5.6 billion), banks may have to provide that
amount in standby financing.