Banks Fret Over Exposure in Steel Industry --- Lenders Are Reassessing Big Producers as Credit Risks
Since J.P. Morgan founded U.S. Steel Corp. in 1901, the alliance of steelmakers and bankers has been an intimate one. But that once-stable relationship appears headed for the rocks as lenders increasingly fret over their exposure in the troubled industry.</br></br>Last month's bankruptcy-law filing by Wheeling-Pittsburgh Steel Corp. and Armco Inc.'s near-bankruptcy only exacerbated already-strained ties between capital and industry. They also illustrated the turbulence and heightened risk in steel lending.</br></br>Not long ago, the unraveling of the steel industry would have seemed unthinkable both to producers and bankers alike. But cheap foreign imports, high labor costs, obsolete hardware and the dwindling demand for steel have ravaged steelmakers, shattering their lenders' smokestack orientation.</br></br>Although loans to the industry pale next to the enormity of Latin debt, steel industry bankers find themselves in vulnerable positions. Most major U.S. lenders already are carrying large portfolios of shaky foreign loans, and their capital-to-assets ratios scarcely meet federal regulatory guidelines.</br></br>Money-center banks are reassessing major steelmakers as credit risks, while some lenders have turned to stronger producers such as Allegheny Ludlum Steel Corp., a specialty-steel maker, and Pohang Iron & Steel Co. of Korea, a government-controlled producer. Most banks are seeking to use debt-restructuring talks such as those with Wheeling-Pittsburgh and Armco to strengthen the security for existing loans.