Lenders Brace for More Remedies, Workouts and Recoveries
And watch whether retail, real estate and healthcare and pharma get walloped the most, as predicted.
Washington, D.C.-based FTI Consulting, Inc.’s release of the 2023 U.S. Loan Market Survey, its fifth since gathering such findings over the last five years, presents a cautionary outlook. The survey reported by the global business advisory firm shared that 71% of respondents believe that a recession will take place in the U.S. in either 2023 or 2024, with 54% saying it is “material” and 17% saying it is “likely.” Only 11% believe that real U.S. GDP growth will exceed 2.0% this year.
As a result, lending will take a hit.
“What we have seen over the course of the last couple of years is a gloomier outlook for the U.S. economy,” says Dave Katz, a Senior Managing Director in the Senior Lender Advisory practice. The responses, he added, are consistent with credit tightening risks due to recent bank failures.
Respondents also think that loan performance, lender remedies, workouts and recoveries will be affected this year if the business climate weakens further. Specifically, the majority think that loan defaults and workout activity will represent a substantially higher number, or 34%, or slightly higher, or 48%, this year versus a year ago.
Retail Takes the Biggest Hit
Retail may experience the largest distress over the next 12 months for the second year in a row, followed by real estate and REITs, and then healthcare and pharma, which jumped the most from last year to make it into the top three sectors that are very vulnerable to defaults or workouts this year.
Four Other Key Findings
- For the first time in five years, macro-driven factors accounted for the largest share of actively managed loans.
- Respondents also expect inflation to continue with the largest number predicting a range between 3% and 6% and a smaller segment thinking it will rise to more than 6%.
- There’s also debate how much the Fed will raise rates with three-quarters thinking it will do so and a slightly smaller group thinking there will be fewer and smaller rate hikes.
- And almost half of respondents expecting more cryptocurrency-related bankruptcies to occur this year, post the “crypto winter.”