THE turmoil in global credit markets could cost banks an estimated $8 billion (£4 billion) as they have been left unable to sell on hefty loans used to back the recent wave of highly leveraged buyouts.

Bankers reckon that in America, there is an estimated $200 billion of debt that banks have already agreed to lend but have not yet syndicated – passed on to other investors. In Europe, the figure is about €60 billion (£40 billion).

One banker said: “The collapse of debt markets has slashed the value of the debt. And we can’t find buyers for it at the moment, which means it could get worse.”

Those worst affected are the big global lending banks, including Citi, JP Morgan, Deutsche Bank, Morgan Stanley and Goldman Sachs. But in all major lending banks, insiders said the leveraged buyout market was in effect “closed” and would remain shut for up to three months.

A senior investment banker said: “There is a saturation of debts in the system. Investors, who seemed insatiable, have now taken fright and banks are left holding the baby on deals on which they’ve taken too much risk. Most banks have shut their leveraged finance to new business. The recapitalisation market – which accounts for 40% – is gone. Nobody will underwrite the deal. Also, the secondary buyout market is pretty much gone. It’s not permanent but it’s serious for now.”

Credit investors are nursing heavy losses after the plunge in loan markets. In London the Lev-Ex, the

loan market index, opened on Friday at 94, down from highs of 100.5 in recent weeks.

Another banker said: “The drop was shocking. A fall of one point would be bad enough but this was the lowest since the index was launched. In real terms it means that for every $1 billion of loans in a portfolio, there has been a $60m hit.”

His colleague said: “On Thursday we thought it was bad but by Friday there was blood on the streets. We’re now in the territory of forced selling. These are substantial losses.”

They reported that some big collateralised loan obligation (CLO) funds and other loan portfolios were being forced to unwind due to unsustainable losses, and there were rumours that turmoil had been caused by the collapse of two large credit hedge funds in London. The so-called CLO warehouses, in which investment banks incubate and fund CLO funds, also shut down.

Insiders said the auction for NCP Services, the car-park firm owned by 3i, was in doubt. First-round bids, expected in the region of £250m to £300m, are due tomorrow but bid plans by private-equity and trade buyers have been upset by financing concerns.

Of interested parties planning to bid, which included private-equity groups European Capital and General Atlantic, and Mitie, the support services company, only the buyout arm of HBOS is said to be still firmly on track.

Last week Charterhouse, the private-equity group, had to scrap plans to take out a dividend thought to be worth £100m from PHS, the cleaning-services group, because of difficulties securing the refinancing.

Tomorrow the cross-party Treasury select committee will urge the Bank of England to examine the impact of an economic downturn on highly leveraged firms and the economy.

It is expected the committee, which has raised concerns over the activities of highly leveraged buyout firms, will call on the Treasury and Revenue & Customs to examine whether the tax system unduly favours the use of debt over equity, creating distortions in the economy.

Meanwhile, both the Bank of England and European Central Bank will make decisions on interest rates this week, but the market turbulence has snuffed out any prospect of an increase in rates from either.

The “shadow” monetary policy committee voted 5-4 to leave Bank rate on hold even before stock markets slumped. They said that the five rate rises since last August were starting to bite, causing worries of “overkill”.

Times Recommends

• C&G axed - 1,660 jobs to be lost
• UK house prices rise 1.1% as buyers return
• Mixed reaction to US banks repaying bailouts