Regulators Criticize Banks over Loans to Uber
by Amna El Tawil
It is a well-known fact that Uber is facing multi-million dollar debts despite the widespread of its business to multiple countries. Reuters just reported that regulators aren’t, actually, happy that several banks handed the substantial amount of money to this company.
The report claims: “Led by Morgan Stanley, the banks helped the ride-sharing network tap the leveraged loan market in July for the first time, persuading institutional investors to focus on its lofty valuation and established markets rather than its losses in countries such as China and India. The Federal Reserve and the Office of the Comptroller of the Currency (OCC), which are trying to reign in risky lending across Wall Street, took issue with the way in which the banks carved out Uber’s more mature operations from the rest of the business, the people said, declining to be named because talks with the regulators are private.
This so-called “ring-fencing” of certain markets makes companies appear a safer bet because it strips out the parts of their business that are loss-making.
Scrutiny of the Uber loan by regulators was not a surprise because it is rare for young, unprofitable technology firms to tap the leveraged loan market which is traditionally restricted to companies with long histories of generating cash.
Regulators have said that loans with more than six times leverage may receive a closer look. Goldman Sachs Group Inc, Barclays PLC, and Citigroup also helped arranged Uber’s loan. Representatives of the banks declined to comment. Uber was immediately not available to comment.”
When the news agency turned to the Federal Reserve and the OCC for comment, they declined to do so. Uber is a secretive company that doesn’t disclose information about its business as well as finances. While business is going well in the United States and Europe, regions such as China are more problematic, thus adding up to the company’s overall debt. Uber spends millions of dollars to attract riders and drivers and lost more than $800 million in the third quarter.
Although regulators’ warnings didn’t induce some fines to banks or Ubers, this will have some potentially severe consequences. For instance, banks may avoid riskier lending in the future to avoid the possibility of any punishment from regulators.
Shawn Thomas, a professor at the University of Pittsburgh’s business school, explained: “Increased scrutiny from the federal regulators could certainly prompt banks to reduce the supply of credit in the leveraged loan markets.”
While a popular transportation choice, Uber has been accused of tracking customers without their consent, and many other scandals including a driving hitting a family and killing one person, ordering fake rides, groping passengers, kidnapping women, assault and so on.