BY NOW THE LATIN AMERICAN DEBT situation is deeply ingrained in the consciousness of the U.S. business community. Bankers are painfully aware that U.S. banks have total claims in Latin America of close to $100 billion. They know that Latin leaders will not continue to pay current interest rates indefinitely. And they are only too cognizant of the fact that much of their outstanding debt may never be repaid.
There are many factors at play: Will Latin leaders undertake the reforms necessary to ensure future economic growth? Will the banks agree to reduce interest rates as they did with Mexico? Will the banks agree to measures like the Bradley plan in which they forgive some of the debt?But there is another factor to consider that does not receive much attention. That is the effect of changing interstate banking laws in the United States on Latin American lending practices. Laws preventing the formation of interstate banking have been unraveling for several years, and regional banking is now practiced in several parts of the country.
Laws against interstate banking still on the books are designed primarily to keep the big New York banks out. But California and Pennsylvania have passed laws allowing the New York banks in by 1990. In those states it's quite probable that many banks will fall prey to much larger competition unless some changes are made. Intrastate mergers also are a possibility. Witness First Interstate's efforts to acquire Bank of America.
That's where Latin American debt fits in.
Until now, write-downs of debt have not been popular with commercial banks. Bankers have worried about the effect on earnings, and ultimately on share prices. To a takeover artist, low share prices are like waving a red flag before a bull.
The effect, however, may be just the opposite. If a bank were to write down, or even write off such debt, some observers feel, such a move could have a positive effect on the price of a bank's stock, making the bank more difficult to acquire. By the same token, another bank continuing to operate under a heavy burden of Latin debt might well become less attractive to shareholders, and the bank's price per share could drop, making it more susceptible to takeover.
In any event, merger and takeover considerations may well loom large in however the banks attempt to resolved the Latin debt problem.