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Market Reaction to Increased Loan Loss Reserves at

Money-Center Banks
JFFF MADURA
.*Vv.\(;(( I'rok'SSiir of Finani't; Florida Alluiuic

Univrr^i

Wm- K- McLMNlOProfi'-isiir. Floridu Atlamtc L'tmcrsin

Ab>, tract
On M;iy l'>. IW7- fititcirp iir!n(iLn(;eJ (afttr mEirkcis clowd) (lul ii would add B hjllioii io its iiiiin loss reserve
in recognition of the rxiorquaiilv otduis:aiiding kiaiis toTlnrd World cntric<:- Eleven other mt mi-y-center hanks
toliiwcd this polit-'y (iVLT the ne>:l five nuinths. Tht reptirted reactitiiis ol politicians, eomomists. iind market
aijatysis tu iht increast'd loii[i loss ri'seri-es varieit trom despiiir to praise. Nevertheless, the important issue is ihe
investor's rL-;ii;tio!i its evidcnt-ed |iy cliaiijies in the market priCL's of the h.mks' slock. Tins ariidc uses an event
sEiidy ii]ethodoioi;y to stie'd St-irae iighi on the issue.

The first section of this article discusses possible reactions to Citicorp's announcements of
increased loan loss reserves. The second section describes ihc formulation and results of the
event sttitly methodology as applied to stock prices of money-center banks thai adjusted
their loan loss reserves. The third section draws implications based on the empirical analysis,
including some plausible signalling and agency inlerpretations.

1. Pas,sible reactions to the announcement

A number of analysts, quoted in the poptjlar financial press,' believed that A negative market
reaction to the increased loan loss reserve should occur. Investors may have not krtown the
extent of the problems with foreign loans. Under this line of reasoning, the announcement
would convey a strong negative message to the market, causing negative residuals for the
announcing banks.
An alternate reason for expecting a negative reaction is that the announcements would
indicate that banks had conceded that payments would not be made. This might reduce the
debtor nations" incentive to pursue policies that could enhance the ability to repay principal
and interest in the future.

Our Ihanks to Richard Fosherg and two anonymous reviewers tor htlptul commenis and sugpeslions. Any errors
are out respiinsihi!ity.

3f>()

JEEf- MADURA AND Wni R. MtDANiEL

A third rt;ason for ^ negative signal is that sdnie of the announcing banks would
purportedly be uii;ible to finance proposed projects. The analysts who presented this position
believed that using funds for increased rcser\'es was causing the money-center banks to lose
opportunilies to invest in "new strytt;gies to compete with foreign batiks, fast-growing
regional banks, investment-banking firms and other financiai-service companies."-^ This
argutrient holds only if the market foresees that the money-center banks' future investments
would return more than their cost of capital. The banks* investment history in the foreign
loan portfolios might give the markets reason for pessimism about the banks' investment
ptans.
Some aQidysts expected a positive reaction to the announcements. They felt investors
might interpret the move lo be an aggressive signal, showing that fhe banks were willing
to accept large losses in lieu of negotiating lower interest rates, extensions on principal
payments, or other concessions. After the announcements, the banks may be able to
negotiate equity positions in some of the debtor nation companies as part of the payments,
A similar approach is used by Musttmeci and Sin key (1988) in their "mad as hell"
hypothesis. The> posit that Citicorp was giving a strotig signal that it wouid cease to give
in to regulatory pressure to continue to grant credit to Third World nationsloans that
Citicorp and it,s investors believed to be negaiive NPV, Later, we compare our findings to
those of Musumeci and Sinkey.
A second reason for a possible favorable reaction is ba,sed on cash flow. The market may
have previously recognized the poor quality of the Third World loans, with this recogtiition
being discounted into the existing price of the shares. The reduced valuation of the share
prices may have occurred at the time of the debt issuance or sometime during the term of
the loans. It the value reduction was at the time of the issuance, the market was, recognizing
that the banks wt;re lending to Third World nations at rates that were too h)W in view of
the anticipated risk, if the revaluation occurred at some time during the term, the market
found thai circumstances in the world economy were changing, creating a reappraisal of the
potential for timely servicing of these debt instruments. Regardless of the time of the
revaluation, the loan loss reserve annotincements would have provided no sigtiificaiit new
information about the t)uality of the existing loans. The announcements do, however,
convey to the market that the batiks are likely to start writing off the loans sooner than
formerly contemplated by investors,' When the write-offs occur, tht banks will discontinue
paying taxes on accounting profits that are unlikely to be ever realised as economic benefits.
Perhaps, just as impiirtant, the announcements couid indicate that the banks wiil start to
recover excess tax previously paid because of the overstatetnent of profit for tax purposes.
These two facets of anticipated tax reduction cause investors to reassess their projection of
the banks' operational cash flows, The tax benefits of the economic ios,ses are suspected
to be realized earlier due to the probable earlier write-offs signalled through the increased
loan loss reserves. Consequently, the present vaiue of the operational cash flow stream
increases, increasing share price valuation.
Another less significant effect is the re.sult of bank employee bonuses based on earnings.
When the value of the loans is overstated, accounting profit is accruing that is not being
earned in an economic sense. The payment of bonuses "from these profits" is a transfer ot
shareholder wealth to bank employees (both managers and non managers). The announce-

MARKET REACrrON TO INCRRASKD LOAN LOSS

361

ments signal that this transfer is ceasing, and that previous improper transfers will be
recovered as accounting eartiings understate economic earnings in periods after tht
announcements. Shareholders stop taking this opportunity loss in the cases where the bank
offered a profit-based honus to employees.
Finally, the announcements may have elicited no measurable abnormal price changes in
the banks' shares. Thi.s result could be because announcements reveaied no new information
to the market, i.e.. the investment cotnmunity had discerned that the loans were of low
quality and that increased loan loss reserves were imminent. Another reason for the possible
lack of reaction is that the announcements of the money-center banks (excluding Citicorp)
were fully anticipated, Musumeci and Sinkey "s (1988) study detected a market reaction oti
their bank stock sample in response to Citicorp's announcement, which they interpret to
reflect an anticipation of forthcoming announcements by these banks. Thus, even if an
adjustment in loan loss reserve were viewed as relevant by the market, its reaction could
be complete prior to each individual bank's announcement. A lack of market reaction could
also occur because some or al! of the positive and negative effects described above offset.
Our empirical findings support the notion that the market viewed the announcements of
increasing the loan loss reserves positively. The findings are consistent with the argument
that the announcements signalled an aggressive stance by the banks, or that the
announcements provided new information about enhanced expectations ol operational cash
flow streams.

2. Empirical testing
Dala on money-center bank stock prices and the Standard and Poor (S&P) 5(K) were
compiled trom the Daily Stock Price Omic. Only those money-center banks that announced
an increase in their kian loss reserves during the period from May 1987 thmugli August 1987
are included in the analysis. Table 1 identifies these hanks, along with their respective
announcemeni dates, increases in loan loss resen e, and capital ratios. Because this list
encompasses the majority of money-center banks, the implications of the analysis should
be representative for money-center banks in aggregate.
AM the banks included in the sample had assets of more than $30 billion at the time of
the attnouncements. More important, they alt had significant exposure to the debt of less
developed countries (LDC), To assess our hypothesis regarding a potential favorable market
reaction if the market had already discounted share prices for the LDC exptisurc, we
restricted our sample to include only money-tenIcr banks, whose exposure to LDC debt was
much greater than other small banks. A recent article by Puglisi (1987) confirms the distinct
difference in expected market reactions on share prices of money-center banks versus other
banks. He states that "'in coatnist tu the money-center banks, reported earnings beyond 1987
for most regional banks that have taken special LDC loan loss reser\es wilt be little affected
by tax benefits. Jn general, by virtue of substantially lower relative exposures, the special
loan loss provisions necessary to establish comparable oi larger reserve coverage of LDC
debt are much smaller than the ones taken by money-center banks." The inclusion of smaller
banks in the sample would possibly distort inferences to be drawn, since announcements

362

iEFF MADURA AND Wm. R. McDANIEL

Table I. information atiout money-center hanks announcing incrcasiid kran iuss rtsc;rvcs

Money-center hank.';

.Announcement
date (iyK7)

Atnount of
triLTease tn loati
loss provisions

Ratio of
capital to
as.sets(%)

Citicorp
Security PacitK"
Bank of Boston Corp
Ban kAm erica
Firet Ititiirstate Bank
Chemical Bank
f-irsi Chicago
Metion Bank

Mav ty
June t
June 3
Junt H
June t i
June 11
June 12
June l->

S3.0 biSlion
S(J.5 billion
SO 3 billion
Sl.l biiiioti
SO.75 billion
Sl.l biition
SO.K bitiion
S().4t? billion

.\')
4.2
4.5
:?,2
4.4
4.5
4.'
s.O

1.82?
(1.W6

June If)
June 16
June 27
July S

SI.7 billion
SO 7 billion
SI 6 billion
S0.R75 billion

4il
4.7
4.4
(1.2

l.(M5
1.1f i7
-()2tW
0.2 H!

Mantjfacturers
Harovtr
Banker*; Trust
Cha.se Manhattan
J P Morgan

ARnouncemenf*
efftcl (%)

t\.(t<r>H

0.144
1.767
1.14K
1..562

'The announcement effect is defined here as the average daily abnormal ritum tor eaeh money-center bank over
lt)t five-day period from the announcetiierl ditte to four days after the anntiLincement date. The melhoilDlogy used
(o estimate annt)utn;ement eftects is discussed shortly

by smaller banks without significant exposure to LDC debt eould eonvey unexpected
unfavorable information to the market and offset any favorable consecjuences (from tax
benefits or otherv.'ise).
To estimate the abnormal market response to the loan loss reserve announcements, the
market model application is:
R,, = H, -t- f>iR,n, + F,,
where;

R,, - rate of return on bank ( on day (,

R^, = rate of return on the market on day ;.
a, = intercept,
1^, = slope of the linear relationship between bank f s return and
the market return.
f__ = unsystematic component of bank f s return on day (,

The expected return for bank ( on day / is estimated as follows:

where a and p are ordinary I east-squares estimators of the intercept and slope coefficient.
The estimatitm period used to derive a and (^ ranges from day t ,, to /_[,. The examination
period extends from f.,,,to Z.,,,, while A, is the announcement day. The abnormal return {AR)

MARKET REACTION TO INCREASED LOAN LOSS

363

for each bank, ;, on each day during the examination period is estimated as:
AR,, = R, - R,,

= R, - (a, + m,)Abnormal returns are estimated for a!l banks in the sample over each day within the
examination period. The average abnormal return on any given day is:

AAR, = (Vn}2AR,,
f.i

for all banks in the sample. This method of measuring and testing abnormal returns is similar
to that of Asquith and Mullins (1986).
TTie average abnormal returns for each day within the examination period are summed
to derive the cumulative average abnormal return (CAAR,). A r-test is applied to AAR, and
CAAR, to test for significance. The standard error and co variance of the A4/?, series is used
to estimate the standard error of CAAR for the time interval from r, to /*:
SEiCAAR,,,.) = [Q V'dtiAAR) + 2{Q-l)Co\{AAR^ AAR,,,^)Y
where:

Q -1* - / , + 1 (representing the number of trading days

in the interval).

Var(AAR) = x(AA/f, - AARy/90,

I-IOII

l-l!

Co\{AAR,, AAR,,,) = (1/90) '^ [(.AAR, - AAR)(AAH,,, - AAR)\.

I-.100

This formula captures any first-order serial dependence among the AAR, and, therefore.,
adjusts the estimated standard error of the .AAR. series for autocorrelation that could result
from the clustering of events in calendar time.
The f-statistic estimate for the C.AAR over the interval from (i to /* is:

i. Results and implications

The estimated AAR^ over the examination period appear in table 2. The A.AR for days -'>
and -5 are statistically .significant, perhaps implying that the market anticipated the banks'
intentions before the actual announcement and believed the new information to be
favorable. In addition, the CAAR accumulates to .03139 over the ten days before Ihe
event.offcring further evidence of anticipated favorable information before the announcement. Although the AAR?, on days -10, -6, -2, and -1 are negative, they are not significantly different from zero.
The mean residual for the event day and the foilowing three days strongly suggest a
favorabie market reaction to the announcements. The average AAR exceeded 1.0 percent

364

JEFF MADURA AND Wm. R. Mt DANIEL

Tahit' 2. t^mpincaf

fesults: t'ffi'it tif iifinitum:t'd incn'UMf in Itxiti loss

l\\\

Ufi

(-statist tc
for A.AR

(l,(hKlS4

0.1.SK

O.OIOSh

2.(I45'
t..l28

CAAR

-10
O.i)O75,i
-fi

-A

O.Ot.Wf
O.(I24K1

-t.2'.MI
I.M 2
2.653-

O.0M41
O.(jfi550

O.OltW

i.:7:!

O.()77MS
O.O7.i72
0.OS24H

-o.iw,

i)_(IK!44

-('tl!i7

O.(I75M4

Mi3(0

0.(17423

-(1.407

til

intcrva!

C,\,\H

flit
CAAR

- j O 1,, - ;

0 to *4
f j( '.ht

on me even! d^y alone, and then again on day i- and day i-,. None of the estimated AARs
after (Jay /: was significantly different irom zero. While the CAAR over the time inter\'al
from (. .^^ to / i is positive, it is not significant. The CAAR t)ver the inter\al t^^ lo l^ is positive
and significant. Market reaction appears to subside after that period.
li' the market reaction was significant only for the Citicoq) announcement, an ttnalysis
on all bank.s in the sample except for Citicorp would result in notisignlficani average
residuals during the period from i,, to /j. We recstimated the residuals for a sample excluding
Citicorp, and found them to be quite similar to those estimated from our original .sample.
Therefore, the market reaction detected is not solely due to price movements in Citicorp's
stock.
One might he able to build an explanation'' of the significant mean residuals on the basis
of the "aggressive signal'" mentioned in the first section. Thi.s explanation is hard to tie lo

MARKET REACTION TO INCREASED LOAN U)S,S

365

financial theory, although Musumeci and Sinkey (1988) present a plausible approach.
Nevertheless, ati alternative exptanation, having more intuitive appeaJ lo us, is based on the
improved expected stream of operating cash flow approach as described below.
The announcements of increased ioan loss reserves may bear some similarity to a signal
through a dividend change. Asqtjith and MulHns (1986) state that a signal via a dividend
announcement is effective because it is '^backed by hard, cold cash." The loan loss reserve
announcements signal that the bank will write off some bad TTiird World loans sooner than
anticipated, and ihe economic consequences of the faulty investment policies of the banks
will be padiaJly offset by the reduction of cash payments for taxes on accounting income
that was not earned (and is not being earned) in an economic sense. The market apparently
had already accounted for the banks" poor investment policy, as suggested by studies that
detect an unfavorable market reaction to events affecting money-center banks with foreign
loan exposure. For example, Bruner and Simms (1%7) detect an unfavorable market
reaction to Mexico's announcement that it could not meet its loan repayment schedule in
1982. Cornel! and Shapiro (1986) found !hat the negative market reaction continued beyond
the initial recognition of an international debt crisis. SmirJock and Kaufoid (1987) detected
more unfavorable market reactions on money-center banks with a greater decree of
exposure. White the market already discounted money-center bank values for foreign loan
exposure, it may no! have accounted for the likely tax benefits that would be anticipated
when loan loss reserves were increased. At best, the market could have accounted for the
anticipated tax benefits without knowledge of the timing of the benefits,; the announcements
in tbe summer of 1987 reduced the timing uncertainty.
This signal differs significantly from the one proposed by Musumeci and Sinkey (1988).
Their empirical analysis measures the market's rcactioti to Citicorp s announcement by
analyzing the residuals of a sample of ten money-center banks and a sample of 25 bank
holding companies. They found the CAAR to be significant on day 1 after Citicorp's
announcement, and suggest that tbe delay in the market's digestion of the signal was caused
by the "magnitude, importance, and unforeseen nature*' of Citicorp's announcement. Their
conjecture is supported by two facts: (1) the varied reaction reported in the financial press
and (2) the uncertainty of the "follow the leader" behavior on tbe part of other money-center
banks.
The signal suggested by our empirical work is more bank-specific. Each bank's
announcement of increased loan loss reserves signalled a desire for earlier write-off of some
Third World loans. The market's recognition that the subsequent write-off would improve
the bank's expected operational cash How is more consistent with our empirical results.
A second interpretation, founded in agency theory, is plausible. If the remuneration
package of bank managers includes a bonus based on earnings per share (EPS)
performance,^ managers bave an incentive to delay increasing the loan loss reserves. They
can maintain EPS artificially high, exploiting the flexibility built into accountitig
conventions applicable to the loan loss reserve reporting.*" The announcement of increased
loan loss reserves leads to lower future EPS, thereby reducing cash outflows (in the form
of EPS-based bonuses) to managers who benefited from the previous unwillingness of banks
to acknowledge inevitable ioan losses,^
The consolidation of our explanation with that of Musumeci and Sinkey (M&S) may

366

JEFP MADURA AND Wm. R. ML DANIEL

provide an instructive, though hardly conclusive, story. M&S find evidence of strong
negative reaaion in their event study data for Brazil's announcement of its debt moratorium
to support a strong negative reaction to the announcement. The simple average day 0
residual for our 12 money-center banks (see their table .5) is -2.92 percent^ (-2.67 percent
when CiSicorp is excluded). M&S find that the increase in loan loss reserve by Citicorp
induced a positive reaction on the value of large banks that was not as strong as the
moratorium-related negative reaction. The simple average clay (I residual for our 12
money-center banks based on their table 6 is 0.92 percent (0.50 percent when Citicorp is
esctuded). Our study shows an average residual of 1.146 percent for day 0 to each bank's,
announce mem that it was increasing loan loss reserves.
The market may have expected that LDC debt had the poteniiai for reducing
money-center bank asset values, with the timing of the reduction being uncertain. Ihe
morau)rium anriouncement was not fuily anticipated, and, when it occurred, it changed
potential value reductions into actual reductions, t h e magnitude of the moratorium
announcement effect is probably not targe enough to contain all the bad news about the poor
quality of the LDC ioans, but intuitively its magtiitude is consistent with new information
about when the eamomic losses would occur. By wmparison, the magnitude of the
money-center banks' average roatiion to Citicorp's loan loss reserve announcement is
significant but much smaller. The market can now foresee that these banks will sooner or
later announce loan loss reserve increases with the consequent benefits, whether the benefits
come from M&S's mad-as-heil thesis, the improved stream of operating cash flow notion,
or the agency idea. Finally, the market's reaction to each bank's announcement of increased
loan reserve has a magnitude somewhere in betweeti the size of the a-actions to the other
two announcements. The banks theoretically couki have delayed rea>gnition of the LDC
debt problem indefinitely, so the timing of the recognition cannot be inferred with accuracy.
The announcement eliminates all uncertainty of when the loan loss reserve increase will
occur and informs the market that the benefits of the increase begin immediately. The
fruition of benefits of increased loan loss reserve conveys a more powerful p^>sittve message
than the poteniiai for that increa.se. As expected, the negative rection to the bad news about
ihe severity ot low-quality LDC debt seems to be greater than the positive reactions to
announcements that signal coming benefits of write-offs of that debt.
The market reaction to each bank's announcement may vary because of differences in
the announced information and in the market's perception of the bank. The market reaction
could be affected by firm-specific information such as the magnitude of the increase in loan
loss reserves and the bank's capital adequacy. To a.ssess these possible relationships, the
Spearman rank correlation coefficient between the cumulative residua! for bank / during the
period from / to (/ and the magnitude of additional loan loss reserves for bank / was
assessed. The coefficient is not significantly different from zero, suggesting that the size oi
the increase in loan loss reserves did not influence the degree of market reaction. The
Spearman rank correlation coefficient was also computed to a.ssess the assodation between
that same residual and the capital ratio for each bank. The coefficient is negative and
significant at the .10 level.'" This inverse relationship suggests that the market reaction is
more pronounced for batiks with less capital adequacy, .so that the banks perceived as being
more risky benefited more from the announcement. A possible explanation is that the banks

MARKET REACTION TO INCREASED LOAN LOSS

367

with high capital ratios are in less danger of liquidity shortages both in the short and
intermediate terms. Thus, the improved cash flow potentiaJ from reduced tax obligations
would increase value but have little influence on risk stemming from potential iliiquidity.
Banks with the low capital ratios couid be marginal in terms oi short-term and
intermediate-term liquidity. The market, as well as regulators, might welcome the improved
liquidity and reduced risk that the announced increase in loan loss reserves signals. leading
to a more pronounced revision of share price valuation.

4. Concluding commenls
The results of our study offer implications only tor the population of money-center banks
and may not necessarily apply to regional and superregional banks. Increased loan loss
reserves could cause an adverse reaction if the unfavorable information embedded in the
announcement was not already accounted for in market prices or bank shares. In our study,
the unfavorable information appears to have been already accounted tor, possibly because
of the publicity on money-center hank exposure to foreign loans." For other banks with
firm-specific loan problems, an announced increase in loan loss reserves may signal
unfavorable information that was not previously known in tbe market. A study similar to
ours for superregional and regionai banks may he an interesting avenue for further research.
Based on our results, some analysts may conclude that lianks should have boosted loan
loss reisertTs mueh earlier. Yet there was some concern that an earlier announced increase
could have adversely affected the banks' negotiating power with LDCs (see Economic
Review. 1W8).
LDC loan reserves are included In the primary capital ratios of ihe bank holding
companies. However, under the international capital adequacy guidelines (lo be phased in
from \'iH9 to 1^92), primary (or "core") capital will not include the,se rt;st;r\'es. Banks that
decide to boost reserves under the new guidelines could be pressured by regulators to
compensate for the decline in primary capital. Once the guidelines are fuily implemented,
lutiirc loan loss reserve announcements by money-center banks could elicit a different
market reaction.

Notes
L Poi cxampli:. see Tiill Menc-zes' Ass.i^i;iled Press stiirj, "Kspcfis Vxnd Ptaiit t(i CiLlairp," May 21, mST.
2. "Miijor Banks' tncrcases in l ^ a n - t ^ s s Reserves Mav f ' n m p Espansioii," Tht' Wull Srn'crJouriKi!. Jiilv 2^,

i. The Tail Rctbrm Act cif !9Sf) dittates ihat ti;inks wiifi assets In excess of S^iM) niillion nia\ not expense
increases in loan loss ti;si;r\T for irtotut tax purposes. The tax doductibk' expense is alloiicd only when tht hank
actuaiiy writts off the had loan
4. fivents within the examlnalion peruid. other than loan loss icsertc annouiictmenrs. m;i\ havi; had some cftcct
(in the residuiils. Thus, wt fonducleJ an exhaustive search through the Vndl Sitcct Journal lo identify events
aftecting the mnncy otnlLT hanks during ihe period. We found no event IhLit we doemcd to he sufficientlv hro:id
and/or signiticanl in its effect for coiisidetatioii
5. information ahoiit wlirther the managements of the hanks in this study in faei have an Ei'S-bas

368

JEFF MADURA AND Wm. R. MrDANIEL

not public informaijon. Thus, tht agoncy argtimetii h hypothcticitl.

6. A conflict of interest arises htrcaiLsc ihc invtstOTS desire that Ihc iticrcascd loan kiss reserves ciccjr as
as ptissihk, while map.agerrtent *ith EPS-based hi w uses desires to delay the increasL-s. Investors tnay be unahlc
tn protect themseh es from this conflict ot interest, shoti tif the proxy niechantsm. Regarding money center batiks
nith large tJiptisurc to fiirtjgn loans,pressure irtim tegiilatfiry agenciesatiti unfavorahk-coverage by the pr(;ss may
have greatly itifluenced the banks' managements to change their IOHI) loss policy
7. Pxssmore l H^SJ!) suggests another agency factor, catiscd hy hank m;inagers who intend to move lo atiolher
hank in the near tiiturt. These m;tniigirs have an incentive tD overstate current EPS, hoping fur short-run benefits,
hut avoiditig the iotig.run market reprisals for the overstiitement by being etiipinyeil h\ a different hank.
K. lilt averaces in this paragraph are given only to hint at the relative magnitude of the effect of the events.
Any attempt to anthmeticaliy mantpulate the nutnhcrs from the various events would be improper, because each
Jitimber is based on an event miKiel specified somewh:it differently.
y. The mark el reaction was most pronounced tiver this period
.10. We also tifi <i regression nn.idi'i to assess tht.'.e rela(ionship,s. There was no sigjiificatit relationship between
the cumulative residual ^ud the size i.)t the increased loan los.s receives. "Hie satnc result occurretl evcrj after
iidjsi.sting the increased loan loss rcsenws ftir the levei of assets. A separiitu regression v^'as applied to assess the
relationship ber\i'ecn the cumulative residual and the capital ratio acrf.vss banks. Again, the hypothesis of no
sigitificatit relationship cannot he rejected. This result dtffers from that derived from the Spcarmati rest, stjgyesting
thai whtle the reiatiotiship is nol iitiearly sijjnifieant, there is a .significant inverse relationship o! rank order,
11 Thcie is some e\idence that the ni.irkfi vi'outd ha\t already accoutued for the negative aspects of the
tntetnaliotial debt crisis. LDt" ioans for sale iti tlic sccond:tr\ rnarkct were priced at a significant discount from
their face v.ihtt, lignalllng that Iwnks with LDC loans would have to ahsiirb some kisses.

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