Reluctant banks may have to throw telecom equipment maker Marconi a euro 3 billion lifeline under a loan agreement signed just before the firm reported huge losses, stoking fears of collapse.
Banking sources today said banks that signed the legally binding loan agreement had little option now but to support the beleaguered company, even though its future was in doubt.
The entire banking sector fell today on concerns that lenders could end up with huge losses on their Marconi loans.
"Marconi has said that its credit facilities are watertight, and I would concur with that. The loan documentation is binding," a banker close to the company told LPC, a Reuters subsidiary that reports on the global loan market.
"The loan has yet to be drawn down but there is nothing to stop Marconi doing so" the banker said.
Since the first of two devastating profit warnings in early July, Marconi's bonds have tumbled, its shares have lost almost 90 per cent of their value and the company has announced 6,000 job cuts, bringing the total layoffs to about 10,000.
Once one of Britain's biggest companies, its troubles are causing waves across the market.
Shares in HSBC Holdings and Barclays - which co-ordinated the euro 3 billion loan - were both down 3 per cent today.
All 14 lead arranging banks have exposures approaching euro 171 million under the loan, though a couple of them bought credit protection against their individual exposures. Up to 10 other banks joined the syndicate and have lower exposures.