ANALYSIS-Banks should survive credit market hanging

By Jonathan Stempel

NEW YORK, July 26 (Reuters) - It's a "hanging" that may cause some pain for major U.S. investment banks, though it's unlikely to be lethal for any of them.

The postponements of $22 billion in debt offerings to finance buyouts of British pharmacy chain Alliance Boots [AB.UL] and U.S. automaker Chrysler has fed fears that if markets continue to tighten, investment banks will be stuck holding billions of dollars of loans no one wants.

Such "hung" loans -- as bankers call them -- result from a sudden reluctance to acquire higher-risk debt among investors spooked by mounting defaults and homeowners and fears that corporate borrowers might soon follow.

Citigroup Inc (C.N: Quote, Profile, Research, Stock Buzz) and JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) are the focus of much of the current concern, ranking among the top five merger advisers -- a big source of fees -- and top three debt and equity underwriters and leveraged lenders.

But the problem extends throughout investment banking and could affect other dominant firms like Goldman Sachs Group Inc. (GS.N: Quote, Profile, Research, Stock Buzz) and Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz).

The average yield on junk bonds has risen by more than a percentage point to 8.64 percent as of Wednesday, according to Merrill Lynch & Co., the highest in over a year.

Where and when the bottom will be hit is anyone's guess.