Posted on 11/05/2007 4:07:59 PM PST by bruinbirdman
Bond issuance by the world’s biggest banks has plunged in the past week as concerns grow over further balance sheet losses because of the credit squeeze.
There have been only 11 bank bond deals since Monday last week – a third of the number of deals priced in the previous week as some financial institutions are forced to stay on the sidelines because of the tougher market conditions, according to Dealogic. A $1bn deal from Morgan Stanley last week highlighted the problems. The bank was forced to pay an extra $5m a year in interest rate charges to attract investors, compared with a similarly structured bond priced in February.
Bank stocks have also been savaged on the equity markets over the past three trading days as the markets brace themselves for a clutch of bank results over the coming days and weeks. John Raymond, an analyst at the research company Credit Sights, said: “The worries over the banks are meaning they have to pay more to get bonds away, although before the summer they were paying exceptionally low coupon rates. But extra costs will affect earnings and that is a concern for the markets.”
Increasing fears over potential losses from the US subprime crisis may hit investment banks, such as Morgan Stanley, harder. They rely more heavily on the capital markets for refinancing than the so-called universal banks, Mr Raymond added. The universal banks, such as Citigroup, can draw on retail deposits for refinancing.
Dominic White, a fund manager at Morley Fund Management, said: “Investors want more premiums to buy bank bonds because of the subprime worries. It is as simple as that. The investors have a stronger say now than they did before the credit troubles in the summer.”
Suki Mann, credit strategist at Société Générale, said: “Banks are not issuing as much because of the weaker environment.”
According to Société Générale, all the main banks have seen bond spreads widen against government paper in the past three weeks.
These include deals from Deutsche Bank, Bank of America, BNP Paribas, Natixis, UniCredit, Swedbank, Standard Chartered, RBS and Santander.
A €1.3bn ($1.8bn) deal from RBS has widened by 107 basis points, against midswaps, the European interest rate reference point, in the past three weeks, while a €750m deal from the French bank Natixis has widened by 105 basis points over the same period, according to Société Générale.
Nothing moves in construction without insurance. Nothing will move at all in credit/financial markets without insurance...bond insurance is becoming suspect of being a financially imcompetent vessel. Commercial paper is heading south. ABX is essentially dead. Credit card crunch pending, CDOs crunch now emerging. Unmasking of hedge holdings being demanded ($20 trillion to be unmasked soon)...Citigroup still has about $55 billion to cover after the $11 billion talked about today....think I will have an RC Cola and a Moon Pie.
I think it was the the 1987 blip that resulted in a 50% bounce in financial stocks.
Waiting.
Yup. 1987. No dollar dumping, Tbill dumping, no mortgage crisis (subprime and coming Alt-A in 2011), no credit freezeup in Europe, US, no impending bank failures...second RC Cola and Moon Pie in order.
Yet everybody is still concerned about inflation.
Inflation is grossly underreported by the CPI..it is not 2%. It is more like 7-16% as gas and food are not included. It rises with each drop of the dollar, and the drop is at a ‘45’ degree angle.
From Market watch today...by MarketWatch - 11/5/07 snip:
Citigroup Inc. in a quarterly regulatory filing Monday said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management’s best guess. The investment bank said its total liabilities related to level 3 assets at quarter-end were $40.36 billion, according to the Form 10-Q. Citigroup said it often hedges its level 3 positions..
Today, Bloomberg talked about Citigroups $11 billion problem..it is much larger. The whole problem is much larger and will be exposed a lot more each day. Lots of SIVs have to disclose their hidden values by Nov. 15th, and these equities are only ‘marked to model’, meaning their values are assumed...they will have to be ‘marked to market’..that is the rub..there is no market.
From the daily telegraph..http://news.independent.co.uk/business/news/article3132507.ece
A trillion is for starters.
Some prices are going up, that's true. But there is not a one to one correspondence between the foreign exchange value of the dollar and the domestic value.
Citigroup Inc. in a quarterly regulatory filing Monday said its so-called level 3 assets as of Sept. 30 were $134.84 billion. Level 3 assets are holdings that are so illiquid, or trade so infrequently, that they have no reliable price, so their valuations are based on management’s best guess. The investment bank said its total liabilities related to level 3 assets at quarter-end were $40.36 billion, according to the Form 10-Q. Citigroup said it often hedges its level 3 positions..
Today, Bloomberg talked about Citigroups $11 billion problem..it is much larger. The whole problem is much larger and will be exposed a lot more each day. Lots of SIVs have to disclose their hidden values by Nov. 15th, and these equities are only ‘marked to model’, meaning their values are assumed...they will have to be ‘marked to market’..that is the rub..there is no market.
All those credit problems are a deflationary time bomb waiting to go off. I'd be far more concerned about that than inflation right now.
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