- We're Not Greece: Italian Prime Minister Monti
- Private Homebuilders in the US: Dead Men Walking
- Dividend Payout Could Hit Record Amount This Year
- With Investors So Bullish, Stock Pullback Must Be Ahead
- Is Bill Gross, PIMCO's Bond King, Losing His Touch?
- Why Saving Greece Could Destroy the World
- Apple’s Record Run: $500 Is a Magic Number
- Housing Still Hurting Consumers, Economy: Bernanke
- Get Ready for $5 Gas This Year: Ex-Shell CEO
- In Search of America's ‘Hottest Forecasters’
- Dow vs. S&P 500: Which is a Better Investment?
- Mick Fleetwood on the MP3 ‘Dumbing Down’ of Music
- Avis on the Road to Strong Growth: Analyst
- Private Homebuilders: Dead Men Walking
- LinkedIn’s Growth Is Already Priced In: Analyst
- The Real Reason Behind Bank of America’s Rally
- 5 Hedge Funds’ Top Stocks Soar After 2011 Rout
- This Valentine’s Day Love Is Served on a Silver Platter
MOST SHARED
- US Stocks Avoid Closing Down Over 1%, Again
- When Love and the Fed Collide
- How Rescuing Greece Could Destroy the World
- Commodities Next Week: Why Gas Prices Are Heading Toward $5 Per Gallon
- 2012: The Year of the Stock Picker
- Get Ready for $5 Gas This Year: Ex-Shell CEO
- Pauley Perrette's Southern Bakery a Hit in Manhattan
- Private Homebuilders: Dead Men Walking
- Why Greece Will Default, Leave the Euro Zone
- Apple’s Record Run: $500 Is a Magic Number
MOST POPULAR
HOT ON FACEBOOK
Banks May Get Profit Boost as Demand for Debt Rises
Text Size 
US banks are taking advantage of improving earnings and growing investor demand to raise billions of dollars in debt at historically low interest rates, a move that could boost the sector’s profits in coming years.
 |
The burst of fundraising in the US is in stark contrast to Europe where banks have struggled to issue debt as the eurozone crisis and worries about the financial industry have undermined market confidence.
The cheap finance locked in by big institutions such as JPMorgan Chase [JPM
Loading...
()
], US Bancorp [USB
Loading...
()
], Goldman Sachs [GS
Loading...
()
] and Morgan Stanley [MS
Loading...
()
] in recent days marks a remarkable comeback for a sector that was shunned by investors during the financial crisis.
Less than two years after the government was forced to intervene to ease a dramatic credit crunch, US banks sold more than $7 billion in debt last week—the largest weekly total since September 2009, says Dealogic.
US Bancorp, a Minneapolis-based lender, raised $1 billion in five-year bonds at an interest rate of 2.45 per cent—one of the lowest ever paid by a bank.
Lower funding costs boost profits because they increase the margins earned by banks on their loans to consumers, companies and investors.
Wall Street executives say recent debt issues were triggered by “reverse inquiries”—informal approaches by fund managers seeking to raise their exposure to a sector they had largely avoided since the crisis.
 |
“There is a bit of a food-fight among investors to get hold of paper from US banks,” an executive at a big bank said. “After leaving the sector alone for so long, there is renewed appetite.”
With US Treasury yields at record lows, investors seek alternatives that offer higher returns. Expectations that the Federal Reserve will keep rates at near-zero have further raised demand for bonds, as a low-interest, low-growth environment is best for such investments.
Recent earnings and the passage of financial rules also contributed to the surge in debt issuance. Goldman, Morgan Stanley and JPMorgan each issued $3 billion in bonds this month.
The spike in fundraising is enabling US banks to replace existing bonds with new, cheaper ones. Jean-Francois Tremblay, a Moody’s analyst, estimates that US banks have refinanced $200 billion of the $372 billion of debt coming due in 2010.
In Europe, analysts say banks have raised only 40 per cent of the 450 billion in euros they need this year.
But since publication of the stress tests there have been signs of improvement. This week BBVA, Spain’s second-biggest bank, sold the first bond by a Spanish lender since April.
Gregory Peters, at Morgan Stanley, said: “The banks that don’t need funding can do it, the smaller banks that do need funding probably can’t.”
More From FT:
- Marketing clichés aside, sometimes diamonds are for investing.
- The ‘Fast Money’ traders weigh in on fashion related stocks from apparel to footwear.
- This list of the 10 most active cities for speed traps was compiled by Trapster.com. See if your town is there.
- This Valentine’s Day should prove a love fest for restaurants, as many couples will be dining out.
- Here’s a look at Westminster Kennel Club’s most successful breeds—and how much they cost.
- What kind of homes do celebrity couples share? Here’s our updated list. Take a look.
Data is a real-time snapshot *Data is delayed at least 15 minutes
