Not So Easy Anymore? Part I
Tidbits from Bloomberg with lots of Nattering love sprinkled in, cuz we care. The Nattering One muses... we've commented before on the potential impact from...
lenders mitigating their risk by "tightening" credit; the effect widening debt market spreads will have on leveraged positions;
and the amount of ABCP debt that is maturing in short order. To repeat, this is not a liquidity issue, its a SOLVENCY PROBLEM.
Frisco Fed Head Yellen: "Depository institutions also face some illiquidity, specifically in the funding markets for maturities in the one- to six-month range.
Compounding their liquidity problems are concerns that mortgages and other assets that are normally securitized may come back onto their balance sheets and that customers may draw on unsecured credit lines."
Borrow short, buy long... Borrowers are paying the most in six years on commercial paper, IOUs maturing in 270 days or less.
The $1.2 trillion market for CONDUITS created by banks that use short term debt to buy longer term assets is seizing up.
Despite ample liquidity, lenders are refusing to provide credit amid the contagion triggered by record home loan delinquencies.
U.S. conduits have $959 billion of commercial paper outstanding, about $266.5 billion is due in the next two weeks.
European firms owe a further $230 billion of ABCP (asset backed commercial paper), of which about 59% comes due this month.
Pig through a Python... Corporations need to refinance almost $140 billion of CP (commercial paper) in Europe by the end of next week.
Almost $60 billion of the commercial paper due this week and next is owed by conduits.
The debt is backed by bonds including ABS (asset backed securities), as well as car loans, mortgages and trade receivables.
The remaining $80 billion of commercial paper is unsecured. Remember, what doesn't get bought by investors, the commercials banks must eat and hold on their books.
Deutsche Bank analysts: "Banks increasingly bloated balance sheets will not be good news for overall market liquidity."
A case of IBS, acid reflux or indigestion??.. The repayments peak on Sept. 17 when the equivalent of $48 billion matures. Deutsche Bank analysts:
"This could be a pivotal seven to 10 days. This will inevitably lead to wider corporate spreads, especially in high yield.
It seems that even the commercial paper that is being refinanced is being rolled into shorter maturities.
As a result, with each week that goes by, the stock of CP that needs refinancing is getting bigger. BURPPP, PFFFTTTT!!!
Yo Bro, Got Coke? On Sept 5th, Lehman Brothers A-rated subordinated notes due in 2017 yielded 6.66%.
On the same day, Colombia's senior debt maturing the same year, though rated four levels lower BBB-, was perceived to have LESS RISK at 6.47%.
Dig Deeper & pull up your Bermuda shorts... Mitch Stapley, Fifth Third Asset Management:
"Any securities firm is an institution that requires access to capital to fund itself. Wider spreads will impact their profitability."
Deutsche Bank analysts: "Corporate bond spreads are widening in part because banks are more focused on keeping their own CONDUITS afloat than providing finance to other companies."
More leverage, more exposure... Q102, Goldman Sachs asset to equity ratio was 16.8 and return on equity was 15.4%.
In Q107, Goldman had 24.7 times more in assets than it had in shareholders' equity, and the firm's return on the tangible portion of that capital was 44.7%.
The five largest U.S. securities firms: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns...
will have to fund $75 billion of loan commitments to LBOs at a loss because most investors have stopped buying that kind of debt.
The explosion in credit spreads on Wall Street may take an even heavier toll on profit NEXT YEAR, when the five firms have almost $133 billion of bonds maturing.
Goldman CEO Lloyd Blankfein said in June that low interest rates and easy credit helped fuel the 5 year boom in real estate, LBOs and emerging market investments.
He also warned them what to expect when spreads widen...
"You'd see a lot of that wealth, which was created over the years, unravel very quickly. You wouldn't enjoy that."
More to come tomorrow in Part II.
lenders mitigating their risk by "tightening" credit; the effect widening debt market spreads will have on leveraged positions;
and the amount of ABCP debt that is maturing in short order. To repeat, this is not a liquidity issue, its a SOLVENCY PROBLEM.
Frisco Fed Head Yellen: "Depository institutions also face some illiquidity, specifically in the funding markets for maturities in the one- to six-month range.
Compounding their liquidity problems are concerns that mortgages and other assets that are normally securitized may come back onto their balance sheets and that customers may draw on unsecured credit lines."
Borrow short, buy long... Borrowers are paying the most in six years on commercial paper, IOUs maturing in 270 days or less.
The $1.2 trillion market for CONDUITS created by banks that use short term debt to buy longer term assets is seizing up.
Despite ample liquidity, lenders are refusing to provide credit amid the contagion triggered by record home loan delinquencies.
U.S. conduits have $959 billion of commercial paper outstanding, about $266.5 billion is due in the next two weeks.
European firms owe a further $230 billion of ABCP (asset backed commercial paper), of which about 59% comes due this month.
Pig through a Python... Corporations need to refinance almost $140 billion of CP (commercial paper) in Europe by the end of next week.
Almost $60 billion of the commercial paper due this week and next is owed by conduits.
The debt is backed by bonds including ABS (asset backed securities), as well as car loans, mortgages and trade receivables.
The remaining $80 billion of commercial paper is unsecured. Remember, what doesn't get bought by investors, the commercials banks must eat and hold on their books.
Deutsche Bank analysts: "Banks increasingly bloated balance sheets will not be good news for overall market liquidity."
A case of IBS, acid reflux or indigestion??.. The repayments peak on Sept. 17 when the equivalent of $48 billion matures. Deutsche Bank analysts:
"This could be a pivotal seven to 10 days. This will inevitably lead to wider corporate spreads, especially in high yield.
It seems that even the commercial paper that is being refinanced is being rolled into shorter maturities.
As a result, with each week that goes by, the stock of CP that needs refinancing is getting bigger. BURPPP, PFFFTTTT!!!
Yo Bro, Got Coke? On Sept 5th, Lehman Brothers A-rated subordinated notes due in 2017 yielded 6.66%.
On the same day, Colombia's senior debt maturing the same year, though rated four levels lower BBB-, was perceived to have LESS RISK at 6.47%.
Dig Deeper & pull up your Bermuda shorts... Mitch Stapley, Fifth Third Asset Management:
"Any securities firm is an institution that requires access to capital to fund itself. Wider spreads will impact their profitability."
Deutsche Bank analysts: "Corporate bond spreads are widening in part because banks are more focused on keeping their own CONDUITS afloat than providing finance to other companies."
More leverage, more exposure... Q102, Goldman Sachs asset to equity ratio was 16.8 and return on equity was 15.4%.
In Q107, Goldman had 24.7 times more in assets than it had in shareholders' equity, and the firm's return on the tangible portion of that capital was 44.7%.
The five largest U.S. securities firms: Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns...
will have to fund $75 billion of loan commitments to LBOs at a loss because most investors have stopped buying that kind of debt.
The explosion in credit spreads on Wall Street may take an even heavier toll on profit NEXT YEAR, when the five firms have almost $133 billion of bonds maturing.
Goldman CEO Lloyd Blankfein said in June that low interest rates and easy credit helped fuel the 5 year boom in real estate, LBOs and emerging market investments.
He also warned them what to expect when spreads widen...
"You'd see a lot of that wealth, which was created over the years, unravel very quickly. You wouldn't enjoy that."
More to come tomorrow in Part II.
Comments