Bank Balance Sheets Strained as Goodyear, GM Reach for Credit
By Pierre Paulden, Caroline Salas and Linda Shen
Sept. 26 (Bloomberg) -- Balance sheets at JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and other banks face another drain on their capital as companies tap credit lines.
Goodyear Tire & Rubber Co., General Motors Corp., and International Lease Finance Corp. lead companies drawing on so- called revolving loans obtained before the credit crisis began in July 2007. Banks had more than $1.4 trillion in untapped loan commitments as of a year ago, the most on record, according to the Shared National Credit survey by four U.S. regulators including the Federal Reserve.
Corporate treasurers, blocked from accessing capital markets, are turning to the funding as the failure of Lehman Brothers Holdings Inc. sparks concern that other banks may be unable to provide funds. Pressure to find cheaper, longer-term capital is also building as costs rise in the $1.7 trillion short-term debt market. Banks are being forced to come up with the money after swallowing $521 billion of writedowns and losses.
``The commercial paper market is experiencing more dislocation than we have ever seen,'' said Jim Turner, head of debt capital markets at BNP Paribas in New York. ``Some very creditworthy issuers are only able to issue overnight rather than the more typical 30 days or longer, and if you're a corporate treasurer that situation probably makes it hard to sleep.''
Companies sell commercial paper, which matures in nine months or less, to help pay for day-to-day expenses, including payroll and rent.
Citigroup, JPMorgan
Banks with the most unfunded lending commitments are led by New York-based Citigroup, which had $471 billion of such agreements as of last Dec. 31, according to regulatory filings. Charlotte, North Carolina-based Bank of America disclosed $388 billion and New York-based JPMorgan had $255 billion of unused loan commitments, both as of June 30, regulatory filings show.
Bank of America spokesman Scott Silvestri, Brian Marchiony of JPMorgan and Danielle Romero-Apsilos of Citigroup all declined to comment.
Commercial paper maturing in four days or less has ballooned to an average of $165 billion a day this week, from a daily average of $87 billion in the first week of the month, according to Fed data. Daily issuance of debt maturing in 21 to 40 days fell about 44 percent in the same period to $8.7 billion.
Yields on 30-day debt rose 57 basis points yesterday to 3.67 percent, the highest since Jan. 22, Bloomberg data show. A basis point is 0.01 percentage point. The rate is 1.67 percentage points more than the Fed's target rate for overnight loans between banks. In the year before the market began to seize up in August 2007, the difference averaged 34 basis points.
`Constrained' Banks
ILFC, the airplane-leasing company owned by insurer American International Group Inc., tapping its credit lines for $6.5 billion on Sept. 16. Century City, California-based ILFC said the funds will ``provide it with liquidity to repay its commercial paper and other general obligations as they become due.''
ILFC drew on the lines the same day New York-based AIG was forced into obtaining an $85 billion loan from the government in exchange for an 80 percent stake.
``We were always worried about this,'' Gregory Peters, head of credit strategy at Morgan Stanley, said of borrowers drawing down their credit lines. ``Banks are very much still balance sheet and risk constrained.''
Banks are demanding higher rates to lend to each other on speculation more will fail.
ILFC, Goodyear
The one-month London interbank offered rate, or Libor, has climbed 1.22 percentage points this month to 3.71 percent, the highest since January. The difference between one-month Libor and the federal funds target rate widened to 1.71 percentage points, the most in at least 10 years, according to Bloomberg data, in a sign banks don't trust each other enough to lend.
ILFC arranged its loans as early as 2004 through 2006. The $2.5 billion five-year credit facility provided by a group of banks led by Citigroup in 2006 pays interest at 45 basis points over three-month Libor, which was 3.77 percent yesterday, according to Bloomberg data.
Goodyear, the largest U.S. tire-maker, said yesterday it's drawing $600 million from its revolving credit line because of a delay in access to a money market fund. Akron, Ohio-based Goodyear said it plans to use the money, which comes at a cost of 125 basis points above three-month Libor, for expenses and to boost liquidity. Citigroup and JPMorgan arranged the loan.
General Electric Co. was forced to suspend its stock buyback and shift capital to protect its AAA rating as volatility in credit markets cut profit at its finance arm. Its GE Capital unit will reduce commercial paper to 10 percent to 15 percent of total debt, from 18 percent at the end of June, the Fairfield, Connecticut-based company said yesterday.
Detroit-based GM said Sept. 20 it would draw the remaining $3.5 billion of a $4.5 billion revolving credit line to help cover restructuring costs.
``Given what was a very fluid and unprecedented set of circumstances in the credit markets last week, we thought it was wise to just go ahead and just take advantage of the credit lines, which are there to use, and draw them down,'' Chief Executive Officer Rick Wagoner said in an interview yesterday on Bloomberg Radio.
To contact the reporters on this story: Pierre Paulden in New York at [email protected]; Caroline Salas in New York at [email protected]; Linda Shen in New York at [email protected]
Last Updated: September 26, 2008 00:01 EDT
By Pierre Paulden, Caroline Salas and Linda Shen
Sept. 26 (Bloomberg) -- Balance sheets at JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and other banks face another drain on their capital as companies tap credit lines.
Goodyear Tire & Rubber Co., General Motors Corp., and International Lease Finance Corp. lead companies drawing on so- called revolving loans obtained before the credit crisis began in July 2007. Banks had more than $1.4 trillion in untapped loan commitments as of a year ago, the most on record, according to the Shared National Credit survey by four U.S. regulators including the Federal Reserve.
Corporate treasurers, blocked from accessing capital markets, are turning to the funding as the failure of Lehman Brothers Holdings Inc. sparks concern that other banks may be unable to provide funds. Pressure to find cheaper, longer-term capital is also building as costs rise in the $1.7 trillion short-term debt market. Banks are being forced to come up with the money after swallowing $521 billion of writedowns and losses.
``The commercial paper market is experiencing more dislocation than we have ever seen,'' said Jim Turner, head of debt capital markets at BNP Paribas in New York. ``Some very creditworthy issuers are only able to issue overnight rather than the more typical 30 days or longer, and if you're a corporate treasurer that situation probably makes it hard to sleep.''
Companies sell commercial paper, which matures in nine months or less, to help pay for day-to-day expenses, including payroll and rent.
Citigroup, JPMorgan
Banks with the most unfunded lending commitments are led by New York-based Citigroup, which had $471 billion of such agreements as of last Dec. 31, according to regulatory filings. Charlotte, North Carolina-based Bank of America disclosed $388 billion and New York-based JPMorgan had $255 billion of unused loan commitments, both as of June 30, regulatory filings show.
Bank of America spokesman Scott Silvestri, Brian Marchiony of JPMorgan and Danielle Romero-Apsilos of Citigroup all declined to comment.
Commercial paper maturing in four days or less has ballooned to an average of $165 billion a day this week, from a daily average of $87 billion in the first week of the month, according to Fed data. Daily issuance of debt maturing in 21 to 40 days fell about 44 percent in the same period to $8.7 billion.
Yields on 30-day debt rose 57 basis points yesterday to 3.67 percent, the highest since Jan. 22, Bloomberg data show. A basis point is 0.01 percentage point. The rate is 1.67 percentage points more than the Fed's target rate for overnight loans between banks. In the year before the market began to seize up in August 2007, the difference averaged 34 basis points.
`Constrained' Banks
ILFC, the airplane-leasing company owned by insurer American International Group Inc., tapping its credit lines for $6.5 billion on Sept. 16. Century City, California-based ILFC said the funds will ``provide it with liquidity to repay its commercial paper and other general obligations as they become due.''
ILFC drew on the lines the same day New York-based AIG was forced into obtaining an $85 billion loan from the government in exchange for an 80 percent stake.
``We were always worried about this,'' Gregory Peters, head of credit strategy at Morgan Stanley, said of borrowers drawing down their credit lines. ``Banks are very much still balance sheet and risk constrained.''
Banks are demanding higher rates to lend to each other on speculation more will fail.
ILFC, Goodyear
The one-month London interbank offered rate, or Libor, has climbed 1.22 percentage points this month to 3.71 percent, the highest since January. The difference between one-month Libor and the federal funds target rate widened to 1.71 percentage points, the most in at least 10 years, according to Bloomberg data, in a sign banks don't trust each other enough to lend.
ILFC arranged its loans as early as 2004 through 2006. The $2.5 billion five-year credit facility provided by a group of banks led by Citigroup in 2006 pays interest at 45 basis points over three-month Libor, which was 3.77 percent yesterday, according to Bloomberg data.
Goodyear, the largest U.S. tire-maker, said yesterday it's drawing $600 million from its revolving credit line because of a delay in access to a money market fund. Akron, Ohio-based Goodyear said it plans to use the money, which comes at a cost of 125 basis points above three-month Libor, for expenses and to boost liquidity. Citigroup and JPMorgan arranged the loan.
General Electric Co. was forced to suspend its stock buyback and shift capital to protect its AAA rating as volatility in credit markets cut profit at its finance arm. Its GE Capital unit will reduce commercial paper to 10 percent to 15 percent of total debt, from 18 percent at the end of June, the Fairfield, Connecticut-based company said yesterday.
Detroit-based GM said Sept. 20 it would draw the remaining $3.5 billion of a $4.5 billion revolving credit line to help cover restructuring costs.
``Given what was a very fluid and unprecedented set of circumstances in the credit markets last week, we thought it was wise to just go ahead and just take advantage of the credit lines, which are there to use, and draw them down,'' Chief Executive Officer Rick Wagoner said in an interview yesterday on Bloomberg Radio.
To contact the reporters on this story: Pierre Paulden in New York at [email protected]; Caroline Salas in New York at [email protected]; Linda Shen in New York at [email protected]
Last Updated: September 26, 2008 00:01 EDT
