<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published December 27, 2008
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>US banks expected to tap Asian currencies
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(Hong Kong)
US banks including Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley may sell government-guaranteed bonds in Asia next year, tapping growing demand for the region's local-currency debt to bolster their balance sheets.
US financial institutions sold more than US$100 billion of government-backed notes in US dollars, euros and British pounds since Oct 14, when the Federal Deposit Insurance Corp (FDIC) agreed to guarantee their bonds to help them cope with US$678 billion of losses and writedowns amid the global credit crunch.
'Banks like Morgan Stanley and Goldman will have to tap Asian currencies because the potential supply is too big for dollars, euros and pounds to take on,' said Arthur Lau, a fund manager at JF Asset Management Ltd here, which oversees US$128 billion.
'It's a perfect product for insurance companies in Asia. The bonds offer good yield pick-up, high credit ratings, good liquidity and no currency mismatch.'
US banks may be forced to follow European and Australian banks, which lured fund managers to US$6.6 billion of government-backed securities in Asia-Pacific since September with yields of as much as double those on sovereign debt, data compiled by Bloomberg show. Sales of FDIC-backed notes maturing in more than a year may reach US$450 billion by the end of June, Barclays Capital analysts said on Dec 9.
Citigroup spokesman James Griffiths, Morgan Stanley spokesman Nick Footitt and Goldman Sachs' Hong Kong-based spokesman Edward Naylor were not immediately available for comment.
Royal Bank of Scotland Group plc, the UK's second-largest bank, on Dec 19 borrowed A$525 million (S$518.3 million) in the first Australian government-backed bond sale by a foreign lender. Australia & New Zealand Banking Group Ltd this month sold 35 billion yen (S$560 million) of five-year securities priced to pay 1.85 per cent, compared with 0.9 per cent Japan pays for sovereign notes of similar maturity.
European and Australian financial institutions led by Bank of Ireland plc and Danske Bank A/S have tapped the yen and Hong Kong dollar bond markets to sell US$1.3 billion of government-backed debt since September, Bloomberg data show. Ireland in September became the first European country to guarantee the deposits and debt of its six largest lenders after Lehman Brothers Holdings Inc's bankruptcy decimated bank share prices and drove default risk to a record high.
Asia's local-currency bond sales rose 7.5 per cent this year while issuance fell 13 per cent in the US and 5.8 per cent in Europe, as slowing economic growth crimped demand for credit denominated in the G-3 currencies of US dollars, euros and yen, Bloomberg data show. Annual trading volumes in Asia's local-currency government and corporate bonds almost tripled from 2002 to US$6 trillion last year, according to the Asian Development Bank (ADB).
'The traditional G-3 market is stretched and would likely remain difficult for some time, while funds in the Asian domestic markets still have a lot of money that needs to be put to work,' said Clifford Lee, head of fixed income at DBS Group Holdings Ltd in Singapore. 'The setting is perfect for the Asian local-currency market to grow.'
Overseas fund managers almost doubled holdings of Asian bonds between 2003 and 2006 to US$197.47 billion, ADB data show.
DBS Group's $1.5 billion perpetual bond sale in May attracted more than 70 investors, compared with an average of about 20 investors for pre-2007 sales, Mr Lee said.
Investments in Asian currency bonds returned as much as 21 per cent this year, according to an HSBC Local Bond Index. Asian banks' US dollar notes lost investors 16 per cent after earning 3.2 per cent in 2007, according to JPMorgan Chase & Co's Asia Credit Index. US financial institutions' US dollar bonds lost 14 per cent, while those of their European peers fell 6 per cent, Merrill Lynch & Co indexes show.
The extra yield investors demand above government debt to buy quasi-sovereign and foreign government notes denominated in Australian dollars almost doubled from July to a record 132 basis points on Dec 12 when Australian government-guaranteed bond sales started in earnest, Merrill data show. A basis point is 0.01 percentage point.
Asian banks, which held fewer investments tied to sub-prime mortgages and collateralised debt obligations than lenders in Europe and the US, had US$31 billion of writedowns and losses since the start of 2007.
That compares with US$678 billion for US banks and US$295 billion for European financial institutions in the same period. -- Bloomberg
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>US banks expected to tap Asian currencies
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
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</TD><TD>Feedback</TD></TR></TBODY></TABLE>(Hong Kong)
US banks including Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley may sell government-guaranteed bonds in Asia next year, tapping growing demand for the region's local-currency debt to bolster their balance sheets.
US financial institutions sold more than US$100 billion of government-backed notes in US dollars, euros and British pounds since Oct 14, when the Federal Deposit Insurance Corp (FDIC) agreed to guarantee their bonds to help them cope with US$678 billion of losses and writedowns amid the global credit crunch.
'Banks like Morgan Stanley and Goldman will have to tap Asian currencies because the potential supply is too big for dollars, euros and pounds to take on,' said Arthur Lau, a fund manager at JF Asset Management Ltd here, which oversees US$128 billion.
'It's a perfect product for insurance companies in Asia. The bonds offer good yield pick-up, high credit ratings, good liquidity and no currency mismatch.'
US banks may be forced to follow European and Australian banks, which lured fund managers to US$6.6 billion of government-backed securities in Asia-Pacific since September with yields of as much as double those on sovereign debt, data compiled by Bloomberg show. Sales of FDIC-backed notes maturing in more than a year may reach US$450 billion by the end of June, Barclays Capital analysts said on Dec 9.
Citigroup spokesman James Griffiths, Morgan Stanley spokesman Nick Footitt and Goldman Sachs' Hong Kong-based spokesman Edward Naylor were not immediately available for comment.
Royal Bank of Scotland Group plc, the UK's second-largest bank, on Dec 19 borrowed A$525 million (S$518.3 million) in the first Australian government-backed bond sale by a foreign lender. Australia & New Zealand Banking Group Ltd this month sold 35 billion yen (S$560 million) of five-year securities priced to pay 1.85 per cent, compared with 0.9 per cent Japan pays for sovereign notes of similar maturity.
European and Australian financial institutions led by Bank of Ireland plc and Danske Bank A/S have tapped the yen and Hong Kong dollar bond markets to sell US$1.3 billion of government-backed debt since September, Bloomberg data show. Ireland in September became the first European country to guarantee the deposits and debt of its six largest lenders after Lehman Brothers Holdings Inc's bankruptcy decimated bank share prices and drove default risk to a record high.
Asia's local-currency bond sales rose 7.5 per cent this year while issuance fell 13 per cent in the US and 5.8 per cent in Europe, as slowing economic growth crimped demand for credit denominated in the G-3 currencies of US dollars, euros and yen, Bloomberg data show. Annual trading volumes in Asia's local-currency government and corporate bonds almost tripled from 2002 to US$6 trillion last year, according to the Asian Development Bank (ADB).
'The traditional G-3 market is stretched and would likely remain difficult for some time, while funds in the Asian domestic markets still have a lot of money that needs to be put to work,' said Clifford Lee, head of fixed income at DBS Group Holdings Ltd in Singapore. 'The setting is perfect for the Asian local-currency market to grow.'
Overseas fund managers almost doubled holdings of Asian bonds between 2003 and 2006 to US$197.47 billion, ADB data show.
DBS Group's $1.5 billion perpetual bond sale in May attracted more than 70 investors, compared with an average of about 20 investors for pre-2007 sales, Mr Lee said.
Investments in Asian currency bonds returned as much as 21 per cent this year, according to an HSBC Local Bond Index. Asian banks' US dollar notes lost investors 16 per cent after earning 3.2 per cent in 2007, according to JPMorgan Chase & Co's Asia Credit Index. US financial institutions' US dollar bonds lost 14 per cent, while those of their European peers fell 6 per cent, Merrill Lynch & Co indexes show.
The extra yield investors demand above government debt to buy quasi-sovereign and foreign government notes denominated in Australian dollars almost doubled from July to a record 132 basis points on Dec 12 when Australian government-guaranteed bond sales started in earnest, Merrill data show. A basis point is 0.01 percentage point.
Asian banks, which held fewer investments tied to sub-prime mortgages and collateralised debt obligations than lenders in Europe and the US, had US$31 billion of writedowns and losses since the start of 2007.
That compares with US$678 billion for US banks and US$295 billion for European financial institutions in the same period. -- Bloomberg
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