A quick note before the day starts: Both the WSJ and Bloomberg have been noticing the big slug of cheap bank debt due to be refinanced soon not so cheaply:
U.S. and European banks, already burdened by losses and concerns about their financial health, face a new challenge: paying off hundreds of billions of dollars of debt coming due.
At issue are so-called floating-rate notes — securities used heavily by banks in 2006 to borrow money. A big chunk of those notes, which typically mature in two years, will come due over the next year or so, at a time when banks are struggling to raise fresh funds. That’s forcing banks to sell assets, compete heavily for deposits and issue expensive new debt.
The crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That’s about 43% more than they had to redeem in the previous 16 months.
Its another log on the fire of sector undesirability — for purely fundamental reasons. The business model is simply not what it once was.
And as we have learned, it really never was as advertised.
More at the links below . . .
New Credit Hurdle Looms for Banks
WSJ August 27, 2008; Page A1
Merrill, Wachovia Hit With Record Refinancing Bill
Bloomberg, Aug. 26 2008