 Leading lenders could face decade-high debt in crisis
(China Daily)
Updated: 2008-10-09 08:02 HSBC Holdings Plc, Royal Bank of Scotland Group Plc and the biggest UK banks face the most debt coming due in at least 10 years as the credit market seizure raises borrowing costs to the highest on record. The six largest British banks have 54 billion pounds of debt to refinance by April, triple the amount of the year-ago period, according to data compiled by Bloomberg. HSBC, the UK's biggest bank, and RBS each have about 11.5 billion pounds of debt due, while Barclays Plc has 15.9 billion pounds maturing, the data show. Financing costs are soaring as banks hoard cash after the credit crunch triggered by the US subprime mortgage crisis a year ago. The three-month London interbank offered rate in dollars rose to 4.52 percent from 2.64 percent in March, while the equivalent rate for euros increased to a record 5.39 percent, from 4.74 percent six months ago. "The banks have no idea how they are going to manage rolling over their debt," said Kornelius Purps, a Munich-based bond strategist at UniCredit SpA. "The central banks will have to intervene."
Rates rose this month even as the UK announced a cash injection to prevent a collapse of the banking system, Europe's policy makers provided emergency funding and US President George W. Bush approved a $700 billion rescue plan. Prime Minister Gordon Brown's government will invest about 50 billion pounds in the The United Kingdom's banks, the Treasury said in a statement yesterday. The government will buy preference shares and the Bank of England will make at least 200 billion pounds available for banks to borrow under the so-called special liquidity plan. The government will also provide a guarantee of about 250 billion pounds to help refinance debt, the statement said. HSBC and Standard Chartered Plc said they have no current plans to take government capital to bolster their reserves. RBS and Barclays will be taking up aspects of the plan, they said in statements. Lloyds TSB Group Plc, which has about 512 million pounds of bonds to refinance by the end of March, said it will make a futher announcement about the plan "in due course." Banks need more capital after the worst US housing slump since the Great Depression and $593 billion in worldwide losses and writedowns caused their stocks to tumble, forced Lehman Brothers Holdings Inc into bankruptcy and pushed the UK government to nationalize Bradford & Bingley Plc. The UK bank debt includes bonds, commercial paper and equity-linked notes and compares with 18 billion pounds repaid in the year-earlier period. Investors are demanding an average 4.02 percentage points more in yield to buy bank bonds rather than government securities, up from 0.95 percentage point last year, according to indexes compiled by Merrill Lynch & Co. The so-called spread on investment-grade corporate bonds overall averages about 3.35 percentage points. Rising yields may cost the banks as much as $5.6 billion more in annual interest compared with a year earlier should they refinance all of the debt in the bond market, Merrill data show. "Bond investors are the guys that will decide the future of these banks and at the moment they're not prepared to roll over their financing," said Simon Maughan, a London-based bank analyst at MF Global Securities Ltd. "If you can't roll over you're in an awful lot of trouble." Lloyds agreed to buy HBOS Plc in a stock swap on Sept 18. HBOS, based in Edinburgh, has 11.9 billion pounds of debt due in the next six months. Lloyds spokesman Emile Abu-Shakra in London declined to comment, as did a spokesman for HBOS. Lloyds TSB will pay about 10.2 billion pounds in a stock swap for HBOS, based on Tuesday's closing share prices. Standard Chartered, the London-based bank that earns most of its money in Asia, needs to repay about 2.4 billion pounds of debt. "The outstanding 2.4 billion pounds in the context of a 400 billion-pound balance sheet is not material," spokesman Arijit De said. "Standard Chartered is not dependent on wholesale funding markets." Agencies (China Daily 10/09/2008 page17) |
