Heavy Bank Refinancng Will Keep Pressure On Rates

According to Dealogic, borrowing needs for the top 10 banks from maturing bonds total $27bn in August, $52bn in September, $23bn in October, $20bn in November and $86bn in December. Raising these funds by simply getting investors to rollover maturing money into new debt instruments will be much more difficult given the nervousness by investors over bank liquidity issues. As a result, borrowing costs will be very high.

Last week, financial groups including Citigroup, JPMorgan Chase and American International Group borrowed almost $20bn in new long-term debt, paying some of the highest interest rates ever in order to lock in funding.

Citigroup has more than $5bn of maturing bonds in August, but this climbs to $12.8bn in December. Bank of America, with $7bn maturing in August, also faces higher refunding needs in December, with $9bn of maturing bonds.

Mohamed El-Erian, co-chief executive of Pimco, the asset management group, told FT “If banks keep borrowing at these levels, you will get a repricing of credit for the whole economy.”