本文发表在 rolia.net 枫下论坛A slew of new data suggests the credit crisis is deepening as lenders grow increasingly distrustful of their own customers and each other.
In both the U.S. and Europe, uncertainty about the ability of governments to push through comprehensive financial-system rescue plans continued to weigh on bond and stock markets. On Thursday, the rate on government bonds maturing in three months fell to just 0.6% -- indicating investors are willing to accept returns close to zero simply to avoid the risk of losing their principal.
[Chart]
The most worrying aspect of the crisis is a growing reluctance among financial institutions to offer basic loans that are the lifeblood of the economic system. The Federal Reserve said Thursday the situation had worsened over the past week. Its data showed lenders reduced short-term loans to companies by a record $94.9 billion, bringing the total decline to $208 billion over the past four weeks.
These loans, known as "commercial paper," run anywhere from a few days to three months, and are routinely used by businesses of all stripes to fund day-to-day operations -- paying the bills, meeting salaries. The market for these loans, which totaled $2.2 trillion last summer, has shrunk to $1.6 trillion.
"It's unprecedented to see the markets shut to so many firms at one time," says Peter Andersen, a portfolio manager at Congress Asset Management Co., an investment company in Boston.
Indeed, this week, General Electric Co., long hailed as one of the steadiest companies in America, was forced to raise billions of dollars of capital on onerous terms because investors in GE's short-term corporate debt grew worried about its ability to pay its debts. Across the U.S., hundreds of colleges and schools saw their cash frozen in yet another supposedly safe money-market fund that shut down.
Rising concerns about the state of U.S. financial infrastructure sent stock prices sharply lower on Thursday, with the Dow Jones Industrial Average slipping 3.2%. Stock prices, however, offer only an indirect view of the crisis roiling debt markets.
The fresh Fed data showed, for instance, the extent to which lenders are unwilling to part with their money except for brief periods. The amount of debt that must be paid back in one to four days nearly doubled, to $160.6 billion, since the start of September. By contrast, debt maturing in more than 81 days fell to $1.7 billion from $13.5 billion at the start of the month.
The value of many loans and bonds has fallen dramatically. Prices of investment-grade bonds slumped 7% last month alone, while the so-called "junk bond" market (where weaker companies borrow) had its biggest decline in 20 years last month. Annual yields on junk bonds are now above 14%, suggesting that companies that want to raise funds this way will have to pay very high prices. Three months ago, their yields were 11% on average.
Bankers are also recoiling from making regular loans to companies perceived as riskier bets. The value of loans to companies like these -- which used to be considered relatively stable investment, because they are backed by assets like buildings and equipment -- has fallen more than ever before.
Overall, the amount of money loaned out to companies has dropped 40% in the first nine months of this year to $2.31 trillion, according to Dealogic.
The financial-system rescue bill currently before Congress attempts to address some of these worries by shoring up many of the banks that investors are worried about. The legislation is scheduled for a vote before the House of Representatives on Friday, after passing the Senate late Wednesday.
However, the House firmly rejected an earlier rescue package on Monday. Since then, investors have only grown more worried.
This week, worries spread to the life insurance industry, with shares of Hartford Financial, one of the nation's biggest insurers, falling 54% in four days. Concerns are centered on the company's investment portfolios and their need for cash, though neither appear to be at critical levels.
Companies that borrow money and then lend it out again, including GE Capital, student-loan provider Sallie Mae and credit-card company American Express Co., have seen their shares tumble this week. One worry is that these lenders will have to pay so much to borrow money, they won't be able to make a profit.
Many of the problems are in types of investments that have long been considered almost as safe as cash, but have turned out not to be. As a result, investors are pushing into ever-safer types of investments, such as government bonds or overnight U.S. bank deposits, simply to minimize the risk of losses.
The collapse of Lehman Brothers Holdings Inc. exposed a new set of risks in supposedly safe markets like these. Over the past several years, a period of historically low interest rates, many investors who normally stuck to safe securities such as Treasurys, bought other forms of debt to try to get a slightly higher yield. But when a major money-market fund -- itself considered to be almost as safe as cash -- announced it lost money on Lehman bonds, it sent a fresh shock wave through the lending community.
"Underlying it all is just a breakdown of ordinary banking, the nuts and bolts of the credit markets," said Martin Fridson, a 25-year bond-market analyst and head of Fridson Investment Advisors.
In some respects, all this represents a classic tightening of lending that has accompanied every credit crisis. But it's worsened this time by the explosion in recent years of new types of specialized investments that now are increasingly tough to put a value on. These types of complex investments also had the effect of entangling investors world-wide in complicated financial relationships that are only now starting to be disentangled.
Just this week, for instance, the troubles in London for Sigma Finance Corp., a fund run by the investment firm Gordian Knot Ltd., rippled through the credit markets around the globe. On Thursday, Swiss insurance company Zurich Financial Services AG warned it will have to take a $615 million write-down due to its investments in Sigma, a $27 billion investment fund that faces imminent liquidation of its assets after racking up losses on bonds issued by banks, including on about $110 million of Lehman Brothers Holdings Inc. debt. The fund also holds some bonds issued by GE Capital and General Electric, says a banker familiar with the matter.
Investors, worried that Sigma would be selling billions of dollars worth of bonds, sending their prices down, this week raced to buy "credit default swaps" -- a type of insurance against default -- on financial-company debt. Traders say the volume of trading in GE Capital swaps was double its normal total on Wednesday.
Prices for credit-default swaps to protect against default on GE's bonds rocketed higher on Wednesday, costing investors more $700,000 annually for five years of insurance on $10 million of GE debt. A month ago, the same protection cost only $160,000.
In the midst of this crisis, GE announced a deal in which Warren Buffett injected $3 billion in preferred stock, yielding 10%. The company says it will sell $12 billion in common stock to other investors as well.
The fear of losing even pennies on their investments has made money-market funds, one of the main sources of cash in the financial system, reluctant to invest in anything but the safest short-term debt. Several mornings over the past few weeks, a number of European banks that needed to borrow U.S. dollars had difficulty finding investors to lend them cash overnight even if the banks paid rates of over 6%.
When evenings came, money-market funds would rush to invest billions of dollars in overnight dollar deposits with large U.S. banks, in some cases accepting interest rates of as low as 0.01%.
The funding challenges European banks are facing in the U.S. are having ripple effects in their home countries. In a report on Thursday, analysts from J.P. Morgan said they believe the investor pullback in the U.S. commercial-paper market "is a contributing factor in the recent wave" of financial woes at European banks. Over the past few days, banks in Italy, Germany, Iceland and Belgium faced their own crises of investor confidence, and many had to receive government aid.
Problems faced by GMAC Financial Services LLC, one of the nation's largest lenders, are also playing out through the market. The firm is undergoing a restructuring amid steep losses in its mortgage unit Residential Capital LLC. ResCap, once considered the company's crown jewel, lost $4.3 billion in 2007.
To fill the hole created by those losses, GMAC has been shedding assets. Two weeks ago, the lender quietly offered to sell a $2.7 billion portfolio of corporate loans into the market, offering for sale about 25% of the loans its commercial-finance business made to dozens of companies including to hospital chain HCA Inc. to retailer Toys R Us Inc. The company said Thursday it is no longer pursuing the sale of those loans.
Contributing to the declines are hedge funds selling their loans as they struggle to raise cash to return money to investors or to meet banks' calls for more cash or collateral to back their borrowings. Their exiting the market means companies have even less access to loans. Expectations for corporate defaults, in turn, have risen.
"You've got a situation of near paralysis," said Steven Miller, a managing director at Standard & Poor's Leveraged Commentary & Data.更多精彩文章及讨论，请光临枫下论坛 rolia.net
In both the U.S. and Europe, uncertainty about the ability of governments to push through comprehensive financial-system rescue plans continued to weigh on bond and stock markets. On Thursday, the rate on government bonds maturing in three months fell to just 0.6% -- indicating investors are willing to accept returns close to zero simply to avoid the risk of losing their principal.
[Chart]
The most worrying aspect of the crisis is a growing reluctance among financial institutions to offer basic loans that are the lifeblood of the economic system. The Federal Reserve said Thursday the situation had worsened over the past week. Its data showed lenders reduced short-term loans to companies by a record $94.9 billion, bringing the total decline to $208 billion over the past four weeks.
These loans, known as "commercial paper," run anywhere from a few days to three months, and are routinely used by businesses of all stripes to fund day-to-day operations -- paying the bills, meeting salaries. The market for these loans, which totaled $2.2 trillion last summer, has shrunk to $1.6 trillion.
"It's unprecedented to see the markets shut to so many firms at one time," says Peter Andersen, a portfolio manager at Congress Asset Management Co., an investment company in Boston.
Indeed, this week, General Electric Co., long hailed as one of the steadiest companies in America, was forced to raise billions of dollars of capital on onerous terms because investors in GE's short-term corporate debt grew worried about its ability to pay its debts. Across the U.S., hundreds of colleges and schools saw their cash frozen in yet another supposedly safe money-market fund that shut down.
Rising concerns about the state of U.S. financial infrastructure sent stock prices sharply lower on Thursday, with the Dow Jones Industrial Average slipping 3.2%. Stock prices, however, offer only an indirect view of the crisis roiling debt markets.
The fresh Fed data showed, for instance, the extent to which lenders are unwilling to part with their money except for brief periods. The amount of debt that must be paid back in one to four days nearly doubled, to $160.6 billion, since the start of September. By contrast, debt maturing in more than 81 days fell to $1.7 billion from $13.5 billion at the start of the month.
The value of many loans and bonds has fallen dramatically. Prices of investment-grade bonds slumped 7% last month alone, while the so-called "junk bond" market (where weaker companies borrow) had its biggest decline in 20 years last month. Annual yields on junk bonds are now above 14%, suggesting that companies that want to raise funds this way will have to pay very high prices. Three months ago, their yields were 11% on average.
Bankers are also recoiling from making regular loans to companies perceived as riskier bets. The value of loans to companies like these -- which used to be considered relatively stable investment, because they are backed by assets like buildings and equipment -- has fallen more than ever before.
Overall, the amount of money loaned out to companies has dropped 40% in the first nine months of this year to $2.31 trillion, according to Dealogic.
The financial-system rescue bill currently before Congress attempts to address some of these worries by shoring up many of the banks that investors are worried about. The legislation is scheduled for a vote before the House of Representatives on Friday, after passing the Senate late Wednesday.
However, the House firmly rejected an earlier rescue package on Monday. Since then, investors have only grown more worried.
This week, worries spread to the life insurance industry, with shares of Hartford Financial, one of the nation's biggest insurers, falling 54% in four days. Concerns are centered on the company's investment portfolios and their need for cash, though neither appear to be at critical levels.
Companies that borrow money and then lend it out again, including GE Capital, student-loan provider Sallie Mae and credit-card company American Express Co., have seen their shares tumble this week. One worry is that these lenders will have to pay so much to borrow money, they won't be able to make a profit.
Many of the problems are in types of investments that have long been considered almost as safe as cash, but have turned out not to be. As a result, investors are pushing into ever-safer types of investments, such as government bonds or overnight U.S. bank deposits, simply to minimize the risk of losses.
The collapse of Lehman Brothers Holdings Inc. exposed a new set of risks in supposedly safe markets like these. Over the past several years, a period of historically low interest rates, many investors who normally stuck to safe securities such as Treasurys, bought other forms of debt to try to get a slightly higher yield. But when a major money-market fund -- itself considered to be almost as safe as cash -- announced it lost money on Lehman bonds, it sent a fresh shock wave through the lending community.
"Underlying it all is just a breakdown of ordinary banking, the nuts and bolts of the credit markets," said Martin Fridson, a 25-year bond-market analyst and head of Fridson Investment Advisors.
In some respects, all this represents a classic tightening of lending that has accompanied every credit crisis. But it's worsened this time by the explosion in recent years of new types of specialized investments that now are increasingly tough to put a value on. These types of complex investments also had the effect of entangling investors world-wide in complicated financial relationships that are only now starting to be disentangled.
Just this week, for instance, the troubles in London for Sigma Finance Corp., a fund run by the investment firm Gordian Knot Ltd., rippled through the credit markets around the globe. On Thursday, Swiss insurance company Zurich Financial Services AG warned it will have to take a $615 million write-down due to its investments in Sigma, a $27 billion investment fund that faces imminent liquidation of its assets after racking up losses on bonds issued by banks, including on about $110 million of Lehman Brothers Holdings Inc. debt. The fund also holds some bonds issued by GE Capital and General Electric, says a banker familiar with the matter.
Investors, worried that Sigma would be selling billions of dollars worth of bonds, sending their prices down, this week raced to buy "credit default swaps" -- a type of insurance against default -- on financial-company debt. Traders say the volume of trading in GE Capital swaps was double its normal total on Wednesday.
Prices for credit-default swaps to protect against default on GE's bonds rocketed higher on Wednesday, costing investors more $700,000 annually for five years of insurance on $10 million of GE debt. A month ago, the same protection cost only $160,000.
In the midst of this crisis, GE announced a deal in which Warren Buffett injected $3 billion in preferred stock, yielding 10%. The company says it will sell $12 billion in common stock to other investors as well.
The fear of losing even pennies on their investments has made money-market funds, one of the main sources of cash in the financial system, reluctant to invest in anything but the safest short-term debt. Several mornings over the past few weeks, a number of European banks that needed to borrow U.S. dollars had difficulty finding investors to lend them cash overnight even if the banks paid rates of over 6%.
When evenings came, money-market funds would rush to invest billions of dollars in overnight dollar deposits with large U.S. banks, in some cases accepting interest rates of as low as 0.01%.
The funding challenges European banks are facing in the U.S. are having ripple effects in their home countries. In a report on Thursday, analysts from J.P. Morgan said they believe the investor pullback in the U.S. commercial-paper market "is a contributing factor in the recent wave" of financial woes at European banks. Over the past few days, banks in Italy, Germany, Iceland and Belgium faced their own crises of investor confidence, and many had to receive government aid.
Problems faced by GMAC Financial Services LLC, one of the nation's largest lenders, are also playing out through the market. The firm is undergoing a restructuring amid steep losses in its mortgage unit Residential Capital LLC. ResCap, once considered the company's crown jewel, lost $4.3 billion in 2007.
To fill the hole created by those losses, GMAC has been shedding assets. Two weeks ago, the lender quietly offered to sell a $2.7 billion portfolio of corporate loans into the market, offering for sale about 25% of the loans its commercial-finance business made to dozens of companies including to hospital chain HCA Inc. to retailer Toys R Us Inc. The company said Thursday it is no longer pursuing the sale of those loans.
Contributing to the declines are hedge funds selling their loans as they struggle to raise cash to return money to investors or to meet banks' calls for more cash or collateral to back their borrowings. Their exiting the market means companies have even less access to loans. Expectations for corporate defaults, in turn, have risen.
"You've got a situation of near paralysis," said Steven Miller, a managing director at Standard & Poor's Leveraged Commentary & Data.更多精彩文章及讨论，请光临枫下论坛 rolia.net