(Add currency risk to the Full Faith and Credit guaranteed bankster swagpile. - AM)
By Patricia Kuo
Dec. 24 (Bloomberg)
U.S. 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.
U.S. financial institutions sold more than $100 billion of government-backed notes in dollars, euros and British pounds since Oct. 14, when the Federal Deposit Insurance Corp. agreed to guarantee their bonds to help them cope with $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. in Hong Kong, which oversees $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.''
U.S. banks may be forced to follow European and Australian banks, which lured fund managers to $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 $450 billion by the end of June, Barclays Capital analysts said on Dec. 9.
Citigroup's $3.75 billion of 2.875 percent FDIC-guaranteed bonds maturing in 2011 traded at 168 basis points above U.S. Treasuries today, Bank of America Corp. prices show. The notes were priced to yield 188.4 basis points more than government debt when sold on Dec. 2, according to Bloomberg data.
``The traditional G3 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.''