Financing for Financials
Banks and other financial companies accounted for about three-quarters of the $31 billion-plus of new bonds floated in the U.S. last week. Foreign financial firms pulled out their passports and traveled to U.S. markets for the majority of that total.
JPMorgan Chase (NYS: JPM) led U.S. banks and financials with $2 billion in three-year fixed and floating rate notes. Typical for banks, there wasn't any detail on how the funds would be used.
AIG's (NYS: AIG) aircraft lease subsidiary, International Lease Finance, hit the markets for $1.5 billion worth of three- and seven-year paper. The new money will be used to pay off some debt due in 2015 and "the repayment of other existing indebtedness and the purchase of aircraft." It must be the season for equipment leasing and rental firms to borrow. International Lease was joined by fellow aircraft lessor Air Lease and Enterprise Rent-a-Car's financing arm with $1 billion and $600 million of new borrowing, respectively.
CIT Group (NYS: CIT) swiped its credit card for $1.5 billion of six-year paper. The money will be used to pay off higher-interest paper. According to CEO John Thain in the company press release, "This transaction is a significant milestone for CIT as it represents our first public unsecured bond issuance since 2007."
Rounding out last week's U.S. bank billion-buck borrowing club is BB&T (NYS: BBT) with $1.05 billion of five- and 10-year paper. BB&T took an interesting twist on the nondescript "general corporate purposes" in the use of proceeds statement by adding nearly every general corporate purpose imaginable. With BB&T passing the recent Fed stress test, the possible use that jumped out was "repurchasing outstanding shares of our common stock."
Foreign financial companies were busy loading up their credit cards on Wall Street last week. Nearly $15 billion, just under half the new bonds for the week, was from firms based outside the U.S. The six companies listed below made up most of that borrowing.
Home Country or Region
|Bank of Nova Scotia (NYS: BNS)||Canada||$2.75 billion|
|Nordea Bank||Northern Europe||$2.75 billion|
|Bank Nederlandse Gemeenten||The Netherlands||$2.5 billion|
|Mizuho Corporate Bank||Japan||$1.5 billion|
|Itau Unibanco||Brazil||$1.25 billion|
|DBS Bank||Singapore||$750 million|
Corporate borrowers continue to bring plenty of bonds to market and foreign borrowers, especially financials, have been taking up sizable chunks of the low-rate dollars on the table. I haven't seen a good explanation for the uptick in foreign company activity in U.S. credit markets. Maybe it's just a coincidence that overseas borrowers are borrowing more greenbacks. Perhaps European bond markets are under some pressure from the sovereign debt drama, but that wouldn't explain Latin American and Asian companies' borrowing. My theory is the Fed's Operation Twist has made long-term U.S. interest rates too low to pass up and companies are funding operations and investments with cheap-to-borrow bucks. If so, it's nice to know the Fed is providing liquidity to the world.
Add a comment below to chime in with your thoughts on why U.S. credit markets are attracting borrowers from around the world.
- Add JPMorgan Chase to My Watchlist.
- Add CIT Group to My Watchlist.
- Add The Bank Of Nova Scotia to My Watchlist.
- Add BB&T to My Watchlist.
- Add American International Group to My Watchlist.
At the time this article was published Fool contributor Russ Krull does not own shares of any company mentioned. You can follow his stock picks on CAPS. The Motley Fool owns shares of JPMorgan Chase. Motley Fool newsletter services have recommended buying shares of The Bank of Nova Scotia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool's disclosure policy travels the world looking for the best bond rates.