 |
||||||
| Friday, November 20, 2009 |
Contact Us
|
 RSS
|
|||||
|
|
| |
|||
|
||||||
|
||||||
|
|
ANALYSIS
March 2, 2009
Sagging Index no longer reflects what’s going on in the market, some say, Replacements? Google it, to start.
March 2, 2009
Downward price spiral will actually boost the cost of capital for most companies. CFOS, take note.
March 2, 2009
The latest bailout at AIG could be a preview of how the president will deal with Wall Street.
March 2, 2009
No corporate defaults. Big debt offerings. Percolating CP issuance. Things may be looking up in the capital markets.
|
|
|
|
February 23, 2009 12:01 AM ET
(Bloomberg)
Although it is impossible to prove their contention based on publicly available data, these analysts suspect that China’s holdings of the debt of banks such as Citigroup and Bank of America are one reason the Obama Administration is hesitating to take over those banks and restructure them with taxpayer assistance. Although an increasing number of experts contend temporary nationalization followed by a spin-off of the banks’ good assets to private investors would be the most effective way to resolve their financial woes, that would wipe out the value of current shareholders’ holdings. What’s more, nationalization would force bondholders to take a substantial hit. The U.S. government, these analysts say, is simply unwilling to subject Chinese financial institutions to such losses, particularly at a time when Uncle Sam needs these overseas lenders to finance America’s growing deficits through Treasury bond purchases. While China needs these purchases to hedge its exposure to the dollar as a result of its reliance on exports, Beijing has been shifting its capital investment priorities from exports to domestic infrastructure—not surprising given U.S. imports have fallen during the recession. Yet China’s sudden exit from Treasuries would raise interest rates at a time when low ones are required to help rescue the struggling U.S. economy. In an interview last week with Henry Blodget on the investment blog Tech Ticker, analyst Christopher Whalen of Institutional Risk Analytics said that investors he had spoken with were concerned that China’s portfolio of U.S. bank debt was holding back the administration from taking the most effective steps to deal with banks such as Citi and B of A. In January of last year, China’s leaders refused to back an equity stake taken by its development bank in Citi. You can’t blame them for being gun shy. The securities unit at Citic (the i-bank formerly known as China International Trust and Investment Company) bet $1 billion on Bear Stearns, while sovereign wealth fund China Investment Corporation bought into the Blackstone Group’s IPO. Neither investment exactly lit up the tote board. But the Chinese central bank, the People’s Bank of China, likely has sizeable holdings of the debt of Citigroup and others, as might the country’s state-owned banks. While the exact extent of those holdings is impossible to determine, economists have come up with rough estimates based on the Treasury Department’s monthly Treasury International Capital report. Rachel Ziemba, an analyst for RGE Monitor, estimates that China’s banks and investment funds held at least $77 billion in U.S. corporate debt as of December, based on her analysis of the TIC report released last Tuesday. She could not say how much of that might be the debt of U.S. banks, but noted in an email to Financial Week that her “very conservative” estimate of China’s total U.S. corporate debt holdings is likely to be greatly underestimated because those securities are held by non U.S.-based custodians. Hence, Ms. Ziemba said the actual figure was likely to be closer to $160 billion. She added that those figures were likely to include a large amount of debt as well as asset-backed securities issued by banks such as Citi and B of A. “I would assume that there is significant exposure to bank debt, and that could pose an obstacle to resolving the bank liabilities,” Ms. Ziemba wrote. She cautioned, however, that Chinese investment policy was far more likely to be influenced by issues such as the U.S. government’s response to the recession here and its level of support for the dollar. Nevertheless, China shifted a huge amount of debt issued by Fannie Mae and Freddie Mac into Treasuries after those institutions ran into trouble because of rising U.S. mortgage defaults. That exodus was followed in September by the takeover of those government sponsored enterprises by the Treasury. Brad Setser, a fellow at the Council of Foreign Relations who also closely monitors the TIC report, told Financial Week that sovereign fund China Investment Corp. experienced large losses as a result of its investments in the Reserve Primary money market fund, which held a sizeable amount of paper issued by Leman Brothers before it failed last September. And Mr. Setser noted that based on that experience, he wouldn’t be surprised if China were trying to reduce its exposure to the debt of Citi and B of A. “Post Lehman, post [Fannie and Freddie], it seems like China is shifting back into Treasuries quite quickly,” he wrote. So if the scenario that played out at Fannie and Freddie scenario is any indication, the Obama administration may be waiting for China to reduce its exposure to the debt of the latest U.S. financial institutions found lying near death’s door before it nationalizes them. Mr. Whalen has recently said he expects Uncle Sam to step in soon after the banks report results for this year’s first quarter. Needles to say, he’s not expecting banner results.
|
|
|
|
CRAIN'S BENEFITS OUTLOOK 2009
SPECIAL REPORT
MOST POPULAR
|
MORE ANALYSIS
Crain Financial Group:
InvestmentNews |
Pensions & Investments |
Workforce Management
Copyright ©2009 Crain Communications Inc
All rights reserved.
Privacy Policy |
Terms & Conditions