NEW YORK - Ford Motor Co. has told its investment bankers to ante up $250 million of credit as a condition for arranging acquisitions and raising capital for the world's No. 2 automaker.
Commercial banks such as Bank of America Corp. prodded Ford to push for the change. Traditional lenders want to work on more lucrative activities, such as selling bonds and advising on mergers, businesses dominated by their biggest Wall Street rivals.
"We also need to be involved in other parts of your capital raising business," said Carter McClelland, who heads corporate lending and securities business at Bank of America. "Otherwise, it's not economic for us."
Merrill Lynch & Co., Lehman Brothers Holdings Inc., and J.P. Morgan & Co. have agreed to Ford's demand. Morgan Stanley Dean Witter & Co. and Goldman Sachs Group Inc. balked at extending the credit, which would tie up capital in a marginally profitable business, said people familiar with the companies.
The demand by one of Wall Street's biggest clients could set an unwelcome precedent for the firms, especially Goldman, which took Ford public in 1956. Goldman declined to comment.
Ford said it is making new demands on the firms that helped it sell $70 billion of bonds the past three years and make $19 billion of purchases the past two years.
"We have been speaking to investment banks about providing the same kind of credit lines that commercial banks have typically been asked to provide," said Karen Hampton, a Ford spokeswoman.
The wrangling, initiated by Ford this year, reflects the blurring lines between commercial banks and securities firms.
The talks involve emergency credit lines in case the automaker is shut out of the commercial paper market. Such short-term debt is typically provided by commercial banks, which have more capital than securities firms and can tap Federal Reserve credit.
In recent years commercial lenders have been expanding investment banking operations. This trend accelerated after last year's repeal of Depression-era laws limiting their securities business. One reason for the shift: Securities firms' fatter profits have yielded higher stock prices.
Backstop lines of credit for investment grade companies generate hardly any profit. They use up hundreds of millions of dollars for fees as low as 0.1%. That compares with 0.5% for underwriting investment grade bonds.
If a credit line's maturity is more than one year, the lender must set aside 4% of the total in case it is drawn upon - $10 million for a $250 million credit line.
Unlike many investment-grade borrowers, Ford negotiates its credit lines with each of its lenders individually. These "bilateral" agreements give the company greater control over its borrowing terms and conditions than a standardized credit agreement.
Securities firms will make investment grade loans if they get underwriting or mergers mandates in return. Merrill, for example, was hired as co-manager on a planned $3 billion bond issue.
"It would be a troubling trend if the commercial banks could provide all the services that investment banks can, which I don't think they can," said Morgan Stanley chief financial officer Robert Scott. "Ford will have to decide what's more important, where can they go for these different kinds of financial services."