Countrywide Financial Corp.'s securities unit on Thursday became a trader with the Federal Reserve Bank of New York and is now required to bid at U.S. Treasury debt auctions.
The New York Fed's Web site on Wednesday announced the designation of Countrywide Securities Corp. as a U.S. government securities primary dealer. There are now 23 such dealers.
"This is part of an effort to diversify operations of the broker-dealer and take advantage of what has once again become a growth industry: U.S. Treasuries," said Grant Couch, a managing director and the chief operating officer of the unit.
Countrywide, known for trading mortgage-backed and agency bonds, began trading Treasuries about three months ago. Its Treasury trading operation is led by Susan Estes, who has managed bond departments at Morgan Stanley and Deutsche Bank. She also oversees the trading of bonds issued by Fannie Mae, Freddie Mac, and the Federal Home Loan banks.
Last year Countrywide Securities' trading volume climbed 43%, to a record $2.9 trillion, including trades with Countrywide Financial's mortgage banking unit.
Mergers and acquisitions on Wall Street have reduced the number of primary dealers in recent years; there are now half as many as there were in 1988, when the government had a smaller deficit and fewer debt sales.
J.P. Morgan Chase & Co.'s bid to purchase Bank One Corp. would further thin the ranks, because both are primary dealers. J.P. Morgan Chase was formed through the mergers of four firms, all of which were primary dealers - J.P. Morgan & Co., Chase Manhattan Corp., Chemical Bank, and Manufacturers Hanover Trust Co.
The Fed uses primary dealers to control the amount of cash in the banking system. The firms lend securities to the New York Fed when the central bank wants to add cash through so-called repurchase agreements, and they take securities from the Fed when the central bank wants to reduce the amount of money in the system.
In addition to being required to bid at Treasury auctions, primary dealers also stand ready to buy and sell U.S. government debt.
Last year primary dealers traded $428.56 billion of Treasuries on an average day, 15.8% more than they did in 2002 and 43.9% more than in 2001. They also traded $81.5 billion of agency debt and $203.55 billion of mortgage-backed securities on an average day last year, according to the Fed.
Zions First National Bank and Bank of Montreal's BMO Nesbitt Burns Inc. withdrew as primary dealers in April 2002. Societe Generale's SG Cowen Securities Corp., which withdrew in October 2001 after 28 months as a primary dealer, said it could be more competitive without the constraints required by the Fed. Primary dealers must buy and sell mortgage-backed securities and debt sold by Fannie and Freddie, as well as Treasuries.
