'Tis the Season for Banks To Avoid Debt Markets
Banks gearing up to issue debt had better do so in the next few days - or they may have to wait until late January.
Capital markets specialists and traders agree that the market for bank debt virtually closes down as yearend holidays approach.
"You don't want to be in the market trying to do a deal over Christmas," said Matthew J. Grayson, a vice president at Salomon Brothers Inc. "Starting in midweek the markets will shut down altogether. People get into the holiday spirit."
Times to Avoid
Banks are allowed to issue new debt whenever bond markets are open.
But as a practical matter, they usually avoid issuing new securities at certain times.
Most banks shun the corporate debt market early in a new quarter, finding it hard to make all the disclosures required under securities law while they are still toting up their quarterly results.
Moreover, investors are wary of buying bank securities before companies announce interim results, so they tend to demand relatively high yields on any new offerings that do reach the market.
Concern over Performance
Banks also shy away from the market around yearend. Institutional investors and traders are generally reluctant to take big new positions that might cut into their performance record.
In fact, what with holidays and vacations, many of them are simply not around to look at any new offerings.
"They have a little bit of money they want to put to work, but there's not a lot of wholesale buying going on," said Michael Hynes, a managing director and bank bond trader at Smith Barney, Harris Upham & Co.
The result? A virtual shutdown of the bank capital markets from mid-December until mid-January.
Traders make lunch dates with clients and they and other capital markets specialists alternate vacation days with co-workers.
"The window's still open this week, but after the middle of next week it'll be tough," said Thomas Quigley, a bank bond trader and senior vice president at Donaldson, Lufkin & Jenrette.
"The calendar says you have three weeks left, but trading-wise you really only have a week and a half. You'll have people minding the store, but that's about it. People take vacations and focus on the holidays."
Last year, banks issued no debt in the public markets after the third week in December.
No More in Sight
Two banks - Republic New York Corp. and Fleet/Norstar Financial Group - have issued debt so far this month, but capital markets specialists say that could be it for the year.
"I can't really think of anyone who's seriously contemplating an offering," said one capital markets specialist.
The fixed-rate preferred stock market shuts down at least as early as the bank debt market, traders said. BankAmerica Corp. is currently in the market with a $150 million offering, but no one anticipates another big bank deal in that market before the end of the year.