Commentaries
Now raising intellectual capital
Does securitization actually lower credit costs?
Just reading more of Fed Governor Tarullo’s speech and he has this to say about securitization markets:
There were undoubtedly many imprudent, even reckless, practices associated with the securitization process, particularly with respect to some exotic instruments whose risk could not be understood even by their creators. There is little to lament in their disappearance. But securitization is not in and of itself a bad thing. On the contrary, a well-functioning system for securitizing well-underwritten loans can make capital available at lower cost to businesses, homeowners, and retail consumers. The failure of many relatively straightforward securitization markets to revive without government support may be explained simply as a hangover from the excesses and still-encumbered assets of the pre-crisis period. Just as some have restarted, perhaps others will follow as markets for the underlying assets improve. But I will confess to some concern that there has not already been greater activity.
Interesting that he, too, is worried about the lackluster revival of securization even though the Fed has provided attractive non-recourse loans to those buying qualifying debt.
But I’m also interested in the assumption that securitization makes financing cheaper for consumers and businesses. I’ll buy that it makes credit more accessible since banks can move their loans off their balance sheets, but cheaper? This has been the conventional wisdom in markets for as long as I can remember, but has anyone actually done a study on it? If anyone has any thoughts on this, send them my way.
Kraft moving ahead with financing
Why let a little rejection stand in your way? Kraft is proceeding with the financing it would need to buy Cadbury, even though the U.K. confectioner spurned the initial offer. It looks like it’s financing plans are above what had been initially expected, which could mean slightly more new cash could be added to a revised bid.
Credit Suisse had put the new debt at $6.667 billion. Bloomberg reports it looks more like $8 billion.
Leveraged loans making a comeback?
The $4 billion financing for Warner-Chilcott’s acquisition for P&G’s drug business is another sign of credit markets coming back to an even keel, but it’s not clear how much juice the banks have to keep the momentum going if they don’t find investors for the debt.
The Wall Street Journal reports that six banks, including JP Morgan and Bank of America, will provide the financing, $3 billion going to the acquisition and $1 billion to refinance existing Warner-Chilcott debt.
CIT doomed by PE
The most compelling argument for saving CIT Group from collapse is the impact it would have on small- and mid-sized business that depend on the New York-based lender for financing. But it’s increasingly looking like that argument is more hype than anything else.
First of all, CIT pretty much hasn’t been doing any new lending for the past six months, when its financial troubles really began to mount. Most of the lines of credit the firm has out to hundreds of thousands of small companies were arranged long before the collapse of Lehman Brothers.
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The Wall
