Banks on a quest for funds

Bank treasurers are busy setting up new funding lines as they position their organisations for a prolonged period of dislocation in the global credit market.

St George Bank general manager capital markets Jeff Sheehan said the bank was working on a debt issuance program for the United States market and the Japanese Samurai market.

Sheehan said: "The theme for this year is diversification of funding."

St George is not the only bank looking for new funding sources. Suncorp has just established a US commercial paper facility and ANZ is preparing its first Samurai bond issue.

St George's most recent fund raising was a $930 million issue of floating rate one-year transferable deposits and $150 million of certificates of deposit. The funding was priced on February 28 at 45 basis points over the bank bill swap rate.

The issue was taken up by 16 domestic investors and one offshore investor.

Sheehan said investor demand was for one to one and a half year securities. "Investor tenor has shortened. In the current market it is understandable that they have a short horizon.

"Issuers were looking for more liquidity in the New Year with pricing coming in, but liquidity is still tight and spreads are still widening."

Sheehan said St George had no RMBS issued planned, saying it was too expensive. The bank is exploring new markets instead.

ANZ group Treasurer Rick Moscati said: "There is no doubt we are all looking for new avenues of funding."

Moscati said there was a lot of competition among issuers in the markets and that is one factor that has kept spreads wide.

ANZ's most recent issue, priced on February 1, was a US$3.75 billion extendible note issue. The notes are issued with a 13-month initial maturity date. Investors have an option to extend the notes for another year.

This option is exercised each year up to a final  maturity of  five years. The initial coupon is 21 basis points over Libor, rising each year after that.

Moscati said 12- to 18-month tenor was the sweet spot in the market now.  He said there had been a significant shortening of the curve.

Part of the appeal of getting into the Samurai market was that ANZ would be able to issue three- and five-year securities.

Suncorp chief financial officer Chris Skilton said the group had established a US commercial paper facility, which it was yet to tap.

Skilton said the group would look to issue an additional $2 or $3 billion of term debt to make up for the fact that it had no RMBS issuance planned.

Skilton said: "We have put a lot of time into our funding programs over the past four or five years. We have a good range of investors."
Skilton said there was no pressure on the group to issue and it would wait for opportunities. Right now spreads are wide.

"We issued subordinated debt last October at 90 basis points over. If we did that now we would pay 180 over."

ING Direct head of Treasury Glenn Baker agreed that the market's sweet spot was 12- to 18-month tenor.

Baker said: "Investors don't want to go too long. Issuers would love to issue some long dated securities but the cost is too high."

ING Direct issues through an 80 billion euro program established by its parent. It is an authorised issuer in that program, which allows it to issue in a variety of currencies, onshore or offshore.
 
The bank's most recent issue, $1.2 billion of domestic notes, was priced on February 26. A $625 million 12-month tranche was priced at 35 basis points over the bank bill swap rate and a $575 million 18-month tranche was priced at 47 basis points over.

Baker said: "Pricing is a moveable feast. The Commonwealth did 12 months at 25 points over and St George did 45 points over for 12 months.

"One thing you can say is that conditions are no better."