Wall Street Banks Take On More Debt as Balance Sheets Swell

(Bloomberg) -- Bank of America Corp. and Morgan Stanley joined the rush by large U.S. banks to sell new bonds after earnings that highlighted rapid balance sheet growth through the pandemic.

“Deposit growth has just been humongous,” said Arnold Kakuda, senior financials credit analyst at Bloomberg Intelligence. “Balance sheets swelled and a bigger bank needs to hold more debt,” he said.

BofA sold $7.75 billion of bonds in three parts, according to a person with knowledge of the matter. The longest portion of the offering, a 31-year security, will yield 1.03 percentage points over Treasuries after initial price talk in the 1.3 percentage points area, said the person, who asked not to be identified as the details are private.

Morgan Stanley brought an $8.5 billion three-part deal, according to a separate person familiar with the matter. The longest portion, an 11-year offering, will pay a premium of 0.95 percentage points, after initial talk in the 1.125 percentage points area, the person said. Morgan Stanley reported its second most profitable quarter on record Thursday before bringing the transaction.

There’s rarely been a better time for big banks to borrow. High-grade U.S. financial sector bond spreads are just 4 basis points away from a post-financial crisis low of 71 basis points set on June 30, data compiled by Bloomberg show.

The bond sales follow a $5.5 billion offering from Goldman Sachs Group Inc. on Wednesday, the day after it reported earnings. The expansion of their prime brokerages encouraged both Goldman and Morgan Stanley to borrow, according to Kakuda. Both are adding hedge fund clients and increasing market share in that business, after competitors scaled back in the wake of the Archegos Capital Management blowup. Cash from bond sales will allow them to extend more credit to prime brokerage clients.

JPMorgan Chase & Co. could be the next large U.S. bank to issue debt in coming days, according to Bloomberg Intelligence. Citigroup Inc. is also a contender.

Read More: BofA Active, But JPMorgan May Issue More Debt

In the first half of the year, the leading financial institutions tapped the market regularly after posting results, including Bank of America’s record-setting $15 billion deal in April.

U.S.

Delta Air Lines Inc. is offering to buy back up to $1 billion of high-cost bonds issued at the height of the pandemic last year, as the company begins to look at ways to scale back its balance sheet.

• Carnival Corp. is looking to slash borrowing costs with the sale of new junk bonds that would refinance debt that the cruise operator sold at the height of the pandemic at almost triple the cost
• David Hunt, who oversees $1.5 trillion as chief executive officer of PGIM, called out greenwashing as a “major problem” amid rampant growth in false claims about the sustainability of investment products
• For deal updates, click here for the New Issue Monitor
• For more, click here for the Credit Daybook Americas

Europe

European credit investors will focus on the latest central bank policy headlines and their impact on the shape of the economic recovery from the pandemic, as the new bond pipeline thins ahead of summer holidays.

• In the U.K., Bank of England Deputy Governor Dave Ramsden said inflation may peak at double the targeted level, indicating monetary policy might need tightening
• A company owned by the billionaire Barclay family is trying to refinance a $200 million loan it received from Greensill Capital, a move that would potentially offer some relief to Credit Suisse Group AG funds that invested in debt arranged by the now-defunct specialty lender
• Italian mobility solutions provider Leasys SpA and Spain’s Lar Espana Real Estate SOCIMI SA offered green bonds in euros
• Bulgarian Energy Holding EAD raised a euro issue

• Ethical ambitions are becoming the centerpiece of European credit markets, making the region the undisputed world leader in sustainable financing

  • One dollar out of every $5 raised this year by European issuers has been linked to borrowers’ performance in Environmental, social and governance (ESG) initiatives
  • That ratio increases to one out of $3 for corporate loans
  • Those shares in overall loans are several times higher than the proportions for the Americas and Asia-Pacific

Asia

Asia’s primary dollar bond market saw at least seven companies offering new debt that prominently features notes used to finance a combination of green and social projects.

• India’s Adani Electricity Mumbai Ltd. is marketing a $300 million sustainability-linked bond with terms tied to renewable energy and greenhouse gas emission targets
• China’s Kaisa Group Holdings Ltd., Agile Group Holdings Ltd. and Minmetals Land Ltd. are looking to sell sustainability notes

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