(Bloomberg News) The largest U.S. banks, down 19 percent this month, aren't seeing the same retreat by counterparties and clients that helped drive some firms to the brink of collapse in 2008.
The nation's banks are maintaining trading with major counterparties and haven't seen widespread, large withdrawals by clients, according to people with direct knowledge of dealings at four firms, who asked to remain anonymous because customer interactions are private. The five largest Wall Street firms had $1.49 trillion of liquidity resources -- cash or assets that can be sold quickly -- which is enough to weather the "market dislocations," CreditSights Inc. wrote in a report yesterday.
Lenders including Bank of America Corp. and Citigroup Inc. have plummeted this month as the European sovereign debt crisis and a potential double-dip recession in the U.S. sent the Standard & Poor's 500 Index down 13 percent through yesterday. The retrenchment hasn't caused funding markets to freeze as in 2008, when the government injected $700 billion into the largest lenders to stave off collapse.
"We have a financial system that has more equity, more capital, lower levels of leverage, stronger liquidity," said Randy Snook, executive vice president at the Securities Industry and Financial Markets Association, a banking trade group. "The overall economic environment and economic growth questions are the largest issues that the marketplace is facing right now. Compare that with 2008, the marketplace was dealing with the functioning and the resiliency of the financial system."
U.S. And Europe
European banks haven't fared as well as U.S. lenders. Among the world's biggest banks, nine of the 10 perceived as the most likely to default are European, data compiled by Bloomberg show.
The spread between the three-month dollar London interbank offered rate and overnight indexed swap, a gauge of banks' reluctance to lend to each other, rose to 19.16 basis points yesterday. It reached 366 basis points in October 2008.
Rates in repo markets, where firms obtain short-term financing, have fallen more than 70 percent since August 2, the day President Barack Obama signed a measure to raise the debt ceiling. U.S. banks have seen "no evidence" of investors requiring more collateral for a given loan, or raising the so- called haircut, SIFMA managing director Rob Toomey said yesterday.
"If I thought this was a calamity, I would go back to New York," JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon told CNBC from a tour of his bank's California branches. "People are careful, but they're still doing business with their clients. A lot of the markets are fine, the repo markets, the mortgage markets, some of the credit markets are still open."
BofA, Citigroup
Bank of America, based in Charlotte, North Carolina, climbed 5.3 percent to $7.13 at 11:14 a.m. in New York Stock Exchange composite trading, trimming its decline to 27 percent in August and 47 percent so far this year. Citigroup rose 2.8 percent, while Morgan Stanley and Goldman Sachs Group Inc. each increased more than 3.5 percent.