Financial News: Banks Urge U.k. Clients To Stop Borrowing

[nawibo]

http://seekingalpha.com/article/56064-is-t...ver?source=feed

In "Financial News: Banks Urge U.K. Clients To Stop Borrowing," Dow Jones Newswires reports that banks are apparently going cap-in-hand to clients begging them not to do what they are legally allowed to do.

Banks have asked top U.K. corporate clients not to draw on lending facilities to which they are entitled in order to preserve their balance sheets as they approach the financial year end.

The banks are urging some of their biggest clients not to draw on standby credit facilities as the sub-prime crisis and squeeze on interbank lending have affected banks' ability to fund themselves.

The problems started with the closure of the commercial paper market as a means of cheap funding for companies in the summer. Banks have to provide standby financing of up to 100% to backstop commercial paper programs. With banks struggling for their sources of financing through the interbank market, the drawdowns are having a direct effect on their balance sheets.

Several bankers have said Citigroup © is one of those most affected and that the bank was asking some clients not to use standby facilities, which are part of the normal relationship banking arrangements made between banks and companies.

A Citigroup spokesman said: "Citigroup honors its commitments to its clients but, as part of our normal business, we discuss with clients the potential use of our balance sheet. This is standard industry practice."

Simon Allocca, head of non-French corporate origination at BNP Paribas (BNPQY.PK), said: "By the end of the summer, the principal problem facing banks was not U.S. sub-prime or collateralized debt obligation exposure but the drawing down of standby loans and bilaterals. In some cases banks are seeking to avoid further balance sheet capital pressure by asking clients not to use their standby facilities."

Standby financing is typically for 364 days and when undrawn has a zero risk weighting. When it is drawn, the risk weighting goes to 100%. This makes the sums involved significant. If a company is unable to tap the markets for commercial paper to the tune of, say, GBP4 billion (EUR5.6 billion), banks may have to provide that amount in standby financing

[Goldfinger]

From the companies' point of view it seems reasonable to borrow all they can, because:

(1) They won't be able to next year.

(2) There are better investments than Sterling.

Edited December 3, 2007 by Goldfinger

[bobthe~]

This is like It's a Wonderful Life for companies.

Could we see a "wholesale" run on banks before we see a retail one?

If I was a client, the first thing I would do is borrow that money and hang on to it, regardless of the rate, cos it sounds like I won't be able to soon.

Or, ask what I would get in return if I didn't draw down the facility.

[marko]

This makes me chuckle - banks are notorious for shafting whoever they can...and now they want clemency from the companies they lend to. If I had a standby facility with one, I would borrow all of it just to piss them off, or as bob said, I would see what they could offer me to not borrow - payback is, after all, a b1itch.

[Extradry Martini]

It is precisely this use of stand-by facilities that has triggered the crisis in the money markets. You can almost guage the quality of a press commentator or politician by whether he understands this point or whether he only talks about banks "not trusting each other".

[tinecu]

http://seekingalpha.com/article/56064-is-t...ver?source=feed

In "Financial News: Banks Urge U.K. Clients To Stop Borrowing," Dow Jones Newswires reports that banks are apparently going cap-in-hand to clients begging them not to do what they are legally allowed to do.

Banks have asked top U.K. corporate clients not to draw on lending facilities to which they are entitled in order to preserve their balance sheets as they approach the financial year end.

The banks are urging some of their biggest clients not to draw on standby credit facilities as the sub-prime crisis and squeeze on interbank lending have affected banks' ability to fund themselves.

The problems started with the closure of the commercial paper market as a means of cheap funding for companies in the summer. Banks have to provide standby financing of up to 100% to backstop commercial paper programs. With banks struggling for their sources of financing through the interbank market, the drawdowns are having a direct effect on their balance sheets.

Several bankers have said Citigroup © is one of those most affected and that the bank was asking some clients not to use standby facilities, which are part of the normal relationship banking arrangements made between banks and companies.

A Citigroup spokesman said: "Citigroup honors its commitments to its clients but, as part of our normal business, we discuss with clients the potential use of our balance sheet. This is standard industry practice."

Simon Allocca, head of non-French corporate origination at BNP Paribas (BNPQY.PK), said: "By the end of the summer, the principal problem facing banks was not U.S. sub-prime or collateralized debt obligation exposure but the drawing down of standby loans and bilaterals. In some cases banks are seeking to avoid further balance sheet capital pressure by asking clients not to use their standby facilities."

Standby financing is typically for 364 days and when undrawn has a zero risk weighting. When it is drawn, the risk weighting goes to 100%. This makes the sums involved significant. If a company is unable to tap the markets for commercial paper to the tune of, say, GBP4 billion (EUR5.6 billion), banks may have to provide that amount in standby financing

Oh dear. Poor little banks

Corporates clients would do well to change their bank to a more solvent one.

[Realistbear]

The jump in the Libor to 6.72 and lack of bank funding is like a hole being punctured in a space capsule in outer space. Everything gets sucked out. It will be interesting to see how many people are getting mortgages recently. Whatever Gordon tells Ali to tell Merv to do this Thursday will have little impact on the real cost of borrowing. The BoE are now out control, its all about credit now--or the dissappearance thereof. Very dangerous and unprecedented times.

[council dweller]

This is like It's a Wonderful Life for companies.

Could we see a "wholesale" run on banks before we see a retail one?

If I was a client, the first thing I would do is borrow that money and hang on to it, regardless of the rate, cos it sounds like I won't be able to soon.

Or, ask what I would get in return if I didn't draw down the facility.

I would have thought that companies borrow money because they need to, or am being naive here ? Surely they borrow to invest (in their own business hopefully) or due to some kind of cash flow issue. Are they asking companies to risk going out of business (or lower profits)in the short or long term in order to give a helping hand to banks?

Personally if I give to charity I'll give to Oxfam or the cat protection league.Maybe I should consider giving to banks also.

[flapjack]

No more free lunches then! lol

This is an incredible news item - in effect asking customers not to buy!? Please don't come into our shop - we might go broke. This does happen to everyday businesses as well - it called 'overtrading' - the company takes on more orders than it can service. The result - cashflow problems. Can and does happen to small businesses but to an international bank - thats incredible!! Who was in control, doing risk assessments etc, company economists? accountants, auditors. All asleep or to busy building thier property empires!!

http://en.wikipedia.org/wiki/TANSTAAFL

[margesimpson]

Personally if I give to charity I'll give to Oxfam or the cat protection league.Maybe I should consider giving to banks also.

[OnlyMe]

We don't need no stinking manufacturing.

We don't need no stinking agriculture.

All we need is a printing press and an idiot to run it day and night and pay for all our goods with IOU's.

That pretty much encapsulates the last 10 years. Well it is payback time.

flapjack "it called 'overtrading' " yes, anybody and I mean anybody who has run even the tiniest business out there has to get their heads around this concept It seems it is way way beyond the ken of the bankers and their overseers.

[South Lorne]

Can and does happen to small businesses but to an international bank - thats incredible!! :ph34r:Who was in control, doing risk assessments etc, company economists? accountants, auditors. All asleep or to busy building thier property empires!!

http://en.wikipedia.org/wiki/TANSTAAFL

.....wo was in charge..? nowadays ..yes... company economists, accountants, auditors, salesmen, ex bond traders, marketing types.....everyone ..except Bankers.....

[crash2006]

Thats why house prices or assets will drop 40% in price money is pardon the term gold dust...

i tired to point this out many times deflation on the extreme <---- have to hype it up some how

Edited December 3, 2007 by crash2006

[Pluto]

We don't need no stinking manufacturing.

We don't need no stinking agriculture.

All we need is a printing press and an idiot to run it day and night and pay for all our goods with IOU's.

That pretty much encapsulates the last 10 years. Well it is payback time.

flapjack "it called 'overtrading' " yes, anybody and I mean anybody who has run even the tiniest business out there has to get their heads around this concept It seems it is way way beyond the ken of the bankers and their overseers.

Yes, this sums the last ten years to a tee. My biggest fear is they will herd everyone into a war to create economic activity.

I wished I would have saved Ken Livingstone's interview with the BBC about a year ago where he said, and I'm paraphrasing here: "we don't need manufacturing anymore as we have a new industry in the city of London where we are the best in the world". This was a video interview he did with them. This smarmy turd, I hope all those who suffer remember who promoted these follies and punish them well.

[Fishfinger]

Remember, a bank if for life not just for Christmas..

[Sheer Heart Attack]

This is, quite frankly, astonishing.

Can anyone cite a precedent for this in the last 30 years?

Can anyone involved in the higher end of banking or who has a great deal of knowledge therein explain how this could have occured?

[yaakov]

This is, quite frankly, astonishing.

Can anyone cite a precedent for this in the last 30 years?

Can anyone involved in the higher end of banking or who has a great deal of knowledge therein explain how this could have occured?

yes, I'm curious about this too.

[Bloo Loo]

This is, quite frankly, astonishing.

Can anyone cite a precedent for this in the last 30 years?

Can anyone involved in the higher end of banking or who has a great deal of knowledge therein explain how this could have occured?

dont need anyone high up to explain.

its easy,

Adn you thought mislaying 2 Cds was incompetant.

How about 1.1trn dollars?

Its gone, vanished disappeared. The Banks dont have enough capital to meet their legal capital reserve requirements.

They need to keep cash in their coffers.

A relative of mine with a POST OFFICE savings account just received a letter saying the maximum withdrawal from today for her account was £15,000 per day.

They are shitting themselves because they KNOW there isnt enough money inthe world to bail them all out. :angry: :angry: :angry: :angry:

[BoomBoom]

My fear is that under the guise of some anti-terrorism law then government will make it increasingly dofficult to move significant amounts of money out of the banking system.

[SaintJay]

I'd be quite interested to see what conditions these lending facilities have. With LIBOR rates sky-high there's a distinct possiblity you could borrow it from one back and put it on the money markets of another and make a profit.

[Sheer Heart Attack]

dont need anyone high up to explain.

its easy,

Adn you thought mislaying 2 Cds was incompetant.

How about 1.1trn dollars?

Its gone, vanished disappeared. The Banks dont have enough capital to meet their legal capital reserve requirements.

They need to keep cash in their coffers.

A relative of mine with a POST OFFICE savings account just received a letter saying the maximum withdrawal from today for her account was £15,000 per day.

They are shitting themselves because they KNOW there isnt enough money inthe world to bail them all out. :angry: :angry: :angry: :angry:

Thanks for that.

So, the question is, how long until it can no longer be hidden and there are more runs on banks?

I know that is a "how long is a piece of string" question, but guesses would be appreciated.

[Bloo Loo]

Thanks for that.

So, the question is, how long until it can no longer be hidden and there are more runs on banks?

I know that is a "how long is a piece of string" question, but guesses would be appreciated.

I have absolutely no idea, but for the PO to limit daily transfers out to £15,000 means they know soemthing that we dont in my view.

[Sheer Heart Attack]

I have absolutely no idea, but for the PO to limit daily transfers out to £15,000 means they know soemthing that we dont in my view.

'Scuse my ignorance, but what was it before?

[Bloo Loo]

'Scuse my ignorance, but what was it before?

Ive just asked, and as far as she knew it was limited to the funds available, unlimited in her case.

[Goldfinger]

A relative of mine with a POST OFFICE savings account just received a letter saying the maximum withdrawal from today for her account was £15,000 per day.

Didn't this recently happen to Citi customers?

I wonder who tells these banks that it might be a good idea to limit daily withdrawals. Is it an order from the top?