HSBC Holdings Plc, Royal Bank of Scotland Group Plc and the biggest U.K. banks face the most debt coming due in at least 10 years as the credit market seizure raises borrowing costs to the highest on record.
The six largest British banks have 54 billion pounds ($95 billion) of debt to refinance by April, triple the amount of the year-ago period, according to data compiled by Bloomberg. HSBC, the U.K.'s biggest bank, and RBS each have about 11.5 billion pounds of debt due, while Barclays Plc has 15.9 billion pounds maturing, the data show.
Financing costs are soaring as banks hoard cash after the credit crunch triggered by the U.S. subprime mortgage crisis a year ago. The three-month London interbank offered rate in dollars rose to 4.52 percent from 2.64 percent in March, while the equivalent rate for euros increased to a record 5.39 percent, from 4.74 percent six months ago.
``The banks have no idea how they are going to manage rolling over their debt,'' Kornelius Purps, a Munich-based bond strategist at UniCredit SpA, said before today's coordinated interest-rate cuts. ``The central banks will have to intervene.''
The Bank of England was among central banks to lower rates today in a worldwide action to stave off a recession.
Government Rescue
Bank borrowing costs rose this month even as the U.K. announced a cash injection to the banking system, Europe's policy makers provided emergency funding and U.S. President George W. Bush approved a $700 billion rescue plan.
Prime Minister Gordon Brown's government will invest about 50 billion pounds in the U.K.'s banks, the Treasury said in a statement today.
HSBC and Standard Chartered Plc said they have no current plans to take government capital to bolster their reserves. RBS and Barclays will be taking up aspects of the plan, they said in statements. Lloyds TSB Group Plc, which has about 512 million pounds of bonds to refinance by the end of March, said it will make a futher announcement about the plan ``in due course.''
Banks need more capital after the worst U.S. housing slump since the Great Depression and $593 billion in worldwide losses and writedowns caused their stocks to tumble, forced Lehman Brothers Holdings Inc. into bankruptcy and pushed the U.K. government to nationalize Bradford & Bingley Plc.
Total Debt
The U.K. bank debt includes bonds, commercial paper and equity-linked notes and compares with 18 billion pounds repaid in the year-earlier period.
Investors are demanding an average 4.02 percentage points more in yield to buy bank bonds rather than government securities, up from 0.95 percentage point last year, according to indexes compiled by Merrill Lynch & Co. The so-called spread on investment-grade corporate bonds overall averages about 3.35 percentage points.
Rising yields may cost the banks as much as $5.6 billion more in annual interest compared with a year earlier should they refinance all of the debt in the bond market, Merrill data show.
``Bond investors are the guys that will decide the future of these banks and at the moment they're not prepared to roll over their financing,'' said Simon Maughan, a London-based bank analyst at MF Global Securities Ltd. ``If you can't roll over you're in an awful lot of trouble.''
HBOS, based in Edinburgh, has 11.9 billion pounds of debt due in the next six months. Lloyds TSB will pay about 10.2 billion pounds in a stock swap for HBOS, based on yesterday's closing share prices.
Lloyds spokesman Emile Abu-Shakra in London declined to comment, as did a spokesman for HBOS.
Standard Chartered
Standard Chartered, the London-based bank that earns most of its money in Asia, needs to repay about 2.4 billion pounds of debt.
``The outstanding 2.4 billion pounds in the context of a 400 billion-pound balance sheet is not material,'' spokesman Arijit De said. ``Standard Chartered is not dependent on wholesale funding markets.''
Barclays has no debt that counts as regulatory capital maturing before the end of March, according to Simon Eaton, a London-based spokesman. ``Any other financing represents our normal course of business,'' he said.
HSBC's maturities aren't a reflection of funding requirements, London-based spokesman Patrick McGuinness said. ``In parts of our business we are managing down the balance sheet, and in others we are seeing strong deposit growth.''
HSBC is one of the only European banks that takes in more in customer deposits than it loans out and has one of the highest capital ratios in Europe, Bloomberg data show.
RBS spokeswoman Carolyn McAdam declined to comment.
Credit-Default Swaps
The cost of default protection on HBOS is the highest of the six banks and the cost for HSBC is the lowest, according to traders of credit-default swaps. Contracts linked to each of the six banks fell today, signaling an improvement in perception of credit quality.
HBOS dropped to 198 basis points, meaning investors pay 198,000 euros ($271,000) a year to protect 10 million euros of debt from default for five years. Contracts on RBS are 197 basis points, Standard Chartered default swaps are at 137 and those on Barclays are 128 basis points, CMA Datavision prices show. Lloyds TSB contracts are 102 and those on HSBC are 79.
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt.
``If confidence returns there is less of a liquidity issue and the debt can be rolled over,'' said Neil Smith, an analyst at WestLB AG in Dusseldorf. ``Three months should be enough.''
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