Investment Grade Loan Market

Transcription

1 Investment Grade Loan Market Remember 2007? How does today s market look as we head back in the direction of those glorious days. What could possibly go wrong? September

2 Today s Panel Jonathan Burn Barclays Capital Tom Cassin JPMorgan Chase Andy Gamble Wells Fargo Peter Hall Bank of America Merrill Lynch Chris O Neill Bank of Tokyo Mitsubishi Tom McGuire Barclays Capital 1

3 Maturity Cliff Has Fallen Off. Better Than Falling Off a Cliff The refinancing boom of the last 18 months has reduced upcoming maturities by $240 Bn in 2012/2013 ($Bn) $600 $500 Refinancings completed Scheduled Refinancings 2010 Refinancing Schedule $ $ ` $ $100 $ H 10 2H H 11 2H 11 1H 12 2H Historical Volumes Upcoming Maturities 1. Source Thomson Reuters LPC 2

4 Maturity Extension Being Driven by Tenor Extension 100% 364-Day 3-Year 4-Year 5-Year % % 40% 20% % H H H H2010 Q Q Relative Regulatory Capital Held under Basel II 160% 140% 120% 100% 80% 60% 40% 46% increase AA Unsecured A Unsecured BBB Unsecured 84% increase 65% increase 300% 250% 200% 150% 100% BB Secured BBB Unsecured BB Unsecured 20% 50% 0% 364-Day RCF Undraw n Source: Thomson Reuters LPC 3-Year RCF Undraw n 5-Year RCF Undraw n 0% 5-Year RCF Undraw n 3

5 Pricing Stabilizing after Declines of the Last Two Years 400 bps 350 bps 364day 3yr 4yr 5yr Pricing Declines & Tenors Extend 300 bps BBB Drawn Pricing 250 bps 200 bps 150 bps 100 bps 50 bps 0 bps Aug-08 Jan-09 Jun-09 Nov-09 May-10 Oct-10 Mar-11 Sep-11 4

6 Acquisition Financing Volumes Picking Up as M&A Regains Momentum ($Bn) 3,000 Bridge Volume M&A Activity ,500 2,000 1,500 1, ($Bn) $ Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q Recent U.S. Investment Grade Bridges $15 $10 $5 $0 Cat. Marathon DuPont Ensco (Nov. 10) (Jan.-11) (Jan. 11) (Feb. 11) Source: Thomson Reuters LPC, Thomson Reuters PPL (Mar. 11) HCN (Mar.-11) AT&T (Mar.11) DPL (Apr.-11) CTL (Apr.-11) T.I. (Apr. 11) ABX (Apr. -11) App. Mat (May-11) Thermo (May 11) ESRX (Jul. 11) HP (Aug. 11) 5

7 But The Macro-Economic Picture is Looking Weaker Again. ISM Manufacturing Index PMI CBOE VIX Index PMI SPX VIX Source: Barclays Capital Research 6

8 . And Life is Not Great From The Perspective of the Banks Top 15 European Banks by Mkt. Cap. Top 15 U.S. Banks by Mkt. Cap. 10% 10% 0% 0% -10% -10% -20% -20% -30% -30% -40% -40% -50% -50% -60% -60% -70% -70% -80% -80% -90% YTD in Market Cap in Market Cap 9/08 9/11-90% Source: New York Times. 9/9/2011 7

9 With Regulatory Reform Still Looming on the Horizon. Pro-Forma Tier 1 Ratio Current Tier 1 Ratio US Regionals Investment Banks European Regionals Source: Barclays Capital; Company Filings; SNL Financial *Data as of 2010 year-end 8

10 . And Banks Credit Spreads Widening Rapidly 350 Pricing Trend Line 300 TR CDI Index Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun Index composed from average 5-year CDS of 13 top U.S and European Banks Source: Thomson Reuters EIKON Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 9

11 With Corporate Credit Spreads Widening Also, Led by Europe 350 BBB Pricing Trend Line CDX.NA.IG itraxx.europe Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Source: Markit via Thomson Reuters EIKON 10

12 So Where Do We Go From Here? Jonathan Burn Barclays Capital Tom Cassin JPMorgan Chase Andy Gamble Wells Fargo Peter Hall Bank of America Merrill Lynch Chris O Neill Bank of Tokyo Mitsubishi Tom McGuire Barclays Capital 11

13 Bank Regulatory Reform Tom McGuire Barclays Capital 12

14 Reg Reform Hot Button Issues Dodd-Frank / Basel III issues that pose the greatest implications for most banks Capital NPR expected in Fall anxiously awaited Timing on public reporting key Key issues: OCI, MSRs, hybrid securities phase-out Will be scrutinized for variance v. Basel III B3 capital of largest versus smaller banks Liquidity 2nd in priority of implementation to capital Basel III standards not finalized QIS underway, industry input welcome Banks LCRs improving via increased deposits and securities purchases Negative for NIM, ROA, ROE Systemic Regulation Who is systemic still TBD FSB / Basel formula set, no names or numbers; FSOC no numerical criteria Higher prudential standards TBD graduation key 1 to 2.5% G-SIB surcharge OTS Elimination OTS dissolved July 21 Fed regulates at Holdco OCC regulates Federal thrifts, FDIC regulates state thrifts Thrifts fear aggressiveness of new regulators Y-9C reporting proposed 1Q

15 Capital Plan Proposal The Capital Plan process will drive how banks manage capital and strategy in 2012 Banks $50bn in assets or above Due January 5 annually Process Feedback from Fed due March 15 If Fed objects, must resubmit Interim submissions required upon material change or as directed Parameters 9 quarter horizon (~2 years) 5% Tier 1 Common threshold under stress conditions Plans may vary based on size, complexity, credit of bank Fed may provide stress scenarios, parameters BHC designs scenarios, cum loss assumptions Must translate scenarios into impact on capital Content Comprehensive, all-encompassing plan Discuss how bank maintains minimum capital ratios under stress conditions Access to funding, continue operations, extend credit, meet obligations to creditors and counterparties under stress conditions Sources and uses of capital, capital policy, all capital actions, projections, business plan Key Issues What margin above 5% Tier 1 Common stress threshold will Fed require? How does stress-case capital level relate to base-case? What pace of adjustment to Basel III standards will Fed require? What ratios at what date? 7% Tier 1 Common by YE 2012? Permissible dividends, share repurchase and trust preferred redemptions 14

16 Panel Discussion Jonathan Burn Barclays Capital Tom Cassin JPMorgan Chase Andy Gamble Wells Fargo Peter Hall Bank of America Merrill Lynch Chris O Neill Bank of Tokyo Mitsubishi Tom McGuire Barclays Capital 15

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