Citigroup raised fresh $2billion from bond market
Citigroup Friday sold $2 billion in debt, its first U.S. corporate bond sale without a government guarantee in nine months in a sign of improved confidence in the bank as it recovers from a credit crisis.
Long viewed as one of the most troubled U.S. banks, Citigroup’s return to the corporate bond market came after government stress tests last week showed its capital position was better than many feared.
The stress tests, announced by U.S. Treasury Secretary Timothy Geithner in February, were meant to restore investor trust in major banks after massive losses raised fears about financial failures.
Citigroup’s self-led note sale attracted more than $5 billion in interest, according to a buyside trader looking at the deal. Citigroup was the latest of a number of large banks to sell debt without government backing since the stress test results were released a week ago.
“If I were Mr. Geithner, I would be pleased to see this news, because it is a vote of confidence in the results of the stress tests and the rest of the actions the government has been taking to restore market confidence,” said Kathleen Shanley, analyst at independent research service Gimme Credit.
Citigroup sold its 10-year notes with a yield of 8.765 percent, or 562.5 basis points more than U.S. Treasuries, according to IFR, a Thomson Reuters service.
Proceeds will be used for general corporate purposes, which may include funding operations, acquisitions, business expansion or debt refinancing, according to IFR.
“Just a few weeks ago, I don’t think anyone would have predicted Citigroup would be tapping the market so soon,” Shanley said. “For Citigroup, it is very important for them to show that they are not the only bank of the 19 in the stress test group that is unable to issue non-guaranteed debt.”
Stress tests showed that 10 of the 19 largest banks need to build capital by about $75 billion to be able to withstand a worst-case scenario set by the government.
Citigroup, which was told it needed to raise $5.5 billion, has said it would exchange that amount of preferred securities for common stock. Citigroup has suffered more than $90 billion of writedowns and credit losses since mid-2007.
Citigroup’s bonds and shares have rallied since March 10, when Chief Executive Vikram Pandit said the bank was profitable in the first two months of the year.
Yield spreads on Citigroup’s 6.125 percent notes due in 2018 have declined to 521 basis points over Treasuries from 646 basis points the day before Pandit’s remarks. Falling yield spreads over Treasuries indicate investors see less risk.
Other banks that have issued non-guaranteed debt in recent weeks include JP Morgan Chase, Bank of America, US Bancorp, Morgan Stanley, Bank of New York Mellon, Goldman Sachs, BB&T Corp and Northern Trust Corp.
Citigroup and other banks had been issuing debt with the backing of the Federal Deposit Insurance Corp since the credit crisis eroded investor confidence last year, sending banks’ borrowing costs soaring.
Banks have been attempting to wean themselves off government support to shake off tight restrictions, including caps on compensation. Regulators have said selling non-guaranteed debt was a key condition for being permitted to repay funds from the Treasury’s Troubled Asset Relief Program.
Still, selling non-guaranteed debt remains costly, with banks’ yield spreads much higher than before the credit crisis, an indicator of investor caution. – Reuters
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Tags: bond market, Citigroup, raised fund
