Magazine article American Banker

Despite Warnings, Investors Flock to Big-Bank Debt

Magazine article American Banker

Despite Warnings, Investors Flock to Big-Bank Debt

Article excerpt


Analysts have been telling clients to invest in regional banks' debt and steer clear of multinational banks' paper, but investors are still enthralled by the bigger banks.

In the last week spreads on multinationals-the difference between their yields and those of Treasuries-have tightened by as much as 15 basis points, suggesting that investors have become much more comfortable with the global economy than they were just a few weeks ago.

Bank bond analysts, however, remain skeptical.

"It is almost like deja vu," said bank bond analyst Van Hesser of Goldman Sachs & Co.

"A lot of the same positive sentiment about money-centers was in place last year: Things are getting better, the world is a better place."

But he said there are too many potholes in the global economy that "could upset the apple cart."

Bank bond analyst Thomas Flynn of Morgan Stanley & Co., also remains cautious about money-center debt.

Mr. Flynn said he tells clients to put more of their money in regionals.

"Right now we are focusing on what is happening with Brazil. If that unhinges, money-center debt is going to suffer."

Bank bond analyst David Hendler at Credit Suisse First Boston argued that both money-centers and regionals are good buys because they are trading cheaply by historical standards.

However, he acknowledged that he "recommends regional bank bonds a little bit harder than money-centers."

Still, investors are snapping up money-center debt as much as regional paper, Mr. …

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