Capital-raising troubles drive broker asset sales
Written on June 19, 2008
Capital-raising pressures are likely to drive investment banks to sell assets ranging from repackaged mortgages to stakeholdings in other companies as an alternative to issuing equity or debt securities.
After raising $120 billion via a range of means, some firms — such as Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) and Lehman Brothers (LEH.N: Quote, Profile, Research, Stock Buzz) — are reaching regulatory limits for the amount of trust preferred and hybrid securities they can issue.
That has analysts pointing to balance sheet disposals, such as Morgan Stanley’s recent sale of its Spanish wealth management business and its MSCI Inc (MXB.N: Quote, Profile, Research, Stock Buzz) offering, as an obvious next step.
“In a market where it’s harder to raise equity, selling assets can be a better choice,” said Adam Compton, co-head of global financial stock research at RCM in San Francisco.
The fund-raising conundrum shows few signs of untangling as risky assets, such as mortgage securities and complex debt holdings, show few signs of recovery amid the global credit crisis.
And while private equity firms and sovereign wealth funds have previously stepped up their investments in banks, analysts say they are unlikely to do so now, given the poor returns of banking stocks.
“If you’re sovereign wealth or private equity, you’ve been burned once, you’re not going to get burned again,” said Stuart Quint, co-manager of a global financial services fund at Aberdeen Asset Management.
Analysts at Goldman Sachs & Co said on Tuesday that U.S faxless payday advance. banks in general may need to raise $65 billion of additional capital to cope with losses from the credit crunch, which it said may not peak until 2009.
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