Folks, we have a couple of post that’s just hot and we have people coming here looking for them. To make it easier on you, I am posting this until we finish renovating the site.
U.S. banks pull ahead in letter of credit arena. web site letter of credit
American Banker April 15, 1992 | Siegel, David U.S. banks have returned to the forefront of the letter of credit business, as sagging capital levels caused Japanese banks to retreat.
For the first time since 1984, U.S. banks last year accounted for more than half the dollar volume of new letters of credit, according to Standard & Poor’s Corp.
The U.S. banks’ gain coincided with a sharp drop in market share for Japanese banks – from 42% in 1990 to 19% last year.
Overall, letter of credit volume declined to $4 billion last year from $4.9 billion in 1990, S&P said. The report covered only letters of credit rated by Standard & Poor’s.
Fixed-Rate Municipals William Vogt, head of public finance credit and portfolio at Morgan Guaranty Trust Co., attributed the drop to a shift to fixed-rate municipal securities issues, which are not usually supported by bank letters of credit.
For their part, U.S. banks increased issuance to about $2.1 billion from $1 billion in 1990, S&P said.
By issuing, a letter of credit, a bank gets a fee for guaranteeing payment on a security or other instrument. Most of the letters of credit rated by S&P support municipal securities, especially variable-rate issues that are repriced on a short-term basis.
Letters of credit enable municipal issuers to offer lower interest rates, because the obligations reduce the risk for investors. go to site letter of credit
Citibank, with $3.6 billion outstanding at yearend, and Chemical Bank, with $1.3 billion are the two biggest U.S. issuers.
Problems in Home Countries The foreign competition was slowed last year by credit downgrades or slower economic growth in their domestic markets.
International capital regulations “reduced the aggressiveness of international banks but probably affected the Japanese commercial banks the most,” said Christian McCarthy, vice president at Goldman, Sachs & Co.
The plunge in Japanese stock prices, and the resulting drop in bank capital levels, has forced Japanese banks to reduce overseas credit activities, including letters of credit, according to S&P.
Slower economic growth in Japan and the crash of the Japanese stock market in the past month has put greater pressure on Japanese banks, pushing some under the international capital requirements.
Highest Rated Have Edge Banks that boast top credit ratings – defined by S&P as those with its AAA or AA senior ratings along with a A1-plus short-term rating – have an advantage in the letter of credit business. Their letters of credit can provide the highest level of safety to investors and the lowest rate for borrowers.
Included in this group are Union Bank of Switzerland, Credit Locale de France, and Morgan Guaranty. As the number of banks in this group has dwindled, and some Japanese banks have pulled out of the business, U.S. banks’ competitiveness has grown.
Fees for letters of credit have risen. While a state government with a high-quality rating of A might have paid 6 to 9 basis points in 1990 for a letter of credit with a maturity of under one year, that same letter of credit would cost 20 to 25 basis points today, Mr. McCarthy said.