apologies if this was already posted - and if it has, it warrants viewing again, as the amounts mentioned are mind-numbing......
WSJ
April 3, 2008, 10:47 am
How Bad Is It: The $2.2 Trillion Debt Crunch
Posted by Heidi Moore
How Bad Is It? is a recurring Deal Journal feature, devoted to confirming or debunking the worst fears about the severity of the credit crunch.
Occasionally, even in a world of finance in which billions of dollars are traded or exchanged without much comment, an eye-opening number comes along to make you realize there is real money involved.
Here is today number: $2.2 trillion. That is the amount by which global debt underwriting volume has plummeted since July 2007, according to Oppenheimer & Co. analyst Meredith Whitney. Most of that decline, or about $1.3 trillion, came in the U.S. debt markets. To put things in scale, that falloff isn’t too far off the entire economic size of the United Kingdom, whose gross domestic product in 2006 was $2.3 trillion.
And yes, as you suspected, this decline been dragging on seemingly forever: the past nine months of continued declines in debt issuance each month is the longest downturn in the credit markets since 1990, Whitney said. In March, debt issuance was down 71% from March 2007.
Bad debt markets mean that companies can’t sell debt to finance their growth, which, in turn, means more stagnation, struggles and, likely, layoffs. As Whitney put it, “As more than 80% of corporate funding came from the capital markets during 2007, we can’t help
but believe that such a massive extraction of liquidity from the market will have a profound impact on the US economy.” Companies already have pulled back from mergers and acquisitions, the volume of which is down 44% from a year earlier. And private-equity firms and banks have been locked in ugly battles that dispel much promise of future fees.
For investment banks, these numbers may look dire. And they are. There were only two significant bond deals last quarter: BNP Paribas underwrote its own $4.7 billion corporate bond offering and Kraft Foods sold $4.4 billion in debt through Goldman Sachs Group, HSBC Holdings, J.P. Morgan Chase, Societe Generale and UBS. Still, such a trickle can hardly offset, say, the $400 million in financing fees six banks will lose if the $19.5 billion buyout of Clear Channel Communications falls through.
That isn’t to say that some firms haven’t taken advantage of the chaos to move up the league tables that rank the banks in their various business lines. The top three underwriters of debt in the quarter were perennial top two, J.P. Morgan and Citigroup, followed by a newcomer to the top three, Royal Bank of Scotland. |
