Argentina tapping JPM backed credit line (sounds like those ClownBux are gonna take a one-way flight to Buenos Aries, en route to money heaven!)
quote.bloomberg.com
10/26 16:24
J.P. Morgan-Led Credit Line Tapped by Argentina (Update1)
By David Plumb
Buenos Aires, Oct. 26 (Bloomberg) -- J.P. Morgan Chase & Co. and 12 other international banks agreed to provide Argentina a credit line of $6.1 billion five years ago when the economy was growing. Now, facing the prospect of a debt default, the government is starting to tap it.
Argentina's central bank, which in the past two years has paid annual fees of between $16.5 million and $21 million to keep the facility open, this week borrowed $500 million from the banks, after drawing $1.3 billion last month.
The banks are being asked to lend the money at a time when analysts say the country would have difficulty borrowing on international markets after Moody's Investors Service cut Argentina's credit rating to the lowest in the world and the nation's benchmark bond yields jumped to above 30 percent.
``From private lenders, this could be their last resort,'' said Fernando Losada, senior economist for Latin America at ABN Amro Securities LLC in New York.
Argentina's borrowing costs have doubled in four months on concern the government will default. The International Monetary Fund last approved emergency loans for the country in August. The benchmark 3 3/8 percent floating rate bond due 2005 fell .25 to an offer price of 63.4 to yield 33.2 percent, according to J.P. Morgan Securities Inc. prices.
Mexico
The banks established the credit line in 1996, in the aftermath of Mexico's December 1994 peso devaluation, providing Argentina with access to financing to bolster central bank reserves if needed.
The central bank never drew on the facility until last month after depositors pulled $8.7 billion from Argentine banks, or 10 percent of deposits, on concern the government may freeze accounts to avoid default, or devalue the peso.
Since 1996, banks have joined and dropped out of the credit line arrangement. Banks have to give two years' notice to pull out. Banks currently participating include Deutsche Bank AG, Dresdner Bank AG, UBS Warburg LLC, Lehman Brothers Inc. and HSBC Bank Plc.
The central bank borrows from the credit line for 90 days at 200 basis points above the London interbank offered rate for dollars and gives sovereign debt, valued at market prices, as collateral. The 90-day dollar Libor is at 2.28 percent today.
The annual fee, which is paid by the central bank along with domestic banks, was calculated in 1999 as 0.33 percent of the outstanding credit line, which at the time totaled $6.4 billion, for a fee of about $21 million. This year the central bank is paying 0.35 percent above the outstanding amount of $4.7 billion, or about $16.5 million.
J.P. Morgan wouldn't comment. Argentina's central bank said it wouldn't detail the loan agreement.
Bank Loans
The central bank said it needs the money now to help bolster domestic banks and provide loans to companies to help spark growth after the economy contracted 6 percent in three years.
``After paying fees for all these years, it makes sense to use the credit line now,'' said Gustavo Canonero, chief Argentine economist for Deutsche Bank AG. ``Low-cost loans may not be the most efficient way to use this foreign line.''
The World Bank and Inter-American Development Bank agreed in 1999 to provide Argentina with $1 billion of loans to cover potential price drops in the bonds used as collateral, which would require the central bank to provide creditors with additional bonds.
Central bank officials said they had bought bonds in the market in recent weeks using the World Bank and IDB loans. The central bank wouldn't provide details on the transactions.
The central bank has used the funds from international banks to finance domestic banks through overnight repurchase agreements. It also plans to help revive economic growth with about $600 million in below-market rate loans provided by banks to companies and individuals.
Nice to see that Lame-Man is on the hook, too!<VBG> |
