Not to offend anyone, but the following headline came across my desk earlier today from a local Equity Research Analyst:
“Thawing Credit Market Should Ease Concerns“
Now it doesn’t matter what sector the analyst was referring to, but the notion that 1) the credit market is thawing, or that 2) a drop in LIBOR is going to lead to new loans for investments in the alternative part of the economy is (how to say this politely?) ludicrous.
This analyst isn’t alone, of course, as my friends in the DTM are reporting a similar thematic:
“Borrowing costs for Canada’s banks are fast returning to a semblance of normality, increasing the chances that lenders will pass along today’s quarter-point rate cut by the Bank of Canada.”
Not to rain on the parade, but a drop in LIBOR shouldn’t be taken to mean that the debt casino will open again any month soon. Even good credits are having a hard time being renewed right now, or so we hear on the street. The recession is the primary concern of the folks who manage the credit groups at any lender, large or small. Observers appear to think they are watching an NBA game, where huge swings can occur in the space of five minutes of playing time. Positive changes in the lending environment are far more methodical; think glacial.
LIBOR factors into the cost of some business loans, and the Treasury Group of any bank must manage the daily funding needs of the institution…but Credit and Risk Management are charged with worrying about whether or not the loan actually gets done.
They may share the same street address, but the funding and risk management teams are Venus and Mars right now. It is folly to think the connection is any stronger than that.