Home Lending Tutorial “Thawing Credit Market Should Ease Concerns” – NFW

“Thawing Credit Market Should Ease Concerns” – NFW

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.


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5 Comments  comments 

5 Responses

  1. I see the sheep fleece has not covered MRM’s optical sensors.

    How very nicely explained, Mr. second M.

    Jim Cramer et al really should stow their pompoms till after housing hits bottom, and maybe then some…

  2. Craig Netterfield

    From Andrew Ross Sorkin in the NYTimes:

    The dirty little secret of Henry M. Paulson’s $250 billion give-away to nine U.S. banks, Mr. Sorkin says, is that those banks are doing exactly what everyone else is doing with their cash these days: sitting on it.

    “It doesn’t matter how much Hank Paulson gives us,” an influential senior official at a big bank that received money from the government told Mr. Sorkin. “No one is going to lend a nickel until the economy turns.”

  3. It ain’t pompom time. But a drop in LIBOR/TED spread/whatever is a step in the right direction. And it does reduce the cost of capital which is a good thing for those loans that are being made.


  4. Duncan, the issue du jour seems to be recession – how deep, how long?

    But the crisis is far from over. We are probably halfway through it.

    Like when you throw a ball up in the air (deflation), at it’s highest point, for a short time, it appears to be suspended (where we are now probably), before it plummets back to earth (inflation). And it will be the inflation that will do the most damage to Jaques Le Plombier.

    At least that’s how I understand it. Of course I was drunk for my Economics Finals and barely passed.

    Maybe MRM can shed more light…

  5. T

    The banks are in turmoil. After checking around I got a better (cheaper) unsecured line of credit (Prime) than a mortgage or secured line of credit (prime .5-1). I guess mortgages are an issue in Canada – but unsecured LOC aren’t?! In any it was rate more than the current Prime -.75 Variable mortgages that I currently have from CM…

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