HSBC, RBS Face Financing Double Whammy as Rates Rise

By Ben Livesey and Shelley Smith

Oct. 8 (Bloomberg) -- HSBC Holdings Plc, Royal Bank of Scotland Group Plc and the biggest U.K. banks face the most debt coming due in at least 10 years as the credit market seizure raises borrowing costs to the highest on record.

The six largest British banks have 54 billion pounds ($95 billion) of debt to refinance by April, triple the amount of the year-ago period, according to data compiled by Bloomberg. HSBC, the U.K.'s biggest bank, and RBS each have about 11.5 billion pounds of debt due, while Barclays Plc has 15.9 billion pounds maturing, the data show.

Financing costs are soaring as banks hoard cash after the credit crunch triggered by the U.S. subprime mortgage crisis a year ago. The three-month London interbank offered rate in dollars rose to 4.32 percent from 2.64 percent in March, while the equivalent rate for euros increased to a record 5.38 percent, from 4.74 percent six months ago.

``The banks have no idea how they are going to manage rolling over their debt,'' said Kornelius Purps, a Munich-based bond strategist at UniCredit SpA. ``The central banks will have to intervene.''

Rates rose this month even as the U.K. announced a cash injection to prevent a collapse of the banking system, Europe's policy makers provided emergency funding and U.S. President George W. Bush approved a $700 billion rescue plan.

Government Rescue

Prime Minister Gordon Brown's government will invest about 50 billion pounds in the U.K.'s banks, the Treasury said in a statement today.

The government will buy preference shares and the Bank of England will make at least 200 billion pounds available for banks to borrow under the so-called special liquidity plan. The government will also provide a guarantee of about 250 billion pounds to help refinance debt, the statement said.

Banks need more capital after the worst U.S. housing slump since the Great Depression and $593 billion in worldwide losses and writedowns caused their stocks to tumble, forced Lehman Brothers Holdings Inc. into bankruptcy and pushed the U.K. government to nationalize Bradford & Bingley Plc.

The U.K. bank debt includes bonds, commercial paper and equity-linked notes and compares with 18 billion pounds repaid in the year-earlier period.

Investors are demanding an average 4.02 percentage points more in yield to buy bank bonds rather than government securities, up from 0.95 percentage point last year, according to indexes compiled by Merrill Lynch & Co. The so-called spread on investment-grade corporate bonds overall averages about 3.35 percentage points.

Lloyds TSB Debt

Rising yields may cost the banks as much as $5.6 billion more in annual interest compared with a year earlier should they refinance all of the debt in the bond market, Merrill data show.

``Bond investors are the guys that will decide the future of these banks and at the moment they're not prepared to roll over their financing,'' said Simon Maughan, a London-based bank analyst at MF Global Securities Ltd. ``If you can't roll over you're in an awful lot of trouble.''

Lloyds TSB Group Plc, the London-based bank that agreed to buy HBOS Plc in a stock swap on Sept. 18, has about 512 million pounds of bonds to refinance by the end of March, Bloomberg data show. HBOS, based in Edinburgh, has 11.9 billion pounds of debt due in the next six months.

Lloyds spokesman Emile Abu-Shakra in London declined to comment, as did a spokesman for HBOS. Lloyds TSB will pay about 10.2 billion pounds in a stock swap for HBOS, based on yesterday's closing share prices.

`Normal Business'

Standard Chartered Plc, the London-based bank that earns most of its money in Asia, needs to repay about 2.4 billion pounds of debt.

``The outstanding 2.4 billion pounds in the context of a 400 billion-pound balance sheet is not material,'' spokesman Arijit De said. ``Standard Chartered is not dependent on wholesale funding markets.''

Barclays has no debt that counts as regulatory capital maturing before the end of March, according to Simon Eaton, a London-based spokesman. ``Any other financing represents our normal course of business,'' he said.

HSBC's maturities aren't a reflection of funding requirements, London-based spokesman Patrick McGuinness said. ``In parts of our business we are managing down the balance sheet, and in others we are seeing strong deposit growth.''

RBS spokeswoman Carolyn McAdam declined to comment.

The U.K. central bank will cut its benchmark interest rate a quarter-percentage point to 4.75 percent tomorrow, according to the median estimate of 61 economists surveyed by Bloomberg News.

Federal Reserve Chairman Ben S. Bernanke yesterday signaled a cut in U.S. interest rates to shore up the economy and reduce funding pressure on banks. The European Central Bank said this month it will allow more banks to participate in its unscheduled cash auctions.

``If confidence returns there is less of a liquidity issue and the debt can be rolled over,'' said Neil Smith, an analyst at WestLB AG in Dusseldorf. ``Three months should be enough.''

To contact the reporter on this story: Ben Livesey in London blivesey@bloomberg.net; Shelley Smith in London at ssmith118@bloomberg.net