To fund gap, US banks may turn to Asia

US banks including Citigroup Inc, Goldman Sachs Group Inc and Morgan Stanley may sell government-guaranteed bonds in Asia next year, tapping growing demand for the region’s local-currency debt to bolster their balance sheets.

US financial institutions sold more than $100 billion of government-backed notes in dollars, euros and British pounds since October 14, when the Federal Deposit Insurance Corp agreed to guarantee their bonds to help them cope with $678 billion of losses and writedowns amid the global credit crunch.

“Banks like Morgan Stanley and Goldman will have to tap Asian currencies because the potential supply is too big for dollars, euros and pounds to take on,” said Arthur Lau, a fund manager at JF Asset Management Ltd in Hong Kong, which oversees $128 billion. “It's a perfect product for insurance companies in Asia. The bonds offer good yield pick-up, high credit ratings, good liquidity and no currency mismatch.”

US banks may be forced to follow European and Australian banks, which lured fund managers to $6.6 billion of government- backed securities in Asia-Pacific since September with yields of as much as double those on sovereign debt, data compiled by Bloomberg show. Sales of FDIC-backed notes maturing in more than a year may reach $450 billion by the end of June, Barclays Capital analysts said on December 9.

Citigroup spokesman James Griffiths and Morgan Stanley spokesman Nick Footitt weren’t immediately available to comment. Goldman Sachs' Hong Kong-based spokesman Edward Naylor declined to comment.

Royal Bank of Scotland Group Plc, the UK's second-largest bank, on December 19 borrowed A$525 million ($356 million) in the first Australian government-backed bond sale by a foreign lender. Australia & New Zealand Banking Group Ltd this month sold ¥35 billion ($386 million) of five-year securities priced to pay 1.85 per cent, compared with 0.9 per cent Japan pays for sovereign notes of similar maturity.