Financial firms "posted losses which eroded their capital base," said Manny Labrinos, fixed-income portfolio manager at Nuveen Investments in Los Angeles. "That's the reason for having to raise this capital."
NEW YORK (Reuters) - Investment banks including Merrill Lynch & Co <MER.N>, UBS <UBSN.VX> and Wachovia Corp <WB.N> sold more than $13 billion in new debt on Tuesday in a move to shore up their balance sheets.
Financial firms "posted losses which eroded their capital base," said Manny Labrinos, fixed-income portfolio manager at Nuveen Investments in Los Angeles. "That's the reason for having to raise this capital."
Banks have been raising capital through sales of debt and preferred shares after writing down the value of securities held on their balance sheets, which includes mortgage-backed debt and corporate loans.
Merrill Lynch on Tuesday sold $7 billion in debt, the second largest investment-grade sale this year, according to Dealogic. General Electric Capital Corp, a unit of General Electric Co <GE.N>, last week sold $8.5 billion of debt in the year's biggest sale to date.
!ADVERTISEMENT!The bank was also in the market with a $2.55 billion sale of preferred shares, according to International Financing Review, a Thomson Reuters publication.
Merrill last week recorded its third straight quarterly loss and said it planned to cut 2,900 more jobs after taking more than $6.5 billion in write-downs on subprime mortgages and other risky assets. For details, see <ID:nN17461640>
The bond sale included $1.5 billion of five-year notes priced at 3.25 percentage points over U.S. Treasuries, and $5.5 billion in 10-year notes priced at 3.20 percentage points over Treasuries, said market sources.
Wachovia also sold $3.5 billion on Tuesday, while UBS sold $2.5 billion and Goldman Sachs <GS.N> sold $1.5 billion.
Citigroup <C.N> on Monday sold $6 billion in preferred shares, following a similar $6 billion sale by JPMorgan Chase & Co <JPM.N> last week.
Banks globally have raised more than $200 billion of capital to offset massive credit losses amid a global credit squeeze.
SPREADS WIDEN
Financial company bonds widened in secondary trading on the new sales, while the cost to insure the banks' debt with credit default swaps also rose.
Spreads of Merrill Lynch's 6.4 percent bond due 2017 widened 16 basis points to 286 basis points over Treasuries, according to MarketAxess.
The cost to insure Merrill's debt with credit default swaps rose 12 basis points to 165 basis points, or $165,000 per year for five years to insure $10 million in debt, according to broker Phoenix Partners Group.
Goldman's 6.15 percent bond due 2018 also widened 21 basis points to 235 basis points over Treasuries, while its credit default swaps widened 5 basis points to 97 basis points.
(Reporting by Walden Siew, Karen Brettell, Dena Aubin, Anastasija Johnson and Dan Wilchins; Editing by Diane Craft)
