As Economy Shows Improvement, Banks' Financing More - WSJ (JPM, C, GS, DB, CS, More)

November 27, 2009 7:16 AM EST
J.P Morgan (NYSE: JPM), Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), Deutsche Bank (NYSE: DB), Citigroup (NYSE: C), Credit Suisse (NYSE: CS), and more could be opening up their pocket books to help companies in M&A action, a Wall Street Journal article reported today.

J.P. Morgan is said to be ponying up about $2.85 billion to help Denbury Resources (NYSE: DNR) as part of their takeover of Encore Acquisition Co., which was announced earlier this month.

Big news on the M&A front is the bids put up, both hostile and not, for Cadbury Plc. Both Bank of America and JPM told Hershey (NYSE: HSY) that they would back the company with $5 billion apiece if Hershey were to pursue their $17 billion bid for Cadbury. Kraft Foods (NYSE: KFT) has put a bid in at $16.5 billion already, which is backed by several banks including Credit Suisse, Citigroup, and Deutsche Bank.

Morgan Stanley backed CF Industries (NYSE: CF) with $2.5 billion for their hostile takeover attempt at fertilizer provider Terra Industries (NYSE: TRA). To date, the money hasn't gone through as CF is still fighting for control of Terra.

Dealogic has total funds put up for November at about $30 billion, signaling loosening of funds by banks, which have been frozen for over a year. Dealogic says that this amount is more than all of the debt-financing for several months combined.

Financing by these banks is a risk though, as many have said that their loans could go sour if the market heads south again. The loans this time are smaller and feature shorter capital commitments or six to 12 months, versus the one to two years of typical financing.

Regulatory demands are an outside factor limiting the amount of loans that the banks can provide, as recent regulations have provisions that have banks setting aside more capital. This move would allow the banks to survive in the event that the value of their assets goes down.

All in all, many banks are still leery of loans, as the market still shows sluggish housing, high unemployment, and a dismal outlook for corporate profits.

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