Citigroup (NYSE: C), Bank of America (NYSE: BAC) And JP Morgan (NYSE: JPM) Likely Benefactors From Expiring Corporate Debt In 2010

The year 2010 will see very large chunks of corporate debt maturing for many U.S. corporations, including several of the nations’ largest banks, such as Citigroup (NYSE: C), Bank of America (NYSE: BAC) and JP Morgan Chase (NYSE: JPM).  This trend means fewer interest payments, less costly debt borrowing and increased underwriting for the banks. 

Take for instance Bank of America, which has $80.1 billion in corporate bonds maturing in 2010, the most of any S&P 500 company.  The bank has recently raised cash through equity offerings; most recently $19 billion as it paid back its TARP loans, and is in a much more sound financial position.

Bank of America may not look to “refinance” much of this expiring debt as it has $975 billion in deposits and $914 in out in loans, thus saving billions in quarterly interest payments.   Additionally, if the bank does decide to issue new debt, it will be at much lower interest rates, which will mean cheaper money for the bank.  This time last year, the average rates for corporations was roughly 9.5 percent.  Rates on corporate issues are now going off at 5 to 6 percent.

Citigroup, the largest underwriter of corporate bond sales in 2009, with 14.3 percent market share, could stay to gain from all the expiring debt as well.  Many non-financial firms may be looking to issue cheaper debt; consider AT&T (NYSE: T), which has roughly $6.6 billion in debt expiring this year.  Many analysts expect the Fed to begin raising rates in the second half of 2010, which may lead firms like AT&T to “lock in” at lower rates, thus giving the big banks a bump in underwriting revenue.

JP Morgan Chase could benefit as well, holding the second largest piece of the corporate bond underwriting business at 13.2 percent.

Both firms are also seeing a large debt burden mature in 2010 as well; Citigroup has $68 billion maturing, while JP Morgan Chase has $49.3 billion.

What’s more is that there is desire for fresh corporate issues, as bond funds saw inflows of more than $320 billion last year, up about three-fold from 2008.