In Tight Market,Banks Woo BuyersFor Commercial Paper

The Wall Street Journal reports:

It is crunch time for many of the world's biggest banks grappling with one of the tightest credit markets of recent memory.

About $120 billion of commercial paper outside the U.S. is due for renewal in the next week, including $56.5 billion of asset-backed paper, which has met the stiffest resistance from investors. Issuers need to find buyers in order to roll over these short-term funding mechanisms or pay off the loans. So banks and other issuers are pulling out all stops to lure investors back. In the meantime, they are using short-term moves to raise cash to keep them going.

While there is little sign the market is opening up, a few rays of hope are emerging. In Australia, the central bank has broadened the definition of assets it would accept as collateral for short-term funding it supplies to domestic banks. In the U.S., money-market funds haven't suffered big redemptions and thus still have money to put to work. Investors in these funds also are willing to hold commercial paper for slightly longer time frames, suggesting some stability may be returning, though the funds may find their investors want a limited diet of short-term paper.

It is a crucial time. Volume in this market tends to ramp up midmonth, and September is shaping up to be a busy time. In mid-August, $100 billion in euro commercial paper matured, according to Lehman Brothers Holdings Inc. and research firm Dealogic.

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