BATTERED US financial groups will have to refinance billions of dollars in maturing debt over the coming months, a move likely to push bank funding costs higher and curb their profitability, say bankers and analysts.
The need for banks to raise capital to offset mounting credit-related losses is forcing them to pay higher interest rates to entice investors.
The rising funding costs are set to put pressure on earnings because in many of their businesses banks rely on the difference between borrowing and lending rates to make money.
"It is difficult to see how banks will continue to repeat the heady profit growth of the past few years if they borrow at these levels," said a Wall Street banker.
Banks could also be forced to raise lending rates, exacerbating the credit crunch felt by many businesses and individuals, and further depressing economic activity.
Mohamed El-Erian, co-chief executive of Pimco, an asset management group, said: "If banks keep borrowing at these levels you will get a repricing of credit for the whole economy."
Last week, financial groups including Citigroup, JPMorgan Chase and American International Group borrowed almost $20 billion (€13.61 billion) in new long-term debt, paying some of the highest premiums ever in order to lock in funding.
