Goldman Sachs, BNY Mellon Join Post-Earnings Bank Bond Spree

Goldman Sachs Group Inc. and Bank of New York Mellon Corp. are tapping the US investment-grade bond market on Wednesday, joining other Wall Street stalwarts selling debt post-earnings even as borrowing costs rise.

(Bloomberg) — Goldman Sachs Group Inc. and Bank of New York Mellon Corp. are tapping the US investment-grade bond market on Wednesday, joining other Wall Street stalwarts selling debt post-earnings even as borrowing costs rise. 

Both lenders are selling fixed-to-floating rate notes in as many as two parts and with similar maturities, according to people with knowledge of the matter. The longest portion of Goldman’s offering, an 11-year security that is callable after 10 years, may yield 1.95 to 2 percentage points above Treasuries, said a person familiar, who asked not to be identified as the details are private.

Goldman posted a second straight quarter of real estate writedowns and a continued dealmaking slump on Tuesday, leaving the firm’s profitability at about half the level it’s targeting. Trading revenue that surpassed analysts’ estimates helped soften the blow.

BNY Mellon also reported on Tuesday that total deposits dropped 5% in the quarter through September from the previous three months but later indicated on earnings calls that deposits are likely to be stable going forward.

The longest tranche on the bank’s latest bond sale is an 11-year security that may yield 1.80 to 1.85 percentage point above Treasuries, said a person familiar, asking not to be identified discussing a private transaction. 

Spokespeople for Goldman Sachs and BNY Mellon didn’t immediately reply to requests for comment.

Bank Bond Sales

Big banks, which were expected to stay on the sidelines as they’re well-funded for the short term and borrowing costs are high, are flooding the market with new deals. JPMorgan Chase & Co. and Wells Fargo & Co. collectively raised $13.25 billion on Monday while PNC Financial Services Group Inc. led the way for regional bank issuance post-earnings, pricing $3.5 billion in a two-part deal on Tuesday. 

The slew of issuance may be a sign that banks expect it to become more expensive to borrow in the future. The average spread on a financial institution bond was at 146 basis points as of Tuesday, 22 basis points wider than the spread for the broader high-grade bond index, according to data compiled by Bloomberg.

To be sure, while investment-grade all-in yields are the highest since 2009 and the rates market remains volatile amid rising geopolitical tensions, average high-grade spread volatility has been modest. 

“For a financial intermediary, it is all about the risk premium they pay versus the risk premium they can earn,” according to David Knutson, senior investment director at Schroder Investment Management. 

“Effective household borrowing rates are near 20-year highs — it is a very good time for lenders from a margin perspective,” he said. 

(Updates to add BNY Mellon deal details, chart, commentary from David Knutson.)

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