Citigroup, Merrill Push Financial Borrowing Costs to Records

For the first time, the world's biggest financial institutions are paying more to borrow in the corporate bond market than the average company.

Bonds of banks, brokerages and insurance companies yield 1.49 percentage points more than U.S. Treasuries, matching a record high set in October 2002, according to indexes compiled by New York-based Merrill Lynch & Co. The average industrial company bond trades at a yield premium of 1.34 percentage points.

Investors are demanding extra compensation for the risk of owning Citigroup Inc., Merrill Lynch and Barclays Plc on concern that the $50 billion in losses already reported from subprime mortgages will increase. The total damage may reach $400 billion worldwide, Deutsche Bank AG analysts said this week in a report, and Wells Fargo & Co. Chief Executive Officer John Stumpf said the housing market is the worst since the Great Depression.

``The fear is that we haven't seen the losses yet, we've only seen the estimates of the losses and the credibility of the banks and brokers to assure people they have a good handle on it is really the key issue,'' said John Atkins, corporate bond analyst at research firm IDEAglobal in New York.

Until the subprime-mortgage crisis erupted, banks had always paid less than the average company to lend, according to Merrill indexes that began in 1996. Financial company yield spreads began trading higher in August and reached a record Nov. 13.
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