This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Thing That Killed Lehman (and Almost GE) Popular Again

Stocks in this article: GEBACJPMWFC

NEW YORK ( TheStreet) -- Wall Street is jumping back into the risky $1.6 trillion "repo" market with some of the biggest U.S. banks -- including Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) -- leading the charge.

Shunned after the 2008 financial crisis after killing Lehman Brothers -- and nearly cutting General Electric's (GE) financial throat -- repos, or repurchase agreements, are enjoying a Wall Street renaissance, according to a report released Friday by Fitch Ratings.

"Since the peak of the U.S. financial crisis, risk appetite in the repo market is gradually recovering," Fitch said in its report. "Repo markets, once viewed as a relatively mundane utility within the financial system architecture, are the subject of growing public interest in "shadow" banking."

A repurchase agreement is the practice of lending a stock or bond to another party with a promise to buy it back. Banks and asset managers sell repos to increase returns on the securities they hold, while money market funds buy them as another source of fixed income and cash investment.

Relatively low yields on U.S. Treasury and corporate bonds are pushing investors back into the market, Fitch says, adding that money market fund buyers enjoy the higher yields paid on nongovernment repos while banks are looking to "finance lower-quality securities inventories" that have built up through years of capital building since the crisis.

Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) currently rank in the top 10 of repo users, or "counterparties," in the current market according to Fitch.

Repos were a primary source of pain for the financial industry during the 2008 financial crisis. Lehman Brothers declared bankruptcy after it was cut off from the short-term debt market when repos began to fail. General Electric (GE) faced its own near-death experience when, following the Lehman bankruptcy, it was shut out of the repo market.

In fact, some of the same issues that caused problems in the repo market in 2008 remain today, the Fitch report says. The 10 largest repo counterparties account for nearly 80% of transactions, meaning if one bank were to face a liquidity event the problems could quickly spread through the rest of the system. Fitch, however, did add that counterparty concentration has declined since 2008.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs