Credit Lines: Swiss Bank Proposal Draws Titters; India and Pakistan Seek New Loans
Union Bank of Switzerland had high hopes of doing the biggest deal in the Eurobond market's history. In June the bank telexed U.S. Treasury Secretary Donald Regan with an offer to sell as much as $2 billion of Treasury notes outside the U.S.</br></br>The problem is, the U.S. Treasury isn't like any borrower in the Eurobond market. The Treasury raises money exclusively through the U.S. Federal Reserve Bank, its agent, and it isn't about to break that precedent. Never mind that UBS has helped borrowers such as Nova Scotia or Fiat S.p.A. of Italy sell bonds this way. The Swiss bank's offer, and conditions it proposed, have prompted titters among bond professionals and U.S. authorities.</br></br>"Isn't that nice!" says a sarcastic managing director at First Boston Corp., a New York-based investment bank. In decades of trading U.S. government securities, First Boston has learned that it must bid like everybody else at the Fed auctions.</br></br>"I find it very hard to imagine the Treasury would ever sell its securities this way," adds Howard A. Shallcross, chairman of Merrill Lynch Government Securities Inc., a unit of Merrill Lynch & Co. A Treasury official adds that he "can't imagine" turning over the U.S. government's financing to a foreign bank.</br></br>Nevertheless, a UBS official says the bank was "absolutely serious." The $2 billion offer is another sign of growing foreign interest in the U.S. securities market, following the repeal of the U.S. withholding tax on interest paid to foreign bondholders. But the UBS official concedes that subsequent disclosure of the bank's bold offer "is embarrassing, to say the least."