AMR Investment Services will increase its allocation to Yankee banks by approximately $200 million, using money from U.S. brokerage issues that will be maturing shortly. Bonnie Mitra, portfolio manager of a $3.5 billion short duration portfolio, says that while he would ordinarily consider reinvesting in the sector as AMR's brokerage bond mature, the recent turmoil in the equity market means less fee revenue for the brokerage credits. He adds that the related downturn in the M&A and IPO markets are also hurting the brokers' near-term growth prospects.
Mitra believes banks are unlikely to suffer from the accounting-related woes of other companies because they are so tightly regulated by the Federal Reserve. AMR will look to buy issues from all the major Yankee banks maturing in less than three years. Mitra believes that part of the Eurodollar futures curve is attractive because that market has priced in 75-100 basis points of interest rate hikes from the Fed by September of '03, and he believes policymakers will not act so aggressively.
Mitra says AMR often asks banks to create their own security, as it did recently when it bought the Royal Bank of Scotland 2.35% notes maturing in December of '03. While Mitra has nothing against domestic banks, he says they have generally addressed their short-term financing needs.
At a one-year duration, the Fort Worth, Texas-based money manager is 200% long its bogey, the six-month T-bill. It allocates roughly 35% to corporates, 22.5% to collateralized mortgage obligations, 22.5% to agencies, 10% to cash equivalents, 5% to asset-backed securities and 5% to Treasuries.
