See the Bloomberg.com article "Bailed-Out Banks Charge Highest Fees in FDIC Sales".

 

 

 

 

 

 

 

 

The FDIC’s decision to back corporate bonds was based on the need to ensure investors that the “full faith and credit of the United States” was behind the debt, John Dugan, head of the Comptroller of the Currency, said at the time. In the two months following the September bankruptcy of Lehman Brothers Holdings Inc., credit markets froze and yields over benchmark rates on bank debt almost doubled to a record 725 basis points on Oct. 10, triple the average spread on the riskiest bonds in June 2007.

Bank debt spreads have since narrowed to 649 basis points still more than double the 270 basis points a year ago, according to Merrill Lynch & Co.’s U.S. Corporates, Banks index.

 

 

 

 

 

 

 

 

The fees may be justified because investors see risk in holding bank debt even with government guarantees, said Walter Mix, a former commissioner of the California Department of Financial Institutions. The FDIC has closed 38 banks since the beginning of last year and real estate markets continue to deteriorate, Mix said, making it difficult to sell the bonds.

“It’s a perceived risk-premium because of all the uncertainty that’s surrounding this situation,” said Mix...

 

 

 

 

 

 

 

 

Citigroup and JPMorgan Chase & Co. [charged] 30 basis points, or $6 million, in December to sell FDIC-backed notes due in three-and- a-half years. A month later, JPMorgan and two other banks charged Freddie Mac 7.5 basis points for a similar offering.

 

 

 

 

 

 

 

 

GE Capital, the second-biggest issuer of FDIC-backed notes and the financing arm of Fairfield, Connecticut-based General Electric Co., paid underwriters the lowest rates to sell FDIC- backed debt, ranging from 4.5 basis points for 1.5-year notes to 17.5 basis points on $5.5 billion of 3.4-year securities, Bloomberg data show. The rates are about the same as investment banks charged AAA rated GE Capital to sell debt with a similar maturity before the FDIC guarantee.