Monday, March 9, 2009

FDIC Backing GE and Bank of America Debt, among others…

America assigning guarantees to failing companies sure sounds like a recipe for disaster if you ask me. With the FDIC’s backing they are rolling over debt and you and I are guaranteeing it. Not that we are collectively credit worth, we’re not.

In fact, calling America triple-A sounds a lot like the rating agency games that got us into this mess to begin with! Perhaps on a relative basis when compared to other bankrupt nations we could be considered credit worthy, but certainly not by any historic measure of debt to income, that’s for sure.

What’s happening now is that the guarantees are stacking a mile high, but are not yet reflected in our debt or obligation numbers. This will come back to haunt America, we are headed down the road to default and these actions will expedite that journey.

Bank of America, GE Sell $16.5 Billion of FDIC Debt

By Gabrielle Coppola and John Detrixhe

March 9 (Bloomberg) -- Bank of America Corp., the largest U.S. bank by assets, and General Electric Capital Corp. raised a combined $16.5 billion today selling bonds backed by the U.S. government as they seek to hold down borrowing costs.

Bank of America, based in Charlotte, North Carolina, sold $8.5 billion of notes in its second-largest offering under the Federal Deposit Insurance Corp.’s Temporary Liquidity Guarantee program. The finance arm of General Electric Co. sold $8 billion of notes, also its second-biggest under the program.

Financial companies are relying on the FDIC program as yields relative to benchmarks on their debt that isn’t guaranteed by the government soar to the highest on record. Banks have few alternatives to finance themselves at lower interest rates as investors grow concerned that they don’t have enough capital to absorb losses amid a deepening global recession, said Guy Lebas, chief economist at Janney Montgomery Scott LLC in Philadelphia.

“It’s so much cheaper to issue TLGP debt than unsecured that every bank out there is replacing maturing debt with TLGP deals,” Lebas said in a telephone interview. “No financial issuer in their right mind would come with a non-FDIC debt issue right now. Markets are penalizing them very severely.”

Yields Over Benchmarks
The average yield over benchmark rates on financial company debt has risen 1.64 percentage points this year to 8.52 percentage points as of March 6, according to Merrill Lynch & Co.’s U.S. Financial Corporate index. That is the highest on record, the data show. The index doesn’t include FDIC-backed debt.

Financial issuers marketed more than $16.5 billion in FDIC- backed debt today, bringing this month’s total to $18 billion and already eclipsing the $17.4 billion of issuance in February. Banks, seeking to reduce borrowing costs and diversify their funding, are using the government’s program to boost cash levels and reduce risk.

“GE ran into a few stresses in the last weeks and I think they’re likely to employ a more conservative funding mix going forward,” Lebas said.

GE Capital, based in Stamford, Connecticut, issued $4 billion of 30-year, 6.875 percent bonds in January without a government guarantee at 98.48 cents on the dollar to yield 400 basis points more than similar-maturity Treasuries, Bloomberg data show. The senior unsecured bonds traded at 72.319 cents on the dollar on March 6 to yield 9.74 percent, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

Bank of America
Bank of America sold $4 billion of floating-rate notes due in September 2010 that pay three basis points more than the three-month London interbank offered rate, and $2.5 billion of floating-rate notes due in June 2012 that yield 20 basis points more than three-month Libor, Bloomberg data show.

The bank also sold $2 billion of 2.375 percent fixed-rate notes due June 2012 that pay 102.5 basis points more than similar-maturity Treasuries, Bloomberg data show. A basis point is 0.01 percentage point. Libor, a borrowing benchmark, is currently set at 1.31 percent.

Bank of America spokesman Scott Silvestri couldn’t be reached for comment.

GE Capital sold $4 billion of two-year, 1.8 percent notes priced to yield 86.7 basis points more than Treasuries, and $1 billion of two-year, floating-rate notes at eight basis points over three-month Libor, Bloomberg data show.

GE Capital also sold $1.5 billion of three-year, 2.25 percent notes at 91.2 basis points more than similar-maturity Treasuries, and $1.5 billion of three-year, floating-rate notes at 20 basis points over three-month Libor, the data show.

“There was tremendous demand for the offering,” said GE spokesman Russell Wilkerson. GE has now “pre-funded” about $41 billion of the $45 billion planned in long-term debt maturing this year.

Bonds guaranteed through the FDIC program are rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s, their highest rankings.

The Eagles – Pretty Maids all in a Row: