Outlook 2010: FDIC-backed deals fill first half of 2009, fall off as banks stabilize

By Andrea Heisinger

New York, Dec. 31 - The beginning of 2009 was heavy with investment-grade bonds that were guaranteed by the Federal Deposit Insurance Corp. under its Temporary Liquidity Guarantee Program.

According to Prospect News data, there was about $181.154 billion in bonds in 130 deals issued under the program from the beginning of the year until the program ended in October. Most of that issuance occurred in the first half of the year as banks tried to shore up their balance sheets by doing opportunistic issues under the guarantee.

Most of the issuers were banks, but other lenders like General Electric Capital Corp. and GMAC LLC also took advantage of selling at low rates with the AAA ratings that came with the FDIC guarantee.

Many of the large banks stopped issuing under the guarantee long before the program ended, mostly because of the stigma attached to the deals.

"No one wanted to look very weak," a syndicate source at a large bank said. "I think a lot [of banks] got in early and didn't issue after June or July."

Some of the last issuers to sell bonds under TLGP were Citigroup Inc., Bank of America Corp. and General Electric Capital Corp.

They were also the last to repay bailout money to the government.

All of the largest banks sold FDIC-guaranteed notes, but there were also some deals from smaller names.

U.S. Bancorp, PNC Financial Services Group Inc., First Merchants Corp., Bank of New York Mellon Corp., SunTrust Bank, State Street Corp., Union Bank NA, KeyCorp and Zions Bancorp all tapped the market with the guarantee at some point in 2009.

One reason issuance is expected to be down slightly in 2010 is that the TLGP program is not there as an incentive for banks to issue opportunistically or to simply raise capital for a rainy day.

"That will make a difference, but how much we don't know," the syndicate source said.

One of the most notable deals of 2009 came from two units of Citigroup. Citigroup Funding Inc. and Citibank NA sold $12 billion in four tranches on Jan. 23 under the FDIC guarantee.

The financial giant continued to tap the market via TLGP until it ended in October.

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