(The Masters of the Universe turned themselves into the RAV, got the AAA pixie dust and put themselves to market. It is not too often where, we the people, get to witness and insure the birth of a new asset class.I'm glad that it is only a liquidity problem and not a solvency problem because if it were the latter, the bad assets are still there and you need to get 'em off by 'er doing something like this. Of course Goldie got to go first. Figures that we are copying the Brits. Soon anyone that can read the three page TARP application can apply to be a BHC and issue AAA debt also. Instead of a rebate check can we just get part of the takedown?
Today's 'gold supply' is the full faith and credit of the United States.
Goldie and the girls just got the keys to the safety deposit box. - AM)
Friday, November 21, 2008
Goldman Sachs: General, count me in
The FDIC announced their final rules on the so-called Temporary Liquidity Guarantee Program, or TLGP (Pronounced "Teelgup"). This is the program that was designed to allow banks to issue FDIC insured debt, ensuring that they'd be able to roll over any debt coming due in the coming months.
The key change in the final rules is that the guarantee will now be timely principal and interest. Under the original rules it would be possible for an investment in a failed bank to get tied up in bankruptcy court, and while the FDIC would eventually pay you, there was no assurance as to exactly when.
Already Goldman Sachs says they will be bringing FDIC insured debt as early as Monday, and I'd expect an avalanche of banks to come with new issues in the next few weeks.
This debt will now carry a full faith and credit guarantee for as long as three years (6/30/12 to be exact). Note that similar debt has been issued in Europe, most notably Barclays who did the first deal in the U.K. That deal was priced at swaps +25. I expect U.S. debt to come wider. To me, its got to trade in context of Agency bonds, which are more like swaps +50, Treasuries +165.
There are three interesting wrinkles here. First, the FDIC bank debt will be explicitly guaranteed, while Fannie and Freddie are not. However, I'm hearing the FDIC stuff will have a 20% risk weighting for banks. That's equal to Agencies currently, but there has been talk that the Agencies will be reduced to 10%.
Finally, there will be extensive supply of the FDIC stuff over the next month or so, whereas the Agencies have done very little term issuance. So given the market's poor liquidity, I'd expect the new FDIC issues to have a new issue concession, and therefore price wider than Agencies.