Risk & Compliance

U.S. Programs Pour Out Aid to Financial Cos.

Citigroup, Goldman, JPMorgan Chase, Wells Fargo, GE Capital, AIG are among those getting assistance this week.
Stephen Taub and Roy HarrisDecember 3, 2008

The government is pouring out aid this week to a number of additional financial companies under several of its recently instituted support programs.

Citigroup, Goldman Sachs Group, JPMorgan Chase & Co., Wells Fargo, and GE Capital are now in various stages of selling bonds backed by the government, thus lowering the rates they would have otherwise been required to charge.

On Tuesday, Citigroup sold $5.5 billion in new bonds to be guaranteed by the Federal Deposit Insurance Corp. under the Temporary Liquidity Guarantee Program (TLGP). The sale included $1 billion in two-year, floating rate notes priced to yield 55 basis points over the three-month London interbank offered rate; $750 million in three-year floating-rate notes priced to yield 80 basis points over one-month Libor; and $3.75 billion of three-year fixed rate notes priced to yield 2.962 percent, according to Reuters.

Goldman Sachs, meanwhile, sold $500 million in three-year floating-rate notes under the TLGP. It is part of a larger note offering being sold in euros, according to Bloomberg News. That makes Goldman the second U.S. lender to issue debt in the currency under the TLGP, according to the wire service. The notes are being priced to yield 45 basis points more than the benchmark mid-swap rate, the report said, citing a person who declined to be identified before the sale is completed.

Last week, JPMorgan Chase raised about $2.8 billion from guaranteed bonds denominated in euros and pounds. In addition, Wells Fargo plans to issue three-year fixed- and floating-rate bonds, according to a regulatory filing. And GE Capital plans to sell three-year fixed-rate notes, according to a filing.

On Tuesday it was reported that Bank of America raised $9 billion, while Morgan Stanley sold $350 million in notes in deals that were backed by the U.S. government under its new guarantee program.

Meanwhile, two smaller banks are poised to receive money from the government under the Treasury Troubled Asset Relief Program’s Capital Purchase Program.

SVB Financial Group, the parent of Silicon Valley Bank, said Wednesday that Treasury is expected to invest up to $235 million by purchasing shares of preferred stock, and receiving related warrants to purchase common stock, of the company based on the terms of the program. The bank said the proceeds of the investment will further strengthen the company’s capital position, and are intended to be used to fund its continued growth.

In addition, United Bankshares Inc. said that it received preliminary approval to receive up to $197.3 million under the Treasury’s program. “The additional capital will increase our ability to meet the needs of our customers, support the communities we serve, and create long-term value for our shareholders,” said United chairman and CEO Richard M. Adams.

Also, American International Group said that the Federal Reserve Bank of New York had launched its financing entity to help AIG with “liquidity issues in connection with its credit default swaps (CDS)and similar derivative instruments written on multi-sector collateralized debt obligations(CDOs).” The entity, announced on Nov. 10, has agreed with AIG’s CDS counterparties to buy about $53.5 billion principal amount of CDOs, AIG said. To date, $46.1 billion principal amount of such CDOs have been bought, with an associated CDS transaction being terminated in connection with the purchases.

AIG said it had provided $5 billion in equity funding, with the New York Fed providing up to about $30 billion in senior funding to the financing entity, of which about $15.1 billion has been funded to purchase CDOs. When payment is received on the loan, remaining amounts will be paid 67 percent to the New York Fed and 33 percent to AIG.

On Tuesday, the Federal Reserve extended three of its liquidity facilities through April 30, 2009, from an originally planned Jan. 30, 2009, “in light of continuing strains in financial markets.” The three facilities are the Primary Dealer Credit Facility (PDCF), the Asset-Backed Commercial Paper Money Market Fund Liquidity Facility (AMLF), and the Term Securities Lending Facility (TSLF).

The Fed said the goal is to make the deadlines consistent with the term authorized for several other liquidity-related facilities: the Commercial Paper Funding Facility (CPFF), the Money Market Investor Funding Facility (MMIFF), and the temporary reciprocal currency arrangements (swap lines) with 14 other central banks.