FDIC Loan Guarantees Under TLGP Level Off – GE Exits Program

FDIC Debt Guarantees Decline Slightly

The FDIC Temporary Loan Guarantee Program (TLGP) was instituted late last year.  The program’s stated purpose and goals, according to the FDIC, is as follows:

The FDIC has created this program to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued senior unsecured debt of banks, thrifts, and certain holding companies, and by providing full coverage of non-interest bearing deposit transaction accounts, regardless of dollar amount.

The recently released FDIC 6/30/2009 report on the TLGP shows total guaranteed debt outstanding of $339 billion.  This represents a decrease from May 31st of 1.95% or $6.7 billion.  The number of banks using TLGP also declined to 97 from 101 over the past month.

Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program

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Debt Issuance under Guarantee Program
(dollar figures in millions) June 30, 2009	Number	Debt Outstanding	Cap1 for Group	Debt Outstanding Share of Cap
Insured Depository Institutions
Assets <= $10 Billion	44	1,635	3,059	53.5%
Assets > $10 Billion	20	59,691	314,778	19.0%
Bank and Thrift Holding Companies, Non-Insured Affiliates	33	277,712	471,205	58.9%
All Issuers	97	339,038	789,042	43.0%
1 The amount of FDIC-guaranteed debt that can be issued by each eligible entity, or its cap, is based on the amount of senior unsecured debt outstanding as of September 30, 2008. The cap for a depository institution with no senior unsecured debt outstanding at September 30, 2008, is set at 2 percent of total liabilities. See http://www2.fdic.gov/qbp/2008dec/tlgp2c.html for more information.

GE Exits TLGP

Most of the debt issues guaranteed by the FDIC were issued for larger institutions which were having temporary difficulties selling debt during the height of the banking crisis. Credit markets have improved greatly since earlier in the year and it is expected that many of the institutions that took advantage of the TLGP will not require FDIC debt guarantees going forward.  General Electric Capital, which reportedly issued $44 billion of FDIC guaranteed debt announced today that they were approved by the FDIC to exit the TLGP.

GE Treasurer Kathryn Cassidy stated that, “Today’s plan to exit from the TLGP affirms the strength of GE Capital’s funding and liquidity position, including reduced reliance on government funding programs and our ability to access non-guaranteed debt markets.”

It would be expected that other large banks which had taken advantage of the FDIC debt guarantees will also gradually exit the program since many have been able to raise adequate private capital over the past several months.  Expect large institutions such as Bank of America, JP Morgan and Wells Fargo to also seek FDIC approval to exit the TLGP program.  Given the withdrawal of some of the biggest TLGP participants, a major reduction of FDIC guaranteed debt outstanding should be seen over the next several years.   The FDIC guarantees could take years to wind down as 24% of the debt guarantees granted have terms of 2 to 3 years and 38% of the debt has terms of over 3 years.

TLGP Successful Program for FDIC

In the month of June 2009, the FDIC earned $442 million from debt guarantee fees under the TLGP.  FDIC Chairman Sheila Bair wisely opposed granting approval to CIT for inclusion in the TLGP program due to its precarious financial condition – see FDIC Tells CIT To Drop Dead. The FDIC faces depletion of its Deposit Insurance Fund.  A large loss on debt guarantees to a failing company would jeopardize the  primary mission of the FDIC which is protecting bank depositors.  To date, the FDIC has made $8.28 billion in fees on the TLGP program.

Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program

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Fees Assessed Under TLGP Debt Program
(dollar figures in millions) June 30, 2009	Debt Guarantee Fees Assessed	Surcharges	Total Fee Amount
Fourth Quarter 2008	3,437		3,437
Month of January 2009	1,024		1,024
Month of February 2009	1,087		1,087
Month of March 2009	1,323		1,323
Month of April 2009	574	137	712
Month of May 2009	396	92	488
Month of June 2009	442	155	597
Total	8,283	385	8,667