Commentaries
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Citi back for more, but sans FDIC help
It looks like Citi is on a mission to prove it doesn’t need any stinking help from the federal government. Earlier this week it tapped the bond market for $5 billion, but the notes carried the FDIC guarantee. As the FT noted in its piece yesterday, the move seemed at odds with the bank’s supposed attempts to get out from under the government’s thumb.
So today, the bank is back with five-year note offering that comes without the FDIC backstop. But it’s going to have pay for that. IFR price guidance puts the risk premium at 3.25 percentage points over Treasurys. Just for a little perspective, JP Morgan has bond maturing January 2015 trading at 1.38 percentage point over Treasurys, according to MarketAxess.
The European Commission strikes back
Reeling from the humiliation of failing to stop Belgian bank KBC paying interest on some of its subordinated bonds, the European Commission has won a new victory in its bid to see bondholders share the pain of bank bailouts.
Acting as a sort-of policeman for Brussels, the UK’s Financial Services Authority has prevented the Royal Bank of Scotland from repaying four subordinated bonds at their first opportunity, causing prices to plunge by up to 15 percent. The Upper Tier 2 euro-denominated bonds fell to between 70 and 75 cents, depending on who you ask.
The Fannie Mae sinkhole
Fannie Mae has reported the a $14.8 billion loss in the second quarter and is going hat in hand to the Treasury for another $10.7 billion to pull its net worth out of deficit. The release is here.
In a very quick read through, here are some of the things that jumped out:
We are experiencing increases in delinquency and default rates for our entire guaranty book of business, including on loans with fewer risk layers. Risk layering is the combination of risk characteristics that could increase the likelihood of default, such as higher loan-to-value ratios, lower FICO credit scores, higher debt-to-income ratios and adjustable-rate mortgages. This general deterioration in our guaranty book of business is a result of the stress on a broader segment of borrowers due to the rise in unemployment and the decline in home prices. Certain states, higher risk loan categories and our 2006 and 2007 loan vintages continue to account for a disproportionate share of our foreclosures and chargeoffs.
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The Wall
