Citigroup - One More Bite of the Apple

Citigroup, the largest issuer of U.S. backed debt, is issuing $5 billion of FDIC (ultimately you and me) backed debt as early as today. This FDIC debt guarantee program is due to expire on October 31, 2009 but there is talk about extending the program on an emergency basis.

FDIC (taxpayer) guaranteed debt is rated Aaa by Moody’s Investors Service and AAA by Standard & Poor’s. Nice. This is happening as Treasury Department is talking about winding down crisis programs.

Citi's decision to issue more FDIC (taxpayer) backed debt can be interpreted several ways. One as a shrewd move - since its still available might as well use it. Second, Citi is still fu*ked up.

Here is the reality despite Citi's talk of separating itself of government ownership and paying off TARP, WE will still be on the hook for a huge portion of their balance sheet - Citi's guaranteed debt.

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I'm not sure what this means exactly

It sounds like they are putting some of their toxic debt out onto the market but with a guarantee.

It's all revolving around this Fed emergency program, which frankly I never researched into.

FAQ on TLGP.

I mean it sure looks like the U.S. taxpayer is on the hook, guaranteeing the value of more derivatives but is that right?

Bloomberg at least quotes if Citigroup was interested in showing they were healthy they would issue not guaranteed by the FDIC debt bonds.

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It means that Citi is issuing debt with the explicit guarantee

of FDIC. Its borrowing costs would be much higher if they tried to issue the debt w/out the guarantee because they are probably insolvent. So, with the guarantee, their borrowing costs are a lot less. It is sort of a rating arbitrage - with the FDIC debt they get the highest debt rating.

And yes, it doesn't give a good impression. Again, unless Citi pays off all the guaranteed debt - we will be the hook for a huge portion of its debt if Citi can't meet its debt obligations which probably insures that we will continue to prop it up.

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how many others

used this program? I did not focus in on this one (there are so many!) to dig around.

Citigroup is one of the largest holders of toxic assets last time I looked at the TARP spreadsheet.

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Sweet Deal!

I am trying to track down the actual numbers but here are some numbers:

But none of them are talking about leaving a Federal Deposit Insurance Corp. bond-guarantee program that benefits them much more. Goldman (ticker: GS) has issued $29 billion of low-cost debt through this FDIC program; Bank of America (BAC), $44 billion; and JPMorgan (JPM), $38 billion. In total, about $340 billion of debt has been sold under the six-month-old arrangement, called the FDIC Temporary Liquidity Guarantee Program (TLGP).

This was a super sweet deal - borrow at relatively low rates and invest in high rate (risky) investments.

Goldman did pay a portion back (supposedly).

How Do You Spell Sweet Deal? For Banks, It's TLGP

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Here is the most recent FDIC report on TLGP

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am I reading this right?

and the U.S. taxpayer is at risk for > 73% of all debt bonds?

What exactly are these things?

You know if you wanted to go research it out and write it up as a blog post/tutorial on what this program is, what specifically is it guaranteeing, i.e. exactly what type of debt is this? Is is corporate bonds and/or is it MBS? Is it derivatives like CDOs based on various bundled loans?

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TLGP is guaranteeing unsecured debt of the financial institution

and providing full coverage of non-interest bearing deposit transaction accounts.  So, what was happening Citi would issue (Citi as debtor) unsecured debt with the FDIC guarantee.  According to the most recent report posted above that there is still $307 billion of this debt outstanding.  According to Bloomberg article Citi has issued $44.6 billion of FDIC-guaranteed debt.  Here is another report showing the type of debt guaranteed:

 

 

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