Bailed-Out Banks Charge Highest Fees in FDIC Sales

Bailed-Out Banks Charge Highest Fees in FDIC Sales - 2/17/2009

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Bailed-Out Banks Charge Highest Fees in FDIC Sales
Bryan Keogh and Ari Levy

Bloomberg. February 17, 2009
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EXCERPT: Citigroup Inc. and Bank of America Corp., recipients of $90 billion in bailout funds from American taxpayers, are charging financial companies three times more to sell bonds under a U.S.-backed rescue program than government- controlled Fannie Mae and Freddie Mac pay to issue notes with similar maturities. Since the Federal Deposit Insurance Corp. started guaranteeing debt in November, banks have charged clients, including themselves, more than $375 million in fees on $154 billion of deals in the U.S., according to data compiled by Bloomberg. Pittsburgh-based PNC Financial Services Group Inc., which received $7.6 billion from the U.S. Treasury, paid Citigroup and JPMorgan Chase & Co. 30 basis points, or $6 million, in December to sell FDIC-backed notes due in three-and- a-half years. A month later, JPMorgan and two other banks charged Freddie Mac 7.5 basis points for a similar offering. “The fact that you have U.S. government support in the form of the FDIC guarantee, there should be a reduction in fees,” said Sean Egan, president of bond ratings firm Egan Jones Ratings Co. in Haverford, Pennsylvania. “The best proxy for fees would be Fannie and Freddie, and if anything, it should be a bit less than that.” As the financial crisis reduces income from mergers and acquisitions, equity sales and securities trading, bankers are looking for revenue anywhere they can find it. While fees on FDIC-backed securities sales are less than half of the average 57 basis points on all maturities of U.S. investment-grade bonds, government-guaranteed issues account for 46 percent of the corporate debt and equity offerings in the U.S. since Nov. 25, Bloomberg data show. […] Under the initial guidelines, financial companies have until the end of June to sell debt, and the FDIC will guarantee the notes through June 2012.

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