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FDIC Sells Failed Banks' Toxic Crap Back To Soon-To-Be-Failed Banks At 50% Haircut With Explicit Taxpayer Guarantee

 

FDIC Sells Failed Banks’ Toxic Crap Back To Soon-To-Be-Failed Banks At 50% Haircut With Explicit Taxpayer Guarantee

Submitted by Tyler Durden

The FDIC has just announced that it has closed the sale of $1.8 billion of Notes backed by RMBS “from seven failed bank receiverships.” The value of the actual aggregate balance: $3.6 billion. And somehow banks still keep their RMBS books marked at par. Furthermore, “the timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States. Sure enough, smelling this insane deal, the vultures came out to snack on the taxpayer’s corpse: “The transaction was met with robust investor demand, with over 70 investors participating across fixed and floating rate series. The investors included banks, investment funds, insurance funds and pension funds. All investors were qualified institutional buyers.” Just how many of these “banks, investment funds, insurance funds and pension funds” are viable to begin with, courtesy of the FDIC’s permission for every failed bank to continue existing is an amusing question, and Zero Hedge will attempt to get an itemized list of the participating buyers.

Some more details on the transaction:

The $1.81 billion of notes is backed by 103 non-agency residential mortgage-backed securities. The aggregate unpaid balance of the 103 securities was approximately $3.6 billion at the time of the sale. The FDIC retained an equity interest in each series. The transaction features two series of senior notes, each backed by a separate pool of RMBS. The larger series of approximately $1.3 billion, is based on option ARMS and has a floating rate tied to the one-month LIBOR. The smaller series of $480 million is based mostly on fixed-rate RMBS and pays a fixed rate. Both series priced at rates comparable to Ginnie Mae collateralized mortgage obligations.

And just in case you thought that the FDIC had finished funnelling taxpayer money from one failed bank to another soon to be failed bank, you are about to be disappointed. FTMFW:

The timely payment of principal and interest due on the notes are guaranteed by the FDIC, and that guaranty is backed by the full faith and credit of the United States.

Hilarious, the use of proceeds will go to refilling a little of the at least technically insolvent Deposit Insurance Fund, which at last check was negative $X billion (we forget, but it was a big number), implyinh that the FDIC’s job as deposit guarantor is now moot, and all Sheila Bair’s organization does is to move money from taxpayers to banks. Thank you Sheila.

As for the underwriter: it was Repo 105 counterparty extraordinaire, Barclays Capital, which served as “sole bookrunner, structuring agent and financial advisor.” Makes one wonder whether the FDIC is using not Repo 105 but Repo 100,000,005 in its existing arrangements with banks. Certainly, don’t hope to find before the US goes bankrupt.

And yes, this is a notable event in the FDIC’s history as the bankrupt organization slowly moves to irrelevancy.

This offering marks the first issuance of notes by the FDIC since the early 1990s and the first issuance by the FDIC of FDIC guaranteed debt backed by the full faith and credit of the U.S..

Here is a summary of the transaction, and below is a chart summarizing how taxpayers got raped once again.

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