(Adds Citigroup, quotes, new sales)
By Walden Siew
NEW YORK Nov 25 Goldman Sachs (GS.N) boosted
its bond sale under a new government lending program on
Tuesday, a promising first attempt at thawing frozen credit
markets that may unleash $600 billion in new debt sales.
Goldman's inaugural $5 billion sale is the first test as
U.S. banks line up to sell bonds guaranteed by the Federal
Deposit Insurance Corp. after sluggish investment-grade and
junk bond sales in recent months.
The plan comes as banks face significant capital
constraints, high borrowing costs and massive amounts of debt
that are maturing and need to be rolled over next year.
Citigroup (C.N), JPMorgan (JPM.N) , Morgan Stanley (MS.N)
and Bank of America (BAC.N) also are preparing sales in what
may be the start of a flood of new sales.
Goldman's debt sale, which carry top ratings by all three
ratings firms, was nearly double initial talk of between $2
billion to $3 billion after decent demand, as the debt is
guaranteed under the FDIC's so-called Temporary Liquidity
Guarantee Program. Investors are watching the deal as an
indicator of demand for bonds under the new program.
"The offering by Goldman Sachs is extremely well received,"
said David Dietze, chief investment officer of Point View
Financial Services in Summit, New Jersey.
"The beauty of it is that the cost to issue this debt is
much less than their cost to issue it naked, as it were,
without the FDIC backing."
Goldman's debt priced at 200 basis points, tighter than
original price talk of 220 basis points over U.S. Treasuries.
Dietze said the debt is more attractive to investors than
agency debt such as Fannie Mae and Freddie Mac because of the
explicit government guarantee.
The FDIC's program, approved on Friday, follows a similar
British plan put in place in October to help fill a financing
gap for banks shut out of the corporate bond market due to
tight credit conditions.
"It all goes back to restoring confidence in the system,"
said Jason Polun, a banking analyst at mutual fund T. Rowe
Price. "People always talk about frozen markets. Well, this
will help bring liquidity."
JPMorgan Chase said on Tuesday it planned to sell
three-year debt, denominated in euros and in sterling and both
in benchmark size, which typically means $500 million or more.
The lending program is "a key step in getting these
companies to resume lending to consumers and businesses and
allow them to rebuild capital," Dietze said. "Clearly people
want security and these bonds offer security."
Citigroup's sale may price next week, according to a source
familiar with the deal. Morgan Stanley also announced a
guaranteed debt issue on Tuesday, while Bank of America plans a
similar sale that may price next week, according to IFR, a
Thomson Reuters publication.
A Barclays Capital analyst said the new FDIC program may
result in as much as $600 billion in total debt sales. The
market could see about $50 billion in issuance per month until
the deadline for debt issuance next June, or about $400 billion
of new sales, Bank of America estimated in a report.
Through 2009, about $900 billion of maturing debt in the
United States and Europe are putting the squeeze on companies
that need to borrow at a high cost.
Investment-grade bonds, for example, recently traded at
double-digit yields, while high-yield bond are now trading at
more than 22 percent, a sign of what investors are demanding to
take on the risk of holding those securities. For more details,
(Additional reporting by Elinor Comlay and Joseph Giannone in
New York and Jane Baird in London; Editing by Leslie Adler)