April 16, 2009 / 8:09 PM / 9 years ago

UPDATE 2-JPMorgan sells bonds without US guarantee

(Adds details, analyst comment)

NEW YORK, April 16 (Reuters) - JPMorgan Chase (JPM.N) on Thursday sold $3 billion in debt that does not have the backing of the U.S. government as the bank aims to boost its capital amid plans to repay government loans.

The debt marks the first time the bank has sold dollar-denominated debt without government backing since a $1.6 billion sale of perpetual securities last August.

The bank also completed a 2 billion euro ($2.64 billion) bond sale on March 25.

JPMorgan Chief Executive Jamie Dimon said on Thursday that keeping money that was received under the government’s Troubled Asset Relief Program (TARP) has become a “scarlet letter” and that the bank is waiting for guidance from the government on when it can repay its debt.

Dimon added that the bank already has enough money to repay the $25 billion in taxpayer funds. For details, see [ID:nN16542451]

JPMorgan’s ability to sell debt without government backing is “a good sign,” said Ricardo Kleinbaum, trading sector specialist at BNP Paribas in New York.

However, he said, “the question is who follows? Is the banking space going to get bifurcated?”

Goldman Sachs Group Inc (GS.N) earlier this week raised $5 billion in a stock sale to help pay back the $10 billion it received from the government. Goldman also said it would return the funds when regulators gave the green light.

Banks want to repay TARP to remove restrictions on their compensation and give the government less say in the way the bank is managed.

However, the government is unlikely to want to bifurcate the market by giving some banks the freedom to pay executives high levels of compensation, which would create an outflow of people from weaker institutions to stronger ones, said Kleinbaum.

The government may tell the banks it’s too early to repay the funds, he added.

If banks repay the TARP funds, it is also unclear whether they will still have access to funds borrowed under the Temporary Liquidity Guarantee Program (TLGP), which allows them to issue debt that is guaranteed by the Federal Deposit Insurance Corporation (FDIC).

“It seems to me that if they repay they should be disqualified from borrowing under the FDIC program,” said Kleinbaum.

JP Morgan has issued $39.2 billion in bonds under the TLGP, according to Thomson Reuters data.

Thursday’s bond sale comprised 10-year bonds that were priced to yield 350 basis points more than comparable U.S. Treasuries, said International Financing Review, a Thomson Reuters service. (Reporting by Karen Brettell; Editing by Chizu Nomiyama)

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