Seeking Alpha
Long/short equity, hedge fund manager, ETF investing, banks
Profile| Send Message|
( followers)  

The furor over the failure of the solar panel maker Solyndra, which got a $535 million debt guarantee from the Obama Administration with stimulus money, continues to rage on. As it should. The federal government had no business making speculative guarantees despite its fascination with "green jobs." Yet, the investors in the federally guaranteed Solyndra loans have nothing to worry about despite the Solyndra bankruptcy. Uncle Sam will make them whole.

Yet, that loan guarantee is miniscule compared with the loan guarantees passed out by unelected regulators in the Federal Deposit Insurace Corporation (FDIC) with no congressional authorization. The FDIC guaranteed bank debt outstanding is $231 billion as of August 31, 2011.

Yet, the FDIC has refused to disclose the names of the recipients of these taxpayer guarantees. They argue that the guarantees are "confidential." Nothing could be further from the truth. Investors were told about the guarantees. Without the disclosure of the federal guarantees, the bonds could not have got top ratings. FINRA's description of the bonds mentions the federal guarantees. The guarantees have been disclosed in public filings.

These bonds sometimes have yields of 2 percent to 3 percent, which is a lot higher than the miniscule 10 basis points of federally guaranteed Treasury notes with similar maturities. While the FDIC Temporary Liquidity Guarantee Program (TLGP) debt may have similar credit risk to Treasury debt it is surely less liquid, justifying some of the higher yields. Yet, investors planning on holding onto the FDIC bonds to maturity should do better than Treasury investors. Investors wanting to pick up some federally insured debt at attractive yields should check out the relevant bonds issued by the following banks that have outstanding federal debt guarantees:

Top Issuers of Federally Insured FDIC Debt

Ticker

Company

FDIC Guaranteed Debt Outstanding in Billions

C

Citigroup

$32.4

JPM

JPMorgan Chase

$23.5

BAC

Bank of America

$23.5

MS

Morgan Stanley

$13.4

GS

Goldman Sachs

$10.9

WFC

Wells Fargo

$9.5

AXP

American Express

$4.8

USB

US Bancorp

$2.7

STI

SunTrust

$2.6

RF

Regions Financial

$1.8

KEY

Keycorp

$1.7

STT

State Street

$1.5

NYB

New York Community Bancorp

$0.6

BK

Bank of New York Mellon

$0.6

Total

$129.2

Source: Dr. Linus Wilson, University of Louisiana at Lafayette

The FDIC should let investors and taxpayers know which banks have issued federally guaranteed debt under the TLGP. Taxpayers deserve to know where the money they have risked is going. Investors should be able to easily find which banks issued these unique and very safe debt instruments. The FDIC should honor my pending Freedom of Information Act (FOIA) request to make all the debt guarantees and their recipients available to the public. As is clear from the table above, it is not a secret which banks got multibillion debt guarantees.

Disclosure: I am long in broad-based index funds.

Disclaimer: This is not investment advice.

Source: 14 Banks That Have Bigger Federal Debt Guarantees Than Solyndra