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

Tyler Durden's picture




 

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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Fri, 03/12/2010 - 13:11 | 263326 Anonymous
Anonymous's picture

this is crazy

why do we want to bail this banks with our money and worst to benefit the rich to get a great deal.

the government is backing the whole deal by doing everything they can to support the current level of the housing price when it is still over priced!

Sat, 03/13/2010 - 17:00 | 264521 Anonymous
Anonymous's picture

Bwahahaha!

Bowles-Simpson commission studying the regret felt between pulling a trigger and when the lights go out.

Too late. Too late. Everlastingly and eternally too late.

http://www.youtube.com/watch?v=bCd42e_ui_M

Fri, 03/12/2010 - 13:12 | 263327 bugs_
bugs_'s picture

The Munder Repo105 Fund

Fri, 03/12/2010 - 13:14 | 263336 Ripped Chunk
Ripped Chunk's picture

That sounds about right at this stage of the collapse.

Wonder what they will do next fall/winter when that have another six or seven hundred billion in uselss mortgages to bury????

Fri, 03/12/2010 - 13:31 | 263368 THE DORK OF CORK
THE DORK OF CORK's picture

This madness must end soon

You do not create wealth by just exchanging bits of paper.

A capital base needs to be created before you even think of extracting a profit / surplus / yield

Jesus this is simple stuff , I just had a conversation with a Zero hedge blogger that did not understand the difference between capital and profit.

We are all doomed I tell you Doomed.

Fri, 03/12/2010 - 13:41 | 263390 Rusty_Shackleford
Rusty_Shackleford's picture

Increasing wealth through rational productive work?

 

 

Preposterous!!!

Fri, 03/12/2010 - 13:55 | 263406 THE DORK OF CORK
THE DORK OF CORK's picture

Forgive me Rusty , for a second there I thought I was living in a rational coherent world - now where is that Queen of Hearts bitch I need her advice on some investment decisions.

Fri, 03/12/2010 - 18:48 | 263772 Ripped Chunk
Ripped Chunk's picture

One (1st one) is a debit. The second one is a credit.

It's nor suprising that this basic fact is no longer understood.

Fri, 03/12/2010 - 23:14 | 264042 Anonymous
Anonymous's picture

>You do not create wealth by just exchanging bits of paper.

No, but you can steal, extort, and extract wealth by exchanging bits of paper.

Eventually the theft will need to become blatant via the proverbial "printing press" and inflation/devaluation or outright default.

Holders of bits of fancy paper with pictures of dead presidents and the like (or contracts designated in them) should beware.

Fri, 03/12/2010 - 16:56 | 263645 Anonymous
Anonymous's picture

"Wonder what they will do next fall/winter when that have another six or seven hundred billion in uselss mortgages to bury????"

Not to mention all the snow...

Fri, 03/12/2010 - 18:49 | 263776 Ripped Chunk
Ripped Chunk's picture

+ !  good one

Fri, 03/12/2010 - 13:20 | 263351 Alexandra Hamilton
Alexandra Hamilton's picture

Haircut of 50% and the investors still want a FDIC guarantee? That must be crap indeed. Why not write it off completely and be done with it?

Fri, 03/12/2010 - 14:04 | 263413 jswede
jswede's picture

bc there are fees to made! (and booked THIS year, to boot -- push that risk out a few more years...)

Fri, 03/12/2010 - 14:53 | 263459 Alexandra Hamilton
Alexandra Hamilton's picture

taxpayer funded fees, of course.

Fri, 03/12/2010 - 13:30 | 263365 yoodman_jimmyy
yoodman_jimmyy's picture

Time to go long JNJ ... I can see a run on KY gel before long.  WTF!

Fri, 03/12/2010 - 13:43 | 263392 kennard
kennard's picture

This is roughly how the Fed will sell its $1.3T of MBSs.

Fri, 03/12/2010 - 13:46 | 263398 Cognitive Dissonance
Cognitive Dissonance's picture

This is simply wholesale theft institutionalized and legalized. It once again is the shift of assets to the private sector while the tax payer gets the bill. This is the end game folks. Want to know how long the market can go up? Right up until the carcass is picked clean.

Fri, 03/12/2010 - 13:51 | 263401 Hansel
Hansel's picture

I'm confused.  Is the $1.81 billion fully guaranteed, or is the $3.6 billion guaranteed?

Fri, 03/12/2010 - 14:06 | 263418 jswede
jswede's picture

the assets were originally $3.6, but now written down to $1.8...  oh it's guaranteed alright - just not in the deal - it was paid upfront by the FDIC capital fund.

Fri, 03/12/2010 - 14:07 | 263420 Cognitive Dissonance
Cognitive Dissonance's picture

EVERYTHING is now guaranteed. :>)

It looks like the face value was $3.6B, it sold for $1.81B to these "investors" which is what the FDIC guarantees, that the "investors" will get at least $1.81B from the securities.

Fri, 03/12/2010 - 18:51 | 263781 Ripped Chunk
Ripped Chunk's picture

It's all guaranteed (as far as you know) until it isn't

Fri, 03/12/2010 - 13:52 | 263403 chet
chet's picture

"RMBS from seven failed bank receiverships."

So that only leaves the RMBS from how many more failed banks?

Fri, 03/12/2010 - 14:31 | 263438 Anonymous
Anonymous's picture

so let's see, it's very clear now

a. tarp per hank

b. fasb capture, per obama

c. ben and tim give 100% on dollar

d. we sell em back at 50% with a guarantee

only one conclusion, collusion and that banks are basically insolvent to the max

and the plain jane facts are, 13 t economy, 250b deficit per month

yeah like this shit is going to work out okay

waiting for this headline

CDS's of us grade a goes parabolic

it would be poetic if we crash on fomc day tuesday

Fri, 03/12/2010 - 14:49 | 263455 ThreeTrees
ThreeTrees's picture

I hope all of these criminals fucking choke.  I'm not even American and this angers me.

Fri, 03/12/2010 - 14:54 | 263461 faustian bargain
faustian bargain's picture

Last week there were two bank failures for which the FDIC found no buyers.

This week we have a bank failure on Thursday, which has not happened in the past several months (maybe ever) that I know of.

And now this. Does anyone else get the feeling the deterioration is accelerating?

Interested to see what press releases we'll have this evening.

Fri, 03/12/2010 - 15:43 | 263549 Anonymous
Anonymous's picture

no one was going to buy a failed bank if they could instead by the failed bank assets with a US guaranty. everyone knew these deals were coming. as a result, purchase of failed banks will plummet - it's a better deal to buy the assets (and a FDIC guaranty) with out the bank or the bank without the assets.

this is the route the RTC went, by the way. first they sold their deals with guaranties, then they gradually scaled the guaranties back as the market developed more appetite. along the way, they rebuilt the securitization market and set the new standards. that's what they will do here, as well: set the new securitization standards, including the holding period, the new reps and warrants, etc.

Fri, 03/12/2010 - 21:50 | 263952 Anonymous
Anonymous's picture

Of course it is accelerating - www.dailyjobcuts.com shows the BUST in the jobs market !!

Fri, 03/12/2010 - 14:56 | 263463 Handle with care
Handle with care's picture

So even with a full government guarantee the market only buts at a 50% haircut.

How much of a hair cut did Ben get when he bought $1.3 trillion of this stuff?

Fri, 03/12/2010 - 15:18 | 263500 BlackBeard
BlackBeard's picture

Well, that just makes Sheila a little whore now doesn't it?

Fri, 03/12/2010 - 15:45 | 263553 Takingbets
Takingbets's picture

LOL!! That bitch better get out her fishnet stockings, high heel boots and red lipstick to get the boys money on future sales of this trash. :-)

Fri, 03/12/2010 - 16:20 | 263594 BlackBeard
BlackBeard's picture

LOL 30 banker bukkake gangbang!

Fri, 03/12/2010 - 16:32 | 263607 carbonmutant
carbonmutant's picture

After November Sheila will not enjoy the protection from prosecution that she currently has.

Fri, 03/12/2010 - 16:35 | 263613 zero intelligence
zero intelligence's picture

Actually, this looks like a pretty decent way for the FDIC to operate. These notes will basically trade like Treasury notes -- so if they yield a little more, people are interested. The important thing is that the FDIC takes the upside (equity) if the mortgages pay out more than 50% on average. This keeps funds from "stealing from the taxpayer" by acquiring busted-bank assets for super-cheap prices. The risk is that the underlying mortgages pay out less than 50% for some reason, which is doubtful in my opinion.

Maybe there are some honest people at the FDIC after all.

 

 

Fri, 03/12/2010 - 18:29 | 263741 faustian bargain
faustian bargain's picture

meanwhile, bank failures continue apace:

PR-51-2010 Valley National Bank, Wayne, New Jersey, Assumes All of the Deposits of the Park Avenue Bank, New York, New York

"Just" another $51mil cost to the (taxpayer-backstopped insolvent) Fund.

Fri, 03/12/2010 - 19:47 | 263836 Anonymous
Anonymous's picture

Whats the latest analysis of the FDIC fund ? How much of a hole is the fund (and the taxpayer as a result) with the latest bank closures, parodies etc...?

Sat, 03/13/2010 - 01:38 | 264136 faustian bargain
faustian bargain's picture

latest on the FDIC's site is 3rd Q '09

http://www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_09/balan...

And it looks like as of September they were $8.2 billion in the hole.

Fri, 03/12/2010 - 21:51 | 263954 Anonymous
Anonymous's picture

And Obium cancelled his Asia trip for Stealthcare 2010 (coming soon to a hospital near you). Probably he was too scared to answer the Asians ..

Sat, 03/13/2010 - 01:13 | 264126 Anonymous
Anonymous's picture

Here is a way to simultaneously stimulate the real estate market, allow the free market to adjust existing mortgages to market levels, and democratize the profits bankers have heretofore reserved for themselves:

http://knol.google.com/k/easan-katir/a-modest-proposal-for-the-bailout-p...

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mark456's picture

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