Wall Street Optimism

FDIC guarantee phase-out shows Wall Street resurgence
Issue: 1109 - 16 June 2009

What a difference three months can make. Far from becoming an ingrained feature of capital markets as some had feared, the Federal Deposit Insurance Corp’s bank debt guarantees have indeed lived up to their billing as “temporary”. It’s another sign of renewed optimism on Wall Street.


Exactly three months ago tomorrow, the Federal Deposit Insurance Corp voted to extend its bank issuance guarantee package, the Temporary Liquidity Guarantee Program (TLGP) to the end of October, instead of the initially planned withdrawal at the end of June. The decision was hailed on Wall Street at the time as the right move. The market remained broken, said bankers, and the programme was critical to bank funding. Privately, some bankers warned that few, if any, of the major banks would be able to issue without FDIC guarantees until well into 2010.

Yet on Monday a senior banker told EuroWeek that the government guarantee is by and large redundant. General Electric Capital Corp and Citigroup may continue to borrow for a short period under its provisions, he said, but everyone else can go back into the market on a standalone basis. Morgan Stanley today said that once its Tarp money is repaid it won’t ever again use the scheme.

It’s not just bank debt that is recovering — almost every US fixed income new issue market has enjoyed two quarters of strong demand and tighter pricing. New issue concessions have tumbled from around 75bp-100bp in early spring to around 10bp-15bp. Some credits have even issued flat to or through secondary bonds.

Bankers are feeling better about themselves and the products that they offer are broadening once more, helping to lift the mood across Wall Street. Those who are still in jobs are beginning to feel that they might keep them, and that they might even be able to make money again.
Certainly, there is not much evidence of the worst recession since the 1930s around the bars and restaurants of Manhattan; all are packed, even if customers are enticed through the doors by a “Recession Busting Happy Hour!” And don’t even think about trying to get a ticket to the new Yankee Stadium — it’s a sell-out, despite a hike in ticket prices.
Whether this new optimism proves to be ill founded remains to be seen, but for the time being the end of the world is not even close to being nigh. Wall Streeters are starting to feel better about themselves again — self-belief in their omnipotence has been dented, but they are beginning to reassume their swagger. Which is, of course, terribly good news for everybody else.



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