A government program to guarantee new corporate debt by bailed out financial services firms will save those companies at least $24 billion over three years.
The savings are partly responsible for a jump in banking profit in the last quarter. According to an analysis of the Temporary Liquidity Guarantee Program, one of the lesser-known elements of the bailout package that Congress passed late last year, eight banks have cut their interest payments by $2.2 billion in the second quarter alone.
Under the TLGP program, the Federal Deposit Insurance Corp. guarantees the payment of certain types of senior unsecured debt, as well as certain noninterest-bearing transaction accounts. The intent, as with other parts of the bailout, was to encourage banks to return to normal business activities by mitigating the uncertainty of the credit markets.
So far, the FDIC has guaranteed $339 billion in corporate debt under the program, which is scheduled to come to a close at the end of October. The FDIC has earned $6.9 billion in fees from participating institutions.
The program has been good to the companies involved. The Wall Street Journal, which reviewed the program, reported that Citigroup Inc., already the recipient of $50 billion in more direct bailout funding, saved almost $600 million in interest in the latest quarter - approximately 14 percent of its overall quarterly profit of $4.28 billion.
Similarly, Goldman Sachs Group Inc. stands to save $205.5 million every three months by selling its debt through the TLGP program rather than on the open market, the Journal reported. J.P. Morgan Chase & Co. will likewise save $246 million per quarter.
The savings are partly responsible for a jump in banking profit in the last quarter. According to an analysis of the Temporary Liquidity Guarantee Program, one of the lesser-known elements of the bailout package that Congress passed late last year, eight banks have cut their interest payments by $2.2 billion in the second quarter alone.
Under the TLGP program, the Federal Deposit Insurance Corp. guarantees the payment of certain types of senior unsecured debt, as well as certain noninterest-bearing transaction accounts. The intent, as with other parts of the bailout, was to encourage banks to return to normal business activities by mitigating the uncertainty of the credit markets.
So far, the FDIC has guaranteed $339 billion in corporate debt under the program, which is scheduled to come to a close at the end of October. The FDIC has earned $6.9 billion in fees from participating institutions.
The program has been good to the companies involved. The Wall Street Journal, which reviewed the program, reported that Citigroup Inc., already the recipient of $50 billion in more direct bailout funding, saved almost $600 million in interest in the latest quarter - approximately 14 percent of its overall quarterly profit of $4.28 billion.
Similarly, Goldman Sachs Group Inc. stands to save $205.5 million every three months by selling its debt through the TLGP program rather than on the open market, the Journal reported. J.P. Morgan Chase & Co. will likewise save $246 million per quarter.
published July 28, 2009, 0 Comments
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