Major US banks this week may be in for over 400 biliion bonds issue

Under the lead of Goldman Sachs and Citi, major US banks may earliest by this week sell government guaranteed bonds. According to some analysts estimations, this round of bond issue may be worth over 400 billion USD.

Goldman Sachs and Citi says on Monday that after the FDIC on Friday approved a program to guarantee banks' new senior unsecured debt, potentially allowing the firms to issue debt with top "AAA" ratings and lowering the issuing costs, the 2 financial institutions are planning to issue bonds. Before this, Goldman Sachs has been transformed into a banking cooperation and Citi yesterday accepted the federal government's emergency aid.

The credit market crisis has limited the demand for financial related bonds and the rate difference compared with the US government bonds has risen to a high of 7.24%. Under such circumstances, the FDIC rated the banks bonds with "AAA" ratings and opened up a new way for banks to raise funds.

According to Barclays Capital analyst last month estimations, according to this plan, in the coming 6 months, various major US banks may raise about 400 to 600 billion USD worth of funds. Before this, the various major US banks never sold any US dollar based bonds.

FDIC on 14 October says that it will provide guarantee for 3 year non guaranteed bank bonds before 30 June 2009. This is the US government's finance department deposit guaranteeing plan and part of the 250 billion USD plan to save the banking industry.

According to data, last year's investment grade newly issued bond sales was worth about 1.02 trillion USD and bank bonds sales ratio in it was about 71%. But under the impact of the worsening credit crisis, banks are forced to go away from the bond issuing market to raise funds. Data shows that since 3 September, no major US banks issued any bonds. Till today, US company bond sales are worth only about 733.1 billion USD, much lesser than last year's figure of about 1.07 trillion USD.

According to US Corporate Bank Index, even with the help of the government, bank bond yields still went up last week, average 9.5%, higher than last year same time value of 6%.