Tuesday, March 2, 2010

FDIC to Tap Securitization Market

MARCH 2, 2010, 5:03 P.M. ET

By ANUSHA SHRIVASTAVA, Wall Street Journal

NEW YORK—The Federal Deposit Insurance Corp., seeking to rid itself of assets from failed banks, is tapping the securitization market with three new guaranteed deals totaling $4 billion.

The first of these deals, expected to be sold this week, is a $1.8 billion offering, according to documents obtained by Dow Jones Newswires.

The offerings pool assets held by failed banks that the agency has seized to protect depositors, including Franklin Bank in Houston and Corus Bank in Chicago. The FDIC took over Franklin in November 2008 and Corus in September 2009.

Over the past two years, the FDIC has had to take over 165 financial institutions brought down by nonperforming commercial and residential loans. For more than a year, the banking regulator has been selling some of the loans through a vehicle structured as a public-private partnership.

Essentially, in these deals, the buyer pays 20% of the assets' value and tries to work out the loans by reducing the interest rate, extending the maturity, writing off some principal or getting buyers to put up equity. Once the loans start to perform, the FDIC, which retains 80% ownership, shares in the returns. The arrangement allows the FDIC to reduce its risk.

Assets from the Corus and Franklin banks—which include residential, commercial and construction loans—in addition to other failed bank assets have been pooled into the three notes totaling $4 billion, according to the documents.

These notes are wrapped with an FDIC guarantee and backed by the U.S. government.

The deals, offered via the private-placement market, are led by Barclays Capital. The BarclaysPLC unit declined to comment, and the FDIC declined to confirm or deny that it was marketing a deal at all.

The first offering is a structured sale of previously issued nonagency residential-mortgage-backed securities. The second deal is of Corus Bank assets, and the third is of Franklin Bank loans.

Market participants say the banking regulator, which is expected to take over many more banks this year, is looking at various options to fast-track asset sales.

"The FDIC can't sell all the assets they have through the public-private partnership transactions," said Jesse Litvak, managing director and trader in the mortgage and asset-backed group at Jefferies & Co. "This is their way of diversifying their exit strategy."

—Prabha Natarajan contributed to this article.

Write to Anusha Shrivastava at anusha.shrivastava@dowjones.com