It seems that Morgan Stanley is planning to cease any new sales of FDIC-guaranteed debt, and declining a government subsidy following approval to repay $10 billion to the U.S. Treasury.
In a recent interview with bank representative Mark Lake, “Morgan Stanley does not plan nor expect to issue any more debt under the FDIC guaranteed debt program.”
The FDIC guarantees had been issued by the federal government back in November of 2008 as part of its efforts to reinforce the country’s financial system.
The measures had allowed banks to sell AAA-rated bonds at much lower interest rates than would have been demanded by investors. Morgan Stanley, the nation’s sixth largest bank according to assets, has issued approximately $24 billion of debt under the Temporary Liquidity Guarantee Program since late November.
The FDIC guarantees were originally intended to expire on June 30. But, back on March 17, the agency extended the program until Oct. 31, 2009.
Morgan Stanley, along with JPMorgan and ten other banks, gained approval to repay the TARP funds they received from the Treasury department, thereby getting out from under the restrictions that limit compensation and hiring. However, this move to give up FDIC guarantees may raise the borrowing costs on the bank, but there are still signs that more banks are in a position to work more independently of government assistance.
As part of this agreement, Morgan Stanley and others were required to demonstrate that they were capable of issuing debt without the government guarantees. In May, the bank sold its first non-guaranteed debt since the FDIC program was established, issuing $2.5 billion of 6% five-year notes and $3 billion 7.3% ten-year bonds.
This makes Morgan Stanley’s senior unsecured debt carry an A rating according to the S&P and Fitch Ratings as well as an A2 from Moody’s.
Tags: recent interview, March, bank representative mark, Bank, guarantee program, morgan stanley
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