Investors Buy $17.25 Billion in Banks' Bonds

A fresh asset class is quickly carving a new niche for itself on Wall Street.

In just two days, Goldman Sachs Group Inc., Morgan Stanley and J.P. Morgan Chase & Co. sold a cumulative $17.25 billion of government-guaranteed bank bonds as part of the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program.

The program has opened the financing door for banks that were otherwise shut out from repaying or refinancing debt as a result of the credit crisis. The government guarantee allows banks and firms that have been approved to participate, such as General Electric Co., to take advantage of cheap financing.


Barclays Capital fixed-income analyst Rajiv Setia estimates financial institutions may use the program to issue $250 billion to $350 billion of debt by June 30 of next year, when the issuing period expires.

Approximately $215 billion of U.S. bank debt is set to mature during the first two quarters of 2009, according to Dealogic.

Mitch Stapley, chief fixed-income officer for Fifth Third Bank who has bought some of the new bonds, classifies them as better-yielding Treasury bonds.

"With yields on Treasury bonds that can make a goat just about choke, these are a no-brainer alternative," Mr. Stapley said.

On Tuesday, three-year Treasurys yielded 1.37%. In comparison, Goldman Sachs's new three-year guaranteed bonds were priced with a yield of 3.367%, Morgan Stanley's sold with a yield of 3.262% and J.P. Morgan's notes yielded 3.147%.

Reduced credit risk coupled with additional yield has helped the new bonds blaze their way into portfolios.

Mr. Stapley and others expect the market for these bonds will continue to flourish and anticipate a surge of supply next week.

"The universe for this product is growing day by day as more and more accounts sign on and/or get approval to participate in the program," according to Paul Spivack, head of U.S. debt syndicate at Morgan Stanley.

Citigroup Inc. and Bank of America Corp. have said they are preparing to sell FDIC-backed deals as early as next week, and others are sure to follow.

Global interest in the new bonds also has been sparked, as the FDIC will insure debt that is denominated in a foreign currency. J.P. Morgan is planning to sell a two-part, euro- and sterling-denominated bond issue under the FDIC program, a person familiar with the situation told Dow Jones Newswires on Wednesday.

Goldman Sachs was the first firm to offer the new bonds. It sold a $5 billion three-year issue at a risk premium of two percentage points over Treasurys on Monday. That issue snapped after it was freed to trade, fetching a risk premium of 1.84 percentage points in the secondary market.

Morgan Stanley sold a total of $5.75 billion of bonds in four parts Wednesday.

According to syndicate participants who worked on the deal, 347 investors placed orders for the debt, with 70% of the debt sold going to U.S. buyers, 20% landing in European hands and only 10% going to Asia.

The Morgan Stanley deal was the first issued under the government program to include a floating-rate note, an instrument recently absent from the corporate-bond primary market.

The Morgan Stanley fixed-rate notes also traded well in the secondary market.

And J.P. Morgan sold a combined $6.5 billion of securities Wednesday. The bulk of the issue consisted of J.P. Morgan's $5 billion three-year fixed-rate note, which was sold at a risk premium of 1.775 percentage points over Treasurys.

Source: http://online.wsj.com/article/SB122782428906462449.html

AIG Mulling Overseas Life Unit Sale to China Fund, Nikkei Says

American International Group Inc. is in talks to sell a stake in an overseas life insurance unit to a group led by a Chinese sovereign wealth fund, the Nikkei newspaper said, citing unidentified people familiar with the matter.

AIG is negotiating to sell a minority stake in its American Life Insurance Co. unit, which operates in more than 55 countries including Japan, the newspaper said. The group including the China Investment Corp. and China-based insurers and have until yearend to come to an agreement with AIG, the Nikkei said.

Chief Executive Officer Edward Liddy is trying to sell almost all of AIG's businesses excluding property-causality insurance to repay a U.S. loan that saved the firm from bankruptcy. The company said Oct. 3 that it would look for buyers or investors in two overseas life insurance companies -- one operating in Japan, parts of Europe, Latin America and the Middle East, and the other operating in China, Korea and India.

AIG wants to keep majority control in the American Life Insurance unit, the newspaper said, and a 49 percent stake may cost 500 billion yen ($5.2 billion) to 1 trillion yen. An agreement may lead to other deals with the sovereign wealth fund, the Nikkei said.

Nicholas Ashooh, a spokesman for New York-based AIG, didn't immediately return a call seeking comment. An e-mail to the China Investment Corp. wasn't immediately returned.

Source:http://www.bloomberg.com/apps/news?pid

Children's insurance program may need wait list

SACRAMENTO—The state's budget woes could leave thousands of California children on a waiting list for health care.

State officials who oversee the Healthy Families Program are scrambling to find ways around a $17.2 million budget shortage.

The program provides low-cost health, dental and vision coverage to uninsured children of working families.

Currently, 883,589 children rely on the low-cost health insurance state program, and about 27,125 new applicants enroll each month.

The Managed Risk Medical Insurance Board warns a long waiting list could amass quickly, with an estimated 160,000 children waitlisted in the first six months.

The board is slated to meet in Sacramento on Wednesday. If approved, the stoppage could be implemented as soon as Dec. 18.

Source: http://www.mercurynews.com/news/ci_10977114

If you lose your job, keep your health insurance

The latest unemployment numbers are awful.

U.S. job losses accelerated in the last two months, pushing the nation's unemployment rate to a 14-year high in October.

As workers lose their jobs, a crucial benefit they must keep is their health insurance. Don't go without this.

It may be tough to pay the premium while you search for a new job, but you'll really be in a world of hurt if a major illness or accident wipes out what funds you have.

"If you think losing your job is a possibility in the next year, start reviewing your employer health care plans now," said Sam Gibbs, a senior vice president and consumer expert with eHealth Insurance.com, a health insurance information Web site.

"During open enrollment [when you select benefits for the coming year], you may be able to choose a plan that would cost less if you were later required to pay all of the premium through COBRA," he said. "Always make sure that the plan you choose will cover the health care benefits you need for the coming year."

It's important to understand what COBRA is because it plays a major role in your health insurance if you're laid off.

COBRA stands for the Consolidated Omnibus Budget Reconciliation Act of 1986. The federal law requires employers that lay off workers to offer them a chance to continue with the employer's health insurance policy for 18 months after leaving their job.

However, you will have to pay the monthly premium – and it's expensive because you're paying both the employee and employer contributions.

The average monthly COBRA premium is $400 for an individual and $1,078 for a family, according to eHealthInsurance.com.

It may be tempting to go without health insurance and save the expense, but that would be a mistake. Instead, take the COBRA coverage and shop around for less expensive coverage that still meets your needs.

"If you are considering switching your health insurance plans, never switch from an employer-based plan or COBRA continuation coverage until you are approved for another plan," Mr. Gibbs said. "It is important to have no interruption in your health insurance coverage."

If you're healthy, you may qualify for an individual and family health policy.

If your health isn't so good, you may still qualify for an individual or family plan – but you may have to pay a higher premium. Talk to at least two insurance agents to find out whether you qualify for an individual and family plan.

You might also consider raising your deductible to save on the premium.

"If you're healthy and don't need to see your doctor a lot, go with a higher deductible unless you are anticipating expensive procedures like a surgery or child birth, or other medical expenses within the year," Mr. Gibbs said.

If you've already been laid off, see if you can get on your spouse's health insurance plan.

If not, and you're healthy, find an individual and family plan that has the same benefits and the same doctors that you like.

An uncertain employment situation calls for cutting out unnecessary expenditures, but health insurance isn't one of them.

Source:

S&P changes US health insurance outlook to negative

NEW YORK, Nov 3 (Reuters) - Standard & Poor's on Monday said it expects the number of downgrades of companies in the U.S. health insurance sector to pick up, reflecting weaker operating results and a worsening economy.

S&P changed its outlook on the sector to negative, from stable, indicating companies in the sector are more likely to be downgraded over the next one to two years.

"Aggressive pricing, unforeseen medical trend development, and slowing top-line growth that have driven performance shortfalls beyond our downside expectations," S&P said in a statement.

"Overall, we believe the sector is feeling the strain of a slumping U.S. economy and more intense competitive pressure, which we expect to persist meaningfully into 2009," the rating agency added.

Shares of health insurance companies were hurt last week after Aetna Inc (AET.N: Quote, Profile, Research, Stock Buzz) said third quarter net income dropped to $277.3 million from $496.7 million a year earlier, and Cigna Corp (CI.N: Quote, Profile, Research, Stock Buzz) said net income dropped to $171 million from $365 million for the same period.

"In the past few months, health-insurer-related rating activity has quickly taken a negative turn as pressure on earnings and cash-flow levels raised concerns about goodwill valuation (for some companies) and quality of capital in general," S&P added.

In spite of the negative outlook, S&P said it expects downgrades to be limited to only a subset of companies with negative outlooks, the negative sector outlook also indicates that upgrades will also be less common. (Reporting by Karen Brettell; Editing by James Dalgleish)

Source: http://www.reuters.com/article/marketsNews/idUSN0332254520081103