Lehman/Fido Online Bond Offering No Nirvana for Retail Investors

A much-heralded online bond offering held today that was supposed to level the playing field for individual investors didn't appear to make much of a dent in the landscape after all.

Today Lehman Brothers (LEH Quote) led a new $1 billion bond offering -- online -- from Ford Motor Credit, a unit of auto giant Ford Motor Company (F Quote), that was priced this afternoon. Fidelity Capital Markets, co-manager, was offering its institutional and 3.2 million retail online brokerage clients the new three-year Ford bonds and the same information and price comparisons Lehman gives its institutional clients, according to a news report Tuesday.

But it doesn't look like Fidelity showed its customers all the information that Lehman provided.

For the offering, Lehman provided Fido with background on Ford, and Lehman's current prices on Ford bonds and around 20 comparable bonds, according to Jeffrey Weiss, Lehman's head of bond syndication.

The background is helpful and price comparisons are actually a big deal in the often retail-unfriendly bond world. Most bonds, similar to stocks in the Wild West after-hours market, don't have standard prices. Since retail investors' orders are typically modest, their orders often get higher mark-ups. A broader view of the prices -- even if all the quotes are from Lehman -- would be a big plus for investors.

Problem is, Fidelity is only providing retail customers with the offering's basic price, quality, maturity facts and its prospectus, according to spokesman Jim Griffin. He couldn't immediately confirm whether or not Lehman's price comparisons would be on Fido's Web site during or after the offering, and they didn't turn up in a cruise around the site.

The upshot: Without the chance to study Ford's offering beyond the prospectus and see the market for comparable bonds, you won't know if you were getting a good deal.

Beyond the ongoing pricing and research questions, there are other kinks. Ironically, Fidelity's online customers can't buy the Ford bonds online. Instead, they have to speak to a Fidelity representative over the phone or in person at one of Fidelity's investor centers. Even the minimum investment isn't crystal clear. The bond is priced in $1,000 increments, according to a spokesman, a phone representative and the Web site. But this morning a Fidelity investor center representative -- a person who would sell it -- said it was $25,000.

Does this mean many retail investors will get the short end? Probably not, simply because not many are expected to buy the bonds. Even though the Ford offering is relatively basic (high quality, no call features and a modest maturity), Lehman's Weiss expected today's participants to be "overwhelmingly institutional." A glimpse of Lehman's order book yesterday showed a smattering of retail orders from Fidelity, though today an insider said retail investors' order flow was steady. The retail/institutional breakdown hasn't been released yet.

Still, Weiss says if price transparency increases and "the playing field levels," Main Street investors might warm to offers like this one.

One good sign: Today's offer had broader availability to Fidelity investors than its stock IPOs. The Boston fund giant only offers new stock offerings to clients with $500,000 or at least 36 trades per year. All its brokerage customers, plus nearly 800 investment advisers and 184 regional broker/dealers, have access to this deal.

And, of course, there are benefits for Lehman, Ford and Fidelity. Online distribution is cheaper and more efficient for Lehman. Hawking bonds online can halve distribution costs, says Myles Harrington, a founder of MuniAuction, a Pittsburgh concern that sells bonds online strictly to institutions. It also gives Ford and Fidelity a chance to broaden their investor and client bases, respectively.

Lehman officials say they'll partner with Fidelity to bring a new bond from the World Bank to market next week.