Hub firms may bid for bad loans

The government's $700 billion bailout fund stands to attract a crowd of financial firms, including Putnam Investments, that want a shot at managing part of this giant pool of assets.

Names from Putnam, a Boston mutual fund manager, to New York private equity firm Blackstone Group and the Bank of New York Mellon Corp. have surfaced as potential bidders, according to the firms and others in the business. Additional Boston money managers, including Fidelity Investments, also could express interest, according to executives following developments in the bidding.

"We are evaluating the opportunity," Putnam spokeswoman Nancy Fisher said yesterday. BNY Mellon said it is "ready to help the Treasury Department in a variety of ways," according to Joseph Ailinger, a spokesman for the firm in Boston. "Our company was founded by the first secretary of the treasury, and we have developed a broad range of capabilities that could assist in the implementation and ultimate success of the program."

Fidelity and Blackstone had no comment yesterday. A number of managers contacted said they won't decide whether to participate until they know more about how the program will work - and how much they might be paid. PIMCO, the California investment firm, has already said publicly that it would manage the troubled assets for free, under the leadership of its famous bond manager, Bill Gross.

The Treasury, which is overseeing the so-called Troubled Assets Relief Program, said it will hire several firms to manage the purchase of mortgages and securities from companies that want to shed troubled assets. Yesterday the department issued guidelines for its selection of those managers, and for hiring firms for accounting, auction-management, and related services.

Companies that want to bid must express their interest by tomorrow at 5 p.m.; in a second phase, the government will invite some number of those back. The firms could be hired "through other than full and open competition," the Treasury said, due to the rush timing involved.

In its guidelines, the Treasury said, "The selection process for asset managers may involve extremely short deadlines for submitting information and for traveling to Washington, D.C., for meetings or interviews."

The bailout plan, signed into law on Friday, aims at getting bad loans off company balance sheets to stabilize the US economy and unfreeze credit markets.

The Treasury has 45 days to hammer out program details. Analysts say the agency will likely purchase loans through auctions, in which the government announces it will buy mortgage-based assets and companies will be able to offer their unwanted holdings for sale.

Already the government has shown it plans to move fast on various parts of its financial rescue package given the fragility of the financial markets. On Friday, it named State Street Corp. of Boston and Barclays Global Investors of London to manage the mortgage debt of Fannie Mae and Freddie Mac. Those assignments are separate from the $700 billion fund. State Street declined to say whether it would bid on additional government jobs.

At one investment firm, a manager, who spoke on condition of anonymity because the firm has not decided whether to bid, said all firms have to examine the risk-reward factors at stake. It could be more lucrative, for example, to bid on assets in the market than to manage the process.

Philipp A. Uhlmann, an assistant professor of finance at Bentley College, said the government will have to be careful about companies it selects and how much it will pay. "No one is really in a frame of mind where they're going to want to look on this after the fact and say, 'Here's some guys that made out like bandits.' "

The goal is to fix the problem, he added: "The relationship between risk and reward ought to be reasonable but not obscene."

Treasury Secretary Henry M. Paulson Jr. yesterday named one of his former Goldman Sachs colleagues, Neel Kashkari, interim head of the newly created Office of Financial Stability, which will oversee the bailout fund. Kashkari is currently an assistant Treasury secretary for international economics and development.

Beth Healy can be reached at bhealy@globe.com.