Treasury taps 9 to handle toxic assets
WASHINGTON - The Treasury Department yesterday selected nine financial firms as partners for a program to buy banks’ soured, mortgage-related investments.
Treasury officials said the program will try to relieve banks of up to $40 billion worth of these investments - complex securities whose value plummeted along with real estate prices. The amount Treasury has committed is far below the potential $1 trillion in assets that the government originally hoped to take off the banks’ books through this program and another that would have targeted bad loans.
About four months after it was announced, many analysts doubted whether the scaled-down program would have much impact since rising unemployment and loan defaults have eclipsed soured securities as threats to the financial sector.
“Frankly, it’s in the better interest of the banks’ stockholders for banks to keep the bad assets rather than sell them, because the banks think they’ll take a hit on the sale,’’ said banking consultant Bert Ely.
The Public-Private Investment Program, or PPIP, will leverage private capital with government subsidies so the investment firms can buy up the soured mortgage-related assets that have made banks reluctant to lend freely.
The problem assets helped spark the financial crisis as they lost value and banks became unable to sell them. They have been weighing down banks’ balance sheets - one reason the industry has had trouble providing the credit necessary to support an economic recovery.
Treasury said in a statement that it would invest up $30 billion in the program, matched by $10 billion from the private sector.
The nine firms chosen will be given up to three months to raise an initial $500 million each to begin participating in the program.
The investment firms are: BlackRock Inc.; TCW Group; AllianceBernstein LP and its sub-advisers Greenfield Partners LLC and Rialto Capital Management LLC; Angelo, Gordon & Co. LP and GE Capital Real Estate; Invesco Ltd.; Marathon Asset Management LP; Oaktree Capital Management LP; RLJ Western Asset Management LP; and Wellington Management Co.
They were among more than 100 firms that had expressed an interest in participating, according to Treasury.
The program will deal only with distressed securities, the bulk of them backed by mortgage-related assets. A separate program that would have auctioned off troubled bank loans, which was to be run by the Federal Deposit Insurance Corp., has been delayed indefinitely.
