Treasury Announces List Of PPIP Fund Managers
WASHINGTON (AP) -- The Treasury Department on Wednesday selected nine large investment managers to operate funds for a long-awaited program to buy toxic securities from troubled financial institutions.
Treasury officials said the program initially could buy up to $40 billion in distressed assets. That's far below the potential $1 trillion in assets that the government originally hoped to take off the banks' books through purchases of soured securities and a separate program that would have dealt with 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.
"I'm not even sure the actual dollars will be that much," said banking consultant Bert Ely. "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."
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 to businesses and consumers.
reasury 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 Wednesday 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. LLP.
They were among more than 100 firms that had expressed an interest in participating, according to Treasury.
The program announced Wednesday 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.
Analysts said the impact of the scaled-down program is likely to be muted.
"The real hit lies in the trillions of dollars in residential home loans and commercial loans banks hold in whole-loan form on their balance sheets," said Daniel Alpert, managing director of the investment bank Westwood Capital LLC.
Fears of a deeper recession, including rising unemployment and falling home values, raise the specter of massive defaults on consumer and commercial real estate loans, analysts said. The securities backed by mortgages and other complex assets to be targeted by PPIP are no longer as big a threat to the banking industry's stability.
Now that banks are stable enough to hold their bad assets, the program may end up serving a narrow niche, said Bradley Sabel, a partner at the law firm Shearman and Sterling in New York.
Banks that already wrote down the values of the securities can afford to sell at the reduced prices investors are willing to pay, while banks that are very well capitalized might be willing to take those losses just to free up capital for other purposes, Sabel said.
Ten of the nation's biggest financial companies -- including JPMorgan Chase & Co., American Express Co. and Goldman Sachs Group Inc. -- last month got the go-ahead to return $68 billion in federal bailout money, a development viewed as evidence that the financial sector was beginning to stabilize after benefiting from the government's $700 billion financial rescue fund.
Given recent good news, PPIP appears to be more of a face-saving decision than a meaningful policy, said Simon Johnson, a former IMF chief economist now with the Massachusetts Institute of Technology's Sloan School of Business.
But it could help establish a market for securities that have been impossible to price, said Harold Reichwald, of the law firm Manatt, Phelps & Phillips in Los Angeles. He said there isn't enough capital at traditional sources to get that market moving.
"The question is, how do we develop sufficient confidence and capital in the marketplace to make that happen," he said. "This is the first step toward accomplishing that goal."
Billionaire investor Wilbur Ross, whose firm is now a subsidiary of Invesco, said Tuesday on CNBC that banks will never break even on many of their troubled assets, but that the government plan will get them five-to-10 percentage points closer.
In mid-April, Treasury announced that it was making it easier for hedge funds and other private investors to participate in the program, a move seen by analysts as an acknowledgment that investor interest had been lackluster.
A week later, JPMorgan Chase & Co. CEO Jamie Dimon said the bank did not intend to participate because it did not need to.
The Treasury Department played down the concerns, saying at the time that there would be significant interest from other banks.
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First Posted: 07- 8-09 05:39 PM | Updated: 07- 8-09 06:03 PM