WASHINGTON — The Treasury Department said Wednesday that two large investment funds have raised the minimum amounts needed to begin purchasing toxic assets from banks, finally launching this part of the government's financial rescue effort.
Invesco Ltd. and the TCW Group Inc. both cleared the $500 million target to begin operations to purchase toxic assets, according to Treasury.
They are among nine firms that received initial approval to participate in the program earlier this year. Treasury said it expected the other seven firms would be cleared to begin operations in the next month.
The goal of the program is to rid banks of bad loans so they can resume more normal lending, which is key for sustaining any economic recovery.
The initiative, known as the Public-Private Investment Program, has gotten off to a rocky start and some analysts wonder how successful it will be at buying banks' bad assets at bargain-basement prices.
Treasury's announcement comes nearly a year after Congress first approved the $700 billion Troubled Assets Relief Program, which was sold to lawmakers by then-Treasury Secretary Henry Paulson as an effort to buy up bad assets so banks could resume more normal lending.
However, Paulson put that effort aside in favor of directly injecting massive amounts of capital into banks, saying it would take too long to get the toxic asset program up and running.
In July, Treasury said nine firms had qualified for the PPIP program. They were given time to raise at least $500 million each, money that will be matched from the $700 billion bailout program.
Treasury on Wednesday said the two funds had closed on about $1.13 billion of private-sector capital commitments, pushing the total to $2.26 billion after the government match.
Invesco, which is headquartered in Atlanta, has ties with billionaire investor Wilbur Ross. His firm is now a subsidiary of Invesco. TCW Group, headquartered in Los Angeles, has more than $100 billion under management.
Treasury said the two funds also will be able to borrow additional amounts from Treasury, bringing their combined total resources to purchase toxic assets to about $4.52 billion.
The government's goal is to provide $30 billion in Treasury investment to all of the funds participating. With the contributions from the private sector, that will push the total available for purchase of toxic assets to $40 billion, Treasury said.
Treasury Secretary Timothy Geithner said he was pleased with the progress made in launching PPIP.
"This program allows Treasury to partner with leading investment management firms to increase the flow of private capital into the market for legacy securities and give taxpayers a chance to share in the profits," he said in a statement.