A lot riding on toxic buy-up plan
The Treasury Department is extending the deadline for fund managers to invest in unloading bad assets from the banks' balance sheets and easing its selection criteria. As Amy Scott reports, the Treasury really needs private investors to hop on board.
The US Treasury building in Washington, D.C. (Karen Bleier/AFP/Getty Images)
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Kai Ryssdal: Tomorrow Alcoa will be the first company to report profits in what's known as first quarter earnings season. Next week we'll get the banks, which helps explain part of the case of the blahs Wall Street had today. Despite recent pronouncements from the likes of J.P. Morgan and Citigroup that they're not doing as badly as everybody thought, there is still a lot riding on the Treasury Department's plan to salvage the financial industry.
Remember this is the plan that's supposed to help banks unload those piles of distressed mortgage-backed securities they've got sitting around. And to that end, fund managers who want in on Secretary Geithner's public-private partnership now have a little more time. Today the Obama administration extended the application deadline by a couple of weeks. And it relaxed the standards slightly for those who do want to participate. Our New York bureau chief Amy Scott explains Treasury has a lot riding on getting private investors to go along.
AMY SCOTT: The Treasury is looking for about five fund managers to run the public-private investment program. They'll raise money from investors and then bid for mortgage-backed securities with financing from the government.
Sue Allon is president of Allonhill. Her firm helps investors buy these kinds of assets. She says the Treasury's initial guidelines excluded all but the biggest managers, like Pimco and Blackrock.
SUE ALLON: I think the industry was saying, "Well wait a minute. There's a whole lot more talent here and a whole lot more interest that's being excluded. Why should these guys have the first cut? Why can't we participate?"
They may be able to eventually. The Treasury said today it could expand the number of managers once the program is up and running. Officials also encouraged small, women-and-minority-owned firms to partner with the major fund managers.
But getting managers on board is only half the battle. Banks want to hold out for the highest price they can get for their securities. Investors want the best deal possible. Getting the two to meet in the middle could be the program's biggest challenge.
Mansoor Ghori is head of Accent Capital, a private equity firm in Austin, Texas. He says he'd be interested if the terms were right.
MANSOOR GHORI: We'd look at all the programs and see how we can participate. They just have to make sense from an investor's perspective.
Trouble is, it's difficult for investors to know what they might be getting into. The public-private partnership still looks like a work in progress. One insider at a major private equity firm told me no one will know if they'll buy anything until they see the prices.
In New York, I'm Amy Scott for Marketplace.
Comments
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From Ashland, OR, 04/06/2009
Why isn't anyone talking about the insanity of this plan? This is the most contrived stock market rally I've ever seen. The government is basically hooking up its printing press to the banks bottom line. They are in the process of manufacturing profits where there are none. Thank God for Elizabeth Warren who is supposed to come out and call Geitner and Summers on the enormous disaster for taxpayers they are creating down the road.
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