9 firms to run toxic assets program
Among those selected: BlackRock and Invesco. Program will be kickstarted with $30 billion government investment.
NEW YORK (CNNMoney.com) -- The government on Wednesday tapped nine financial firms to manage a scaled-down program aimed at helping the nation's banks and said it would invest up to $30 billion to get it started.
Among those selected to serve as asset managers of the so-called Public-Private Investment Program were BlackRock (BLK, Fortune 500), AllianceBernstein (AB), Oaktree Capital Management, Invesco (IVZ), Angelo, Gordon & Co., Marathon Asset Management, RLJ Western Asset Management, The TCW Group and Wellington Management Company.
The firms, selected from a pool of more than 100 applicants, will have 12 weeks to raise $500 million of capital each from private investors willing to invest in toxic securities held on banks' books. Those investments will be matched by the Treasury Department and supplemented with debt financing from the agency.
In addition, 10 women- and minority-owned asset management firms were chosen to serve as partners, regulators said Wednesday.
Under the program, the government will run auctions between the banks selling assets and investors buying them. The aim is to effectively create a market. The goal is to help cleanse the balance sheets of many of the nation's largest banks and help get credit flowing again.
The program will start with a government investment of up to $30 billion with the fund managers, who will use the money to buy the toxic securities that have plagued banks for more than a year.
At the time PPIP was first announced, regulators said the program would start with $500 billion of existing assets with the potential to expand to $1 trillion.
"While utilization of legacy asset programs will depend on how actual economic and financial market conditions evolve, the programs are capable of being quickly expanded if these conditions deteriorate," Treasury Secretary Tim Geithner, Fed Chairman Ben Bernanke and FDIC Chair Sheila Bair said in a statement.
The announcement of the program managers, which has become a source of much speculation on Wall Street in recent weeks, marks the first step forward for a program beset by revisions and setbacks.
Some would-be investors have said they are reluctant to participate in PPIP because Congress has retroactively altered the terms of other government rescue programs.
One firm that was notably absent from the list of approved firms Pimco, the world's largest and most influential bond investment house.
The firm's co-chief investment officer, Bill Gross, grabbed headlines in March when the program was first announced by calling it a "win-win-win."
A spokesman for the company said Wednesday that the firm withdrew its application in early June amid uncertainties regarding the "design and implementation of the program." Pimco's involvement in other government rescue program has raised eyebrows among other investors.
Bert Ely, a Virginia-based financial industry analyst, suggested that Pimco possibly recognized the fact that better-capitalized banks may want to hold onto their troubled assets rather than sell them and record losses.
"Maybe they decided that this isn't worthwhile," he said. "If banks won't sell the assets at prices investors are willing to pay, then it won't work. It takes two to tango."
Senior officials at Treasury declined to comment on Pimco and would not say whether other firms had withdrawn applications.
In vetting assets managers, regulators said they looked at firms' ability to raise $500 million from private sources and their experience in investing and managing distressed assets.
Treasury has said the program is intended to generate a return for private investors and protect taxpayers.
Under the program, banks and other qualified firms looking to rid themselves of assets will sell commercial mortgage-backed securities and certain residential mortgage-backed securities issued before 2009 and originally considered 'AAA'-rated by two or more recognized agencies.
Each of the nine selected fund managers are required to invest a minimum of $20 million in firm capital in the funds they manage. At the same time, no single investor will be able to own more than a 9.9% stake in the PPIP funds.
It remains to be seen how effective the program will be in helping shore up banks' finances.
One key industry group that has long advocated for the program said Wednesday's was "a positive step forward" in the nation's economic recovery.
"Selling these assets should improve the financial strength and the value of banks, which should free up the banks' ability to lend to consumers and small and large businesses at more normalized levels," said Tim Ryan, president of the Securities Industry and Financial Markets Association, which represents 600 securities firms, banks and asset managers.