Banks Looking To Buy "Own" Assets - WSJ
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This morning The Journal had a story that some banks are trying to get the government to allow them to use the public money to buy troubled assets from the banks themselves.
Banking trade groups are lobbying the FDIC for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.
PPIP was launched by the current administration as a way for banks to sell hard-to-value loans and securities to private investors in effort to free up the liquidity in the credit markets.
Officials haven't said whether banks will be allowed to both buy and sell loans, but a list released by the Treasury Department of the types of institutions likely to be buyers did not mention banks.
The banks are arguing that if they are able to also buy assets, it would incentivize them to sell the assets at low prices, even if its at a loss. They are also arguing that it would free up capital by moving the assets off balance sheets, thus increasing future lending.
"Banks may be more willing to accept a lower initial price if they and their shareholders have a meaningful opportunity to share in the upside," Norman R. Nelson, general counsel of the Clearing House Association LLC, wrote in a letter to the FDIC last month.
The trade group trying to help get banks to buy their own assets represents 10 of the world's largest banks, including Bank of America (NYSE: BAC), Citigroup Inc. (NYSE: C) and Wells Fargo & Co. (NYSE: WFC).
"It's an issue that's been raised and an issue we're aware will need specific guidelines," said an FDIC spokesman, adding that the agency still is working on the final structure of its program and plans to launch a $1 billion pilot program this summer.
"A bank bidding on its own assets really has the potential to look awful in the public's mind," said Mark J. Tenhundfeld, an American Bankers Association lobbyist.
"Bankers see it as a win-win," said Tanya Wheeless, CEO of the Arizona Bankers Association, which has urged the FDIC to let banks buy their own assets through PPIP.
Banking trade groups are lobbying the FDIC for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.
PPIP was launched by the current administration as a way for banks to sell hard-to-value loans and securities to private investors in effort to free up the liquidity in the credit markets.
Officials haven't said whether banks will be allowed to both buy and sell loans, but a list released by the Treasury Department of the types of institutions likely to be buyers did not mention banks.
The banks are arguing that if they are able to also buy assets, it would incentivize them to sell the assets at low prices, even if its at a loss. They are also arguing that it would free up capital by moving the assets off balance sheets, thus increasing future lending.
"Banks may be more willing to accept a lower initial price if they and their shareholders have a meaningful opportunity to share in the upside," Norman R. Nelson, general counsel of the Clearing House Association LLC, wrote in a letter to the FDIC last month.
The trade group trying to help get banks to buy their own assets represents 10 of the world's largest banks, including Bank of America (NYSE: BAC), Citigroup Inc. (NYSE: C) and Wells Fargo & Co. (NYSE: WFC).
"It's an issue that's been raised and an issue we're aware will need specific guidelines," said an FDIC spokesman, adding that the agency still is working on the final structure of its program and plans to launch a $1 billion pilot program this summer.
"A bank bidding on its own assets really has the potential to look awful in the public's mind," said Mark J. Tenhundfeld, an American Bankers Association lobbyist.
"Bankers see it as a win-win," said Tanya Wheeless, CEO of the Arizona Bankers Association, which has urged the FDIC to let banks buy their own assets through PPIP.
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