Treasury Kicks Off PPIP

At last it seems to have arrived, the much discussed PPIP. The Treasury has released the names of the managers and minority managers and indicates that the program, or at least part of it is on go.

From the press release, here are the managers of the program:

  • AllianceBernstein, LP and its sub-advisors Greenfield Partners, LLC and Rialto Capital Management, LLC;
  • Angelo, Gordon & Co., L.P. and GE Capital Real Estate;
  • BlackRock, Inc.;
  • Invesco Ltd.;
  • Marathon Asset Management, L.P.;
  • Oaktree Capital Management, L.P.;
  • RLJ Western Asset Management, LP.;
  • The TCW Group, Inc.; and
  • Wellington Management Company, LLP.

The press release also contains the names of the minority managers.

The plan now is for the Treasury to invest $30 billion and the managers to invest a like sum. Operationally, each manager has to raise at least $500 million and the Treasury will match whatever they raise. It will also provide financing equal to the total capital of each fund created by the managers. I take this to mean that if, for example, Blackrock raises $5 billion then the Treasury will kick in $5 billion in equity and make available $10 billion in credit.

Cryptically, the press release says that each fund (they’re called PPIF’s) will be able to borrow private capital if they so choose and “leverage through the Federal Reserve’s and Treasury’s Term Asset-Backed Securities Loan Facility (TALF), for those assets eligible for that program, subject to total leverage limits and covenants.” So it appears as if there might well be significant leverage employed in this program. The press release doesn’t make mention of how profits are to be split but if memory serves me correctly it is a 50/50 arrangement. Probably not a great deal for the taxpayer given the risk assumed but I suspect it’s the only way you can get these guys to the table.

Thisi is the part of the PPIP meant to buy legacy securities. Think residential and mortgage backed securities. It’s not intended for whole loans, that’s the other half and it’s still pretty much on hold. Given that the likely sellers will be larger banks and maybe the odd insurance company.

So who’s going to sell into the program? A couple of big banks are probably going to get their arms twisted and grudgingly sell some assets. Some larger regional banks might have some of this junk sitting on their balance sheets and if the price is right — that means they don’t have to take a big hit on the sale — they’ll sell as may the odd insurance company. So far as I can see, that’s about it. This won’t help the small community banks because they didn’t play in this market. Personally, I think that it might be hard to get people to come to this party.

There is one really puzzling part of the program. In response to a question at the press conference announcing all of this a Treasury spokesman said that the price that’s paid for the securities is not going to be divulged. What! I thought the one of the points of this exercise was to promote price discovery. The price that gets paid for these piles of dreck is important to a lot of people. Whatever happened to transparency?

Oh well, the Obama administration has made a mess of this program from the outset so I guess I shouldn’t be too surprised that they can’t get it right. It probably doesn’t make much difference as some congressman is going to stick his nose in the middle of the whole thing and then leak the numbers. You go, Barney.

P.S. Note that PIMCO isn’t playing. Strange, isn’t it?

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