The Treasury plans to team with investors to buy up to a half-trillion dollars of bad bank assets in hopes of opening up lending again.
An earlier smaller $80 bln plan, known as the Super SIV, failed in October 2007, and the original $700 bln Troubled Assets Relief Program (TARP) failed in late 2008 due to a lack of participation by private investors.
Early market reaction to the U.S. Treasury's latest plan appeared to be more positive on Monday.
"My own view is the plan is a sensible one," Byron Wien, chief investment officer of Pequot Capital Management, told the Reuters Private Equity and Hedge Fund Summit on Monday. "This is a PIMCO, BlackRock sort of thing, where some credit-oriented hedge funds will participate."
The plan is being launched at a time when lawmakers are furious about big bonus payments to executives at bailout recipient American International Group.
In an effort to spur investor participation, U.S. Treasury Secretary Timothy Geithner said private partners in his plan will not face the tough executive pay restrictions that apply to recipients of government bailouts.
GENEROUS INCENTIVES
The main incentive for private investors to participate in the latest U.S. Treasury plan appeared to be generous financing terms to boost the return on the investment.
As well as the initial financing from the Treasury and private investors, the Federal Deposit Insurance Corp (FDIC), a U.S. banking regulator, and the Federal Reserve will be tapped to offer further financing.
Under one part of the plan focused on bad loans, the Treasury will provide up to 80 percent of initial capital alongside investment by private funds. The FDIC would then offer debt financing for up to six times the pooled amount.
In addition, the Treasury will approve up to five investment managers and match their money one-for-one. It will then offer debt financing for 50 percent of the combined capital pool to buy securities banks want to unload.
Two major U.S. money managers, BlackRock and PIMCO, expressed interest in participating in the toxic-assets plan, which could produce big profits.
"From PIMCO's perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," Bill Gross, PIMCO's co-chief investment officer, told Reuters in an interview.
Early market reaction to the U.S. Treasury's latest plan appeared to be more positive on Monday.
"My own view is the plan is a sensible one," Byron Wien, chief investment officer of Pequot Capital Management, told the Reuters Private Equity and Hedge Fund Summit on Monday. "This is a PIMCO, BlackRock sort of thing, where some credit-oriented hedge funds will participate."
The plan is being launched at a time when lawmakers are furious about big bonus payments to executives at bailout recipient American International Group.
In an effort to spur investor participation, U.S. Treasury Secretary Timothy Geithner said private partners in his plan will not face the tough executive pay restrictions that apply to recipients of government bailouts.
GENEROUS INCENTIVES
The main incentive for private investors to participate in the latest U.S. Treasury plan appeared to be generous financing terms to boost the return on the investment.
As well as the initial financing from the Treasury and private investors, the Federal Deposit Insurance Corp (FDIC), a U.S. banking regulator, and the Federal Reserve will be tapped to offer further financing.
Under one part of the plan focused on bad loans, the Treasury will provide up to 80 percent of initial capital alongside investment by private funds. The FDIC would then offer debt financing for up to six times the pooled amount.
In addition, the Treasury will approve up to five investment managers and match their money one-for-one. It will then offer debt financing for 50 percent of the combined capital pool to buy securities banks want to unload.
Two major U.S. money managers, BlackRock and PIMCO, expressed interest in participating in the toxic-assets plan, which could produce big profits.
"From PIMCO's perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," Bill Gross, PIMCO's co-chief investment officer, told Reuters in an interview.
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