The Treasury's Public-Private Investment Programs: So Where Are the Deals?
We all recall the Treasury Department's announcement back in April regarding the creation of the Legacy Loan and Legacy Securities Programs under the general rubric of the "Public-Private Investment Programs" (PPIP).
The Treasury's message had two very specific announcements with a set of frequently asked questions regarding efforts to "discover a market" by implementing these two programs designed to purchase either toxic whole loan assets or securities (in the form of RMBS and CMBS).
So far at least, activity under these two programs has been underwhelming.
The original programs indicated that the Federal Deposit Insurance Corporation (FDIC), as primary bank regulator, would expect to receive business plans from regulated banks which would articulate a plan to dispose of the "toxic assets" through the PPIFs.
Within a very short number of weeks after the announcement of the Legacy Loan and Legacy Securities Programs, the Board of Governors at the Federal Reserve issued the results of the so-called "stress test" (the supervisory capital assessment program; overview of results, issued May 7, 2009). Nineteen bank-holding companies were examined under a stress set of criteria and were given until year-end 2010 to transform their capital base so that "tier 1 common capital" would meet or exceed 4% of assets, on a risk adjusted capital adequacy level as described in the report.
The results went on to disclose that even the very large bank-holding companies had started to manage to these "risk adjusted" goals and were able to make significant headway in getting to the guidelines of adjusted capital between the end of the year 2008 and first-quarter results for 2009.
In effect by mid-May, the overall market reaction to the stress test publication was that the banks were not going to be required to "fire sale" toxic assets, but "had time" to let markets recover.
Many have wondered if that is not a substantial reason for the lack of sellers being willing to take significant discounts on their toxic assets in the PPIF programs. After all, their targets need to only be met by year-end 2010 and the banks are well on their way to meeting them.
Does anyone out there think that the Legacy Loan and Legacy Securities Programs will begin to see some transactional action in the next six months? Please share your comments.
