FDIC seen stepping up sales of failed bank assets
The U.S. Federal Deposit Insurance Corp is expected to offer $3.8 billion of guaranteed securitizations backed by the residential mortgage assets of failed banks, market sources said on Tuesday.
The deals are expected to come in three separate transactions with Barclays Capital acting as sole manager for the sales, market sources said.
The FDIC could not immediately be reached for comment.
Its first $1.81 billion two part transaction, is expected to price later this week. Two additional offerings, including a $1.37 billion three-part sale and a $668 million one-tranche deal, are seen pricing in the coming weeks, after investor road shows were held for all three, market sources said.
The FDIC has all this paper that they inherited from failed banks and they need to move it. An easy way of doing it is to put it into a security and slap the full faith and credit of the government on it and people will buy it, said Dan Castro, chief risk officer at Huxley Capital Management.
Still, while the sales move the assets off the FDIC's books it does not move the economic risks.
The sales move the funding of the assets from the government to the investors which is good, though potential liability of losses stays with the FDIC, said Castro.
The asset sales, which are guaranteed by the FDIC, are closely tied to the meltdown in the U.S. mortgage market and are seen as a positive step toward restoring investor confidence in the segment.
In a move reminiscent of the Resolution Trust Corp, the government agency charged with insuring deposits and thrifts is employing securitization as a financial tool to help mop up the assets.
In the early 1990s, the federal government employed a similar method to dispose of the assets of failed banks and thrifts. During the savings and loan crisis, it created a new entity called the Resolution Trust Corporation, or RTC, whose mission was to dispose of assets, largely through securitization.
The move has been anticipated by investors and dealers for months as the FDIC piles up loans from banks failing at an alarming rate. It could also awaken a market that has been largely frozen for two years, except for government-sponsored programs of Fannie Mae and Freddie Mac.
(Additional reporting by Al Yoon)
(Editing by Andrew Hay)
© Copyright Thomson Reuters 2024. All rights reserved.