Whither troubled assets in TARP?
The $700 billion program was pitched as an emergency measure to take bad assets off the books of financial institutions to unclog credit markets.
But so far, the Treasury has used the money on other ways to promote lending – $250 billion of planned capital injections into banks, including supporting acquisitions of weak institutions, and a $40 billion equity investment in AIG as part of the revised bailout for the troubled insurer. As part of the AIG rescue package, the government also agreed to set up two vehicles to buy assets that are leading to a cash drain on AIG.
That does leave a lot of companies that were hoping to sell distressed assets to TARP out in the cold.
The idea that TARP is going to come in and be a major buyer of assets is fading, but several companies are still waiting to see if the government will come in as that would mean there are more buyers for the assets, Lazard investment banker Gary Parr said at the Reuters Global Finance Summit.
But will the waiting pay off and TARP money used to buy of distressed assets?
Parr was hopeful: “I think it will be.”
“In a sense the government stepped into assets today in the AIG deal by backing two pools,” Parr said on Monday.
“There is an example. It is not obvious way, where the headline is, ‘Aha, TARP is a buyer of assets.’ But actually the government is stepping in and taking real risks on assets. That is what TARP envisaged.”
(Photo credit: Reuters)