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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published April 4, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>US$1t loan writedown likely by US banks
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(New York)
US REGULATORS may force lenders including Citigroup Inc and Wells Fargo & Co to sell assets and write down as much as US$1 trillion in loans, twice what they've already recorded, based on Federal Deposit Insurance Corp auction data compiled by Bloomberg.
Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the agency's auctions brought 0.02 cent on the dollar.
Lower valuations would lead to new writedowns and capital injections from the US$134.5 billion remaining in the Troubled Asset Relief Programme, Nobel Prize-winning economist Joseph Stiglitz said.
'The only way banks will sell is under duress,' the Columbia University professor said in an interview.
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</TD></TR></TBODY></TABLE>Asset sales are the latest step in President Barack Obama's effort to restart the US economy through the most costly rescue of the financial system in history. Treasury Secretary Timothy Geithner's Legacy Loan Programme and Legacy Securities Programme together are targeted to start at US$500 billion and may expand to US$1 trillion.
Mr Geithner's plan will purchase loans and be overseen by the FDIC, which will offer debt guarantees while the Treasury invests capital alongside investors.
The FDIC would auction assets after the Office of the Comptroller of the Currency, the Office of Thrift Supervision or the Fed signals that a bank is in danger of failing. 'If we thought that was the right decision to address their situation, we would certainly tell an institution to move in that direction,' said William Ruberry, an OTS spokesman.
'Past auctions cannot reliably predict asset prices in the Public Private Investment Programme, as we are creating a new market that has not previous existed to help value these assets, and offering financing to help investors purchase them,' Treasury spokesman Isaac Baker said. The programme is voluntary and the government expects banks will want to sell assets to clean their balance sheets and make it easier to raise capital, he said. -- Bloomberg
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>US$1t loan writedown likely by US banks
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20></TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20></TD><TD>Feedback</TD></TR></TBODY></TABLE>(New York)
US REGULATORS may force lenders including Citigroup Inc and Wells Fargo & Co to sell assets and write down as much as US$1 trillion in loans, twice what they've already recorded, based on Federal Deposit Insurance Corp auction data compiled by Bloomberg.
Banks failing Federal Reserve evaluations of loans this month may be ordered to make sales worth as little as 32 cents on the dollar, according to FDIC data. That would be less than half of the 84 cents on the dollar the Treasury Department suggested was a possible purchase price. Some of the agency's auctions brought 0.02 cent on the dollar.
Lower valuations would lead to new writedowns and capital injections from the US$134.5 billion remaining in the Troubled Asset Relief Programme, Nobel Prize-winning economist Joseph Stiglitz said.
'The only way banks will sell is under duress,' the Columbia University professor said in an interview.
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Mr Geithner's plan will purchase loans and be overseen by the FDIC, which will offer debt guarantees while the Treasury invests capital alongside investors.
The FDIC would auction assets after the Office of the Comptroller of the Currency, the Office of Thrift Supervision or the Fed signals that a bank is in danger of failing. 'If we thought that was the right decision to address their situation, we would certainly tell an institution to move in that direction,' said William Ruberry, an OTS spokesman.
'Past auctions cannot reliably predict asset prices in the Public Private Investment Programme, as we are creating a new market that has not previous existed to help value these assets, and offering financing to help investors purchase them,' Treasury spokesman Isaac Baker said. The programme is voluntary and the government expects banks will want to sell assets to clean their balance sheets and make it easier to raise capital, he said. -- Bloomberg
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