Toxic Asset End-Run: Why not sell to PPIP?
By: Myles, July 16th, 2009
We have reported here before on the PPIP (Public Private Investment Program), back in April 2009 (just three short months ago).
Previously we discussed how the PPIP — yet another Obama administration and Treasury Department alphabet soup solution — can not, and will not, work when you look at it through the lens of Game Theory.
Sure enough, here today, we see the practical reality of how real life toxic assets are being disposed of, at 35 cents on the dollar, via private buyers not through the public PPIP safeguarded program.
This fact illustrates two key points: (a) what are the banks toxic assets actually selling for?; (b) the tendency to sell private investors vs. using government supported/guaranteed programs.
Read these tea leaves correctly and you can use these valuable data points to clear your own dead wood assets off the books at a discount (possibly) and steer yourself toward new opportunities in the days to come.
Interestingly, our recent MylesTitle Advisory Council Breakfast Seminar, held on July 9, 2009 — illustrated this very point. We saw how to use legal gymnastics to avoid foreclosures and liability (carve outs, short sales, deeds in lieu, modifications, etc.), and were advised by leading experts from Venable, LLP and Gebhardt & Smith what happens when these distressed properties wind up in the hands of the banks. Frankly, much of what we are reporting today is straight from the Advisory Council Seminar.
Here’s the news flash. A relatively obscure piece in the Triangle Business Journal, referring to a piece in the National Mortgage News, demonstrates how some of the larger banks are bypassing the PPIP and going direct to willing toxic buyers in a very “under the radar” fashion.
In this particular case, Wells Fargo has apparently offloaded $600 million in subprime loans to Arch Bay Capital at 35 cents, or double what other hedge funds had offered. While the price discrepancy alone is worth some investigation and analysis, the TBJ had this interesting tidbit to note about the transaction:
- No one involved in the recent sale is talking on the record, which may be a key reason lenders will look to private transactions to unload bad assets rather than turn to a government-sponsored program.
It is very interesting how many other comparable portfolios Wells Fargo has been offloading without public notification, at what price, and how much of an MTM hit it has had to endure as a result.
What is confusing from this development is that the bank would be willing to take a 65 cent hit (which on $600 million is not, or rather in the pre-taxpayer-guarantee-of-everything days, used to not be, peanuts — $360MM), when it could SIMPLY keep the loans, even if massively non performing, and sell into the PPIP at what the FDIC would announce is a much higher and “fair” price.
Is Wells admitting it realizes that PPIP is a failure and thus is pursuing private transactions even at a major loss?
The discovery of comparable transactions by other banks would be useful to determine if this is indeed the case. Know of any??
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