Hurry up and wait? Some banks shelve plans to sell assets
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The information vacuum surrounding the Obama administration’s revamped financial-system rescue is causing some banks to take a wait-and-see approach before taking action on their troubled assets.
The plan, outlined with a broad brush Tuesday by Treasury Secretary Timothy Geithner, calls for the government to help private investors acquire up to $1 trillion of toxic assets. The initiative also would require a new “stress test” to gauge the financial health of the country’s largest banks.
Richard Hollowell, a managing director at Alvarez & Marsal Real Estate Advisory Services, said that “several banks that wanted us to help dispose of troubled assets” before they could lose more value have shelved those plans. The companies want to get a better idea of how they will be affected by the administration’s changes.
“They told me, ‘Let’s hold off, I’m waiting to see the stress-test template, to see what they want the banks to do,’ ” Hollowell said.
If the banks sold their bad loans, the prices would be lower than the current value of the loans on the institutions’ balance sheets, he said. A bank that sells assets for less than the value on its books would have to record a loss that would eat into its capital, the cushion against loan losses. . . .
“Most banks have not fully written down the value of their assets, hoping that maybe things will change, the market will come back,” said Hollowell, who is based in Los Angeles.
He didn’t identify the banks. Two of them, he said, are large but not members of the $100-billion-plus assets club, for which the administration’s new stress test would be mandatory.
The Treasury said it hadn’t made a final decision on whether banks under the $100-billion threshold would have to go through the stress test if they wanted fresh government capital. Spokesman Isaac Baker said they probably wouldn’t have to, and instead would be evaluated based on existing regulatory ratings and financial data.
The banks that Alvarez & Marsal has been talking with want to see how much federal capital they can expect to get if they sell loans at a marked-down price. The lack of information has “caused a huge pregnant pause,” Hollowell said.
Hollowell is a former president of Real Estate Recovery Inc., one of the largest asset managers that contracted with the Resolution Trust Corp. and the Federal Deposit Insurance Corp. to liquidate assets from the savings and loans that failed in the 1980s and early 1990s.
-- E. Scott Reckard
