Commercial property loans and commercial mortgage-backed securities will be included in the US Treasury’s multi-trillion-dollar plan to shore up bank balance sheets and kickstart lending.
The plan, unveiled by US Treasury secretary Tim Geithner on Monday, is designed to take toxic assets – specifically loans and bonds secured against commercial and residential property – off bank balance sheets, so that they will not run the risk of incurring further losses, and allocate more of their capital to lending.
The US Treasury and Federal Deposit Insurance Co will provide loans and equity to help private companies such as Blackrock to buy pools of loans and bonds.
Will Marks, analyst at JMP Securities, said: “In our view, the new [scheme] will help to create liquidity and thus drive at least some degree of activity in what are currently dead commercial real estate investment sales markets.”
The US plan goes further than the asset protection scheme revealed by the UK Treasury in February. The UK plan guarantees only a certain portion of losses that banks will make on these loans and bonds, but still leaves the assets on the balance sheet. Banks will still have to decide whether to hold or foreclose on troubled loans.
