"BlackRock’s Fink: Why the Treasury Plan Could Work
The Treasury Department’s latest plan to rehabilitate the financial sector will depend on private investors stepping up to buy problematic assets. Luckily, one of the biggest such firms has lent its public support.
To Laurence D. Fink, the chairman and chief executive of BlackRock, the giant money manager, the program is a highly attractive way to bring private money to help repair the financial system.
“I think right now there’s so much pessimism that no one is seeing anything beyond their nose,” he told DealBook in an interview on Monday.
Mr. Fink, who consulted informally with Treasury and Federal Reserve officials over the past few months, conceded that the new program will not cure all the financial system’s ailments. But he argued that it may stoke confidence in the market place more quickly, inducing banks to begin lending again.
“With all the triage from all different activities from the government, you could say that by the latter part of this year, we could start seeing economy start restabilizing itself,” he said.
Opinion about the plan depends largely on whether the observer believes these troubled assets, including mortgage-backed securities, are being underpriced by the market because of fear, or whether they are truly impaired.
Mr. Fink falls firmly into the camp that many of them are devalued too much, arguing that many are priced well below where they’re performing today. What the government is doing is trying to close the gap between the intrinsic value of these securities and the market value, which if done would benefit the entire American economy.
Many of these firms are saddled with hard-to-sell securities that are weighing down on their balance sheets, making them perhaps more eager to sell off those assets. Scores of insurers have already written down a portion of these securities portfolios or marked them to market, leading to whopping accounting charges in some case.
The program may represent long-awaited government aid to these companies, which have yet to receive their own bailout even as banks and auto makers have. Shares in MetLife, Aetna, the Hartford Financial Group and other insurers jumped on Monday, some by more than 22 percent.
“These firms want to de-risk, and this gives them the liquidity to de-risk,” Mr. Fink said.
BlackRock, which manages about $1.3 trillion, is likely to invest in a broad range of assets through the plan, including loans and various kinds of asset-backed securities. The firm has already received inquiries from large clients both here and abroad, Mr. Fink said.
It is also exploring ways to set up mutual funds that would allow individual investors to participate as well.
The primary investors in the Treasury program are likely to be large money managers like BlackRock and Pimco, as well as pension funds and endowments that have billions of dollars under management. Private equity firms and hedge funds, which are suffering from their own problems and generally have less money to deploy, would likely not be as involved, Mr. Fink said.
“I think it’s the traditional long-only money that will be interested in this,” he said.–Michael J. de la Merced"