US firm offers $1B for banks’ NPAs

US-based investment house Lehman Brothers is proposing to put up a $1-billion or P50-billion fund to acquire and resell foreclosed assets of commercial banks or to set up a joint venture for the establishment of an asset management company (AMC).

Bangko Sentral ng Pilipinas Governor Rafael Buenaventura disclosed in yesterday’s yearend media economic briefing that he has received confirmation that Lehman Brothers and a number of banks are currently negotiating for the creation of an AMC or a special purpose asset vehicle (SPAV) that will focus on disposing of banks’ non-performing assets (NPAs) rehabilitating these and making them profitable again before being sold to a new investor.

Buenaventura said the banks and Lehman are just waiting for the House of Representatives to consolidate the two securitization bills being deliberated in the House. These are House Bill 2759 entitled An Act to Establish the Legal and Regulatory Framework for Securitization and the Development of Asset-Backed Securities Market authored by Speaker Jose de Venecia and House Bill 2733 or the Securitization Act of 2001 authored by Rep. Ruben Torres.

Both bills seek to rationalize the tax, legal and regulatory regime governing asset-backed securities to pave the way for a well-developed and functioning securitization market.

This is expected to provide government with alternative means of generating revenues, while developing an active and liquid market. In particular, it will make home mortgages more affordable and accessible.

Securitization is the process of converting bank loans and other assets into marketable securities for sale to investors. It allows firms or agencies to remove nonperforming assets from their balance sheet. It also allows them to make new loans from the proceeds of securities sold to investors.

The securitization bills are being pushed by the Arroyo administration to pave the way for the sale of an estimated P70-billion worth of foreclosed properties to government that will support the low-cost, mass-housing programs of the government.

Buenaventura said Lehman’s proposal is similar to the previous offer of another US-based company, Cerberus Plc., to put up a $500-million fund to acquire and resell foreclosed properties of government housing institutions, particularly, the National Home and Mortgage Finance Corp. (NHMFC), the National Housing Authority and the Pag-IBIG Fund.

Finance Secretary Jose Isidro Camacho earlier said Cerberus already started due diligence work on NHMFC, NHA and Pag-IBIG with the end in view of acquiring their respective housing projects and repackaging them to be sold to other interest investors.

Camacho said Cerberus’ proposed venture in the Philippines is timely as companies and banks are struggling to address their bad loans.

The non-performing loans (NPLs) or bad loans of the banking sector soared to a new record high of 18.81 percent in October, up from 17.92 percent in September.

Analysts said the rise in NPLs reflects the difficulties of banks in collecting from both corporate and individual borrowers.