Metrobank, Lehman Bros to set up AMC

US-based investment house Lehman Brothers and the country’s biggest commercial bank Metropolitan Bank and Trust Co. (Metrobank) are set to sign an agreement to jointly establish an asset management company (AMC) that will absorb sourced loans, banking sources said yesterday.

Sources said Lehman and Metrobank are close to hammering out a memorandum of agreement (MOA) that could be signed within the month. If the deal pushes through, it will be the first bank to put its bad loans or non-performing loans (NPLs) under an AMC.

"Lehman is tieing up with Metrobank, it’s going to be a joint venture on the setting up of an asset management company that will take care of the local bank’s non-performing loans," the sources said.

The same sources said Lehman has been undertaking its due diligence work for about three months now. In pretty much the same fashion, another US-based concern known for coming to the aid of distressed or ailing banks and other companies, Cerberus Plc., has been conducting its own due diligence.

Lehman was earlier reported to have pledged to invest $1 billion in a venture dubbed "Philippine Recovery Fund" wherein the US-based company will buy NPLs of Philippine banks at a discount and later, sell the assets to other investors.

The sources said they expect other banks with huge NPLs to follow suit after the Lehman-Metrobank deal is sealed.

Other banks that have earlier expressed interest in putting up AMCs are Equitable PCI Bank, Metropolitan Bank and Trust Co. and Landbank of the Philippines.

The sources added that other banks like the Philippine National Bank and the United Coconut Planters Bank (UCPB) are also expected to establish their own AMCs once both banks have resolved their ownership issue.

Previously, BSP Governor Rafael Buenaventura said the banks and Lehman are just waiting for the House of Representatives to consolidate the two securitization bills being pushed 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 being deliberated in the House seeks to rationalize the tax, legal and regulatory regime governing asset-backed securities to pave the way for a well-developed ad 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 non-performing assets from their balance sheet. It also allows them to make new loans from the proceeds of securities sold to investors.

An enabling securitization law will also enable banks to sell an estimated P70 billion worth of foreclosed properties to government that will support the low-cost, mass-housing programs of the government.

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

Finance Secretary Jose Isidro Camacho had been quoted as saying Cerberus started due diligence work on NHMFC, NHA and Pag-IBIG hoping to acquire their housing projects and repackaging them to be sold to other interested investors.

NPLs or sour loans of the banking sector soared to a new record high of 18.81 percent in October, up from 17.92 percent in September.

The level of bad loans in October was even higher than the historic high of 18.03 percent of total loan portfolio in August, reflecting the difficulties f banks in collecting from both corporate and individual borrowers.

BSP said the value of NPLS rose 3.39 percent or by P9.55 billion even as the total loan portfolio (TLP) contracted by 1.49 percent or P23.49 billion.

The rising level of NPLs has prompted banks to seriously consider the creation of special purpose asset vehicles or asset management companies that will absorb the non-performing assets of banks. These idle assets will be bought at a substantial discount, and then turned around and sold to other investors.

NPLs refer to accounts whose principal or interest remain unpaid for three months or more after the due date.