Lehman Brothers of Asia chief executive officer Jasjit Bhattal signed the agreement with Finance Secretary Jose Isidro Camacho in a ceremony at Malacañang witnessed by President Arroyo and Speaker Jose de Venecia Jr.
Lehman Brothers has committed to bring to the Philippines a similar level of expertise that it brought to Indonesia, Japan, Korea and Thailand as well as systems and servicing specialists with benefits that exceed the capital infusion. It is the leading investment bank in managing real estate mortgages and non-performing loan (NPL) portfolios worldwide.
The government and Lehman Brothers hope to sign a Letter of Intent for specific transactions during the President’s working visit to New York on Feb. 3.
With the fund, the Phi-lippine government gains a major investment vehicle to finance new mass housing projects under Housing and Urban Development Coordinating Council chairman Michael Defensor.
This is expected to solve the P270 billion in NPLs and the P150 billion in foreclosed real estate assets that have saddled the Philippine financial system and stymied the country’s economic recovery in recent years.
Bhattal said Lehman Brothers would also provide capital to the business and banking sectors, invest in new economic projects and help develop the domestic capital markets by issuing securities backed by performing residential mortgages, government royalties and other similar assets.
"We will also utilize our leading global position in structured finance to introduce new investment products to assist in developing a sustainable and liquid domestic capital market system for residential mortgages and other types of structured finance products," Bhattal said.
Lehman Brothers has proposed a two-pronged strategy to solve the residential mortgage portfolio and provide higher proceeds to the Philippine government.
One is to securitize the performing portion, the other is to make an outright sale of the non-performing portion.
These transactions, Lehman Brothers said, would provide liquidity to the Philippine government, raise long-term capital, and lower interest rates. They are also expected to foster and create a strong and sustainable domestic capital market aside from expanding home ownership and generating employment.
Bhattal said the fund would have the effect of reducing the NPLs and residential mortgages in the Philippine banking system and potentially stimulate renewed lending in all sectors, including the real estate sector.
The memorandum signing capped efforts initiated by De Venecia, who first proposed the creation of the fund in Honolulu, Hawaii in August last year before international investment bankers.
"The fund is all equity and targeted for development," said De Venecia, who developed the initiative with Lehman Brothers, Camacho and Bangko Sentral ng Pilipinas Governor Rafael Buenaventura.
Earlier, De Venecia told Japanese Prime Minister Koizumi the NPLs have created "deep wounds" in the East Asian economies and become the "single most important challenge in our region from Seoul and Tokyo to Manila, Jakarta, Kuala Lumpur and Bangkok."
De Venecia said the fund’s main beneficiaries are banks, which will receive cash for their NPLs, and distressed borrowers whose business would be rebuilt "so that they could become performing assets again."
He said Lehman Brothers is also prepared to invest in the securitization of a portion of the Malampaya natural gas proceeds being sought by Camacho and Energy Secretary Vincent Perez.
The global investment bank has assured Mrs. Arroyo it was prepared to invite other prestigious international investment companies to support her administration’s efforts to strengthen and rebuild the Philippines economy.
As part of this initiative, the President and the Speaker indicated their commitment to push for the passage of the Special Purpose Asset Vehicle and securitization bills to encourage more transactions in this area. — Marichu Villanueva