US regulators have appointed BlackRock’s advisory arm to help sell a $114bn portfolio of securities inherited after the government takeovers of failed lenders Silicon Valley Bank and Signature Bank in March.
The fate of the holdings, which consist of mortgage-backed securities, collateralised mortgage obligations, and commercial mortgage-backed securities, had rattled bond markets, which feared the Federal Deposit Insurance Corporation could chose to dump the portfolio and push down prices.
However, the FDIC, which was left holding the assets after it seized control of the two banks, said the asset sales would be “gradual and orderly”.
The disposals “will aim to minimise the potential for any adverse impact on market functioning by taking into account daily liquidity and trading conditions”, the regulator added.
The FDIC has been moving rapidly to deal with the two collapses. SVB failed on March 10 and Signature, two days later. Less than two weeks later, it said New York Community Bank would buy most of Signature and soon after, that North Carolina-based First Citizens would take over almost all the deposits and loans of SVB.
Earlier this week the regulator hired real estate specialist Newmark to sell $60bn of Signature Bank loans.
Some $87bn of the securities come from SVB and $27bn from Signature, both of which had amassed a large portfolio in an attempt to boost profitability. However, the value of the bonds fell over the past year as the Federal Reserve increased interest rates sharply.
It was SVB’s decision to liquidate some of its bondholdings, taking a $1.8bn loss on their reported value, that pushed it into the botched capital raise and in turn triggered the bank run that brought it down two days later.
The exact make-up of the bond portfolios is unknown, but MBS analysts think the bulk of the holdings are securities that were bought by the lenders before interest rates and bond yields rose. That means they are likely to carry lower coupons of perhaps 2 to 2.5 per cent.
Anticipation of the FDIC’s sales has already hit MBS prices. The extra yield, or spread, demanded to hold bonds with 2 and 2.5 per cent coupons has widened by between 0.18 and 0.27 percentage points over equivalent Treasury rates over the past month, according to Bank of America analysts.
BlackRock’s Financial Markets Advisory arm has long been the go-to team for central banks and governments when they need to deal with messy assets acquired during financial rescues.
The financial powerhouse helped the US sell off assets from the 2008 collapses of Bear Stearns and AIG, evaluated troubled banks for the Irish and Greek governments, and advised both the Fed and the European Central Bank on asset purchase programmes.
BlackRock declined to comment.
