Monday, March 24, 2008

New York Zombie

New York Fed, on its role in the revised JP Morgan bid for Bear Stearns --

The New York Fed will take, through a limited liability company formed for this purpose, control of a portfolio of assets valued at $30 billion as of March 14, 2008. The assets will be pledged as security for $29 billion in term financing from the New York Fed at its primary credit rate.

JPMorgan Chase will bear the first $1 billion of any losses associated with the portfolio and any realized gains will accrue to the New York Fed. BlackRock Financial Management, Inc. will manage the portfolio under guidelines established by the New York Fed designed to minimize disruption to financial markets and maximize recovery value.

So JP Morgan dumps the toxic $30 billion Bear Stearns assets into a separate company, gets to borrow against them from the Fed at 2.5% and only bears the first $1 billion of losses on the assets. Meanwhile the assets sit there, potentially for years, as exposure of the NY Fed, but BlackRock collecting nice fee income for managing them (or have they been promised some of the upside too?).

You would think that with part of the credit crisis being Special Purpose Asset-Backed Entities blowing up in people's faces, there might be some reticence about using them as a solution to the crisis. But the virus has mutated.

No comments: