Fed's BlackRock Award Scrutinized

Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, questioned "the award of this potentially lucrative position to BlackRock without competition" in a letter sent Monday to Timothy Geithner, president of the Federal Reserve Bank of New York.

The Fed last month agreed to take $30 billion in securities off the books of Bear Stearns to facilitate the acquisition of the firm by JPMorgan Chase & Co. for $10 per share, a fraction of the company's share price a year earlier. JPMorgan agreed to assume the risks for the first $1 billion in losses that might occur, lowering the Fed's potential risk to $29 billion.

The Fed hired BlackRock to manage the portfolio of securities, mostly backed by residential mortgages. A spokesman for the New York Fed declined to comment on Monday.

BlackRock, led by CEO Laurence Fink, managed more than $1.3 trillion at the end of last year. Merrill Lynch & Co. has a 49 percent stake in New York-based BlackRock, which has so far avoided the steep mortgage-related losses that have struck Merrill Lynch, Bear Stearns and others.

Earlier this year, BlackRock lost its bid to take over management of Florida's troubled government investment pool to a lower-cost financial adviser. BlackRock is also backing a new company called Private National Mortgage Acceptance Co. that aims to buy up troubled loans and restructure them.

A BlackRock spokesman could not immediately be reached for comment.

Last week, Federal Reserve Chairman Ben Bernanke told lawmakers said he did not believe the central bank would lose money on the deal and said it could even make money. Bernanke said BlackRock was "reasonably confident that we will be able to recover the full amount if we dispose of these assets on a measured basis, rather than sell them all at once."

Waxman, however, noted that "if BlackRock is not successful, the taxpayers stand to lose billions of dollars. In effect, it appears that BlackRock is serving as a government contractor providing complex financial services to the Federal Reserve."

The congressman, who last month called to task top mortgage industry executives for what he said were excessive salaries as their companies crashed, said he did not dispute the need for quick action on the Fed's part. But, he said that typically "emergency no-bid contracts have a short duration and are replaced with long-term contracts through full and open competition."