Credit Suisse said today that Bank of America, JP Morgan Chase and Wells Fargo may be in the best position to sell troubled assets into the government's new Public-Private Investment Plan (PPIP) because of their recent acquisitions of other banks. Last year, Bank of America bought Countrywide and JP Morgan took over most of Washington Mutual’s assets. Wells Fargo bought Wachovia earlier this year.
The key is that more than $180 billion of mortgages may have already been marked to market as the deals were consummated, by some estimates as much as 30% off their already-distressed values.
U.S. banks hold about $2.5 trillion of unsecuritized mortgages.
Questions still remain regarding how successful the government’s new program can be. Much depends on what the private sector bids for the assets; banks are likely to remain reluctant to sell any securities which have already been accounted for on their balance sheets if the bids come in below where the banks have taken their marks.
However, if bids do come in above where those marks have been made, banks could then become willing sellers. But even if they don't, since the banks have taken TARP money from the government, it could be possible to see the government pressure the banks into selling. It's the government's intention to have the banks sell in order to free up new capital for lending, a crucial element in getting the economy out of what's been described as the worst financial crisis since the Great Depression.