NEW YORK, July 7 (Reuters) – Billionaire investor Wilbur Ross predicted on Tuesday that the government’s plan to have private investors buy unwanted bank assets would end up as a fraction of the original $1 trillion size, he told CNBC television in an interview.
Ross, chairman and CEO of WL Ross & Co., said he believed the program would end up being about $100 billion to $125 billion in size, compared with early forecasts for sales of up to $1 trillion in securities.
He expects to commit approximately $1 billion to the government’s public-private investment partnership, or PPIP, with the money split between purchases of loans and mortgage-backed securities.
There has been some reluctance from banks to participate because it would force them to sell certain assets at much lower prices than originally valued.
“A lot of this paper is never going to go back to par no matter how long they hold it,” Ross said. Because of the leverage provided to investors by the government, investors will be able to pay five to 10 percent closer to par value than without that leverage, Ross said. “As a result of that, whatever gap between the bank’s carrying value and the market should close.”
The plan makes these assets more attractive, Ross said, saying that the assets “are toxic, but even toxicity makes sense if you can get it at the right price, and with the right leverage.”
The government has called the plan “critical” for cleaning up bank balance sheets, even though the sector has been successful in raising capital in recent months, which has resulted in expectations for the PPIP’s size to be scaled back.
The U.S. Treasury Department has been expected to name a handful of managers to operate the long-awaited program, but the timing remains uncertain.