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Wilbur Ross' $1 Billion Bet


Turnaround specialist Wilbur Ross says he wants to invest as much as $1 billion in Treasury’s plan to buy banks’ bad assets. So why aren’t other investors jumping on the bandwagon?

Ross, chairman of WL Ross & Co., a unit of investment giant Invesco, has been trolling for distressed assets ever since the housing crisis kicked off a few years ago—moves he’s been all too willing to talk about publicly. In Aug. 2007, Ross agreed to put $50 million into American Home Mortgage, a subprime lender. He’s also eyed the bond insurers. Last year, he set up a $300 million fund focusing on India, partnering with the country’s Housing Development Corp. In one of his biggest bids yet, Ross plans to work with real estate giant LeFrak Organization to buy up banks’ troubled securities.

Ross still has to get the government’s approval to participate in the plan—a vetting process that seems to be taking awhile. A handful of investment managers previously jumped on the bad asset bandwagon, including BlackRock and Pimco. Invesco CEO Martin Flanagan says: “We thing the opportunity is enormous.”

Yet there hasn’t been a flood of interest yet—nor any actual deals.

The government has offered some sweet incentives. The U.S. will lend private to private investors at below market rates, providing them much of the funding and limiting their potential bite if the assets sour. The FDIC will lend investors six times their equity to do the deals and share in any profits down the line. “They get half of the upside,” Ross says.

Why hasn’t there been much action?

Some firms have been reluctant to raise their hand for fear of what terms the government might later impose. There’s no wonder. First, there was the backlash against AIG’s bonuses back in March. Some wonder if regulators will clamp down on pay or profits.

There’s also the question of whether banks will actually want to sell those toxic assets. The accounting rule makers recently gave banks more leeway in valuing those securities; rather than using depressed market prices, they can opt to use their own internal models. That means they’re not likely to be as much of a drag on the banks’ books.

With Peter Carbonara


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