A relatively obscure piece in the Triangle Business Journal, referring to a piece in the National Mortgage News, demonstrates how some of the larger banks are bypassing the PPIP and going directly to willing toxic buyers in a very "under the radar" fashion. In this particular case, Wells Fargo (NYSE:WFC) has apparently offloaded $600 million in subprime loans to Arch Bay Capital at 35 cents, or double what other hedge funds had offered. While the price discrepancy alone is worth a follow up, the TBJ had this interesting tidbit to note about the transaction:
No one involved in the recent sale is talking on the record, which may be a key reason lenders will look to private transactions to unload bad assets rather than turn to a government-sponsored program.
It is very interesting how many other comparable portfolios Wells Fargo has been offloading without public notification, at what price, and how much of an MTM hit it has had to endure as a result. What is confusing from this development is that the bank would be willing to take a 65 cent hit (which on $600 million is not, or rather in the pre-taxpayer-guarantee-of-everything days, used to not be, peanuts), when it could keep the loans, even if massively non performing, and sell into the PPIP at what the FDIC would announce is a much higher and "fair" price. Is Wells admitting it realizes that PPIP is a failure and thus is pursuing private transactions even at a major loss? The discovery of comparable transactions by other banks would be useful to determine if this is indeed the case.
hat tip Mike