BlackRock’s advisory arm was appointed by US regulators to sell $114 billion worth of securities that were inherited from failed lenders Silicon Valley Bank (and Signature Bank) in March.
The fate of the holdings which include mortgage-backed securities and collateralised mortgage obligations as well as commercial mortgage-backed security, had shocked bond markets who feared that the Federal Deposit Insurance Corporation might dump the portfolio and lower prices.
The FDIC was still in possession of the assets following the bank’s seizure. However, it stated that the asset sales would be “gradual, orderly”.
“The disposals will aim to minimize any adverse effect on market functioning by taking account of daily liquidity and trading conditions,” the regulator stated.
The FDIC is quickly moving to address the collapses. Signature collapsed on March 10, and SVB crashed two days later. It said that New York Community Bank would purchase most Signature. Soon after, First Citizens, North Carolina, would assume nearly all of the loans and deposits of SVB.
The regulator hired Newmark, a real estate specialist, to sell Signature Bank loans worth $60 billion earlier this week.
SVB has $87bn and Signature $27bn, respectively. Both have a large portfolio to increase profitability. The Federal Reserve raised interest rates dramatically in the last year, and the bond’s value fell.
SVB’s decision, to liquidate some of their bondholdings after a $1.8bn loss in reported value, was what pushed it into the failed capital raise. This led to the bank run that brought it down just two days later.
Although the exact composition of the bond portfolios remains unknown, MBS analysts believe that the majority of holdings are securities that were purchased by lenders before interest rates rose and bond yields rose. This means that they may have lower coupons, perhaps as low as 2 to 2.5 percent.
MBS prices have already been affected by anticipation of FDIC sales. According to Bank of America analysts, the spread or extra yield required to hold bonds with 2 or 2.5 percent coupons has increased by 0.18 to 0.27 percentage points over equivalent Treasury rate rates in the past month.
BlackRock’s Financial Markets Advisory team has been the preferred choice for central banks and governments whenever they have to deal with assets that were acquired in financial rescues.
This financial powerhouse assisted the US in selling assets after the 2008 collapses at Bear Stearns & AIG. It also evaluated troubled banks for the Irish & Greek governments and advised the Fed and the European Central Bank regarding asset purchase programs.
BlackRock declined to comment.