A planned king-size investment pool to acquire mortgage assets and bolster sputtering credit markets is gaining participants, despite hesitation from some banks and securities firms about joining the effort.
The three lead banks, Citigroup Inc., J.P. Morgan Chase & Co. and Bank of America Corp., are aiming to round up commitments totaling at least $80 billion to make the plan fly, according to people familiar with the matter.
While some people briefed on the plans say that target is fluid, others say that without the kind of critical mass of that large a fund, "it's unlikely to happen," as one put it. The three lead banks expect to ante up less than half the total, the same person said.
The plan, which has been supported by the Treasury Department, is aimed at breaking a logjam in the market for the short-term debt of investment vehicles that hold mortgage-related assets. Those assets have declined sharply in value amid a credit crunch touched off by a downturn in the value of subprime mortgages, or home loans to borrowers with weak credit.
The fund, dubbed the master-liquidity enhancement conduit, would issue short-term notes to investors and use the proceeds to buy securities from the specialized funds, known as structured investment vehicles, or SIVs, that are being forced to wind down their businesses. This could help prevent asset sales at fire-sale prices from triggering a market meltdown. There are some 30 SIVs with about $400 billion in assets, according to Moody's Investors Service.
Broad participation in the plan is important to raise sufficient sums of money to produce the jolt of market confidence needed to boost trading in some parts of the credit markets, those involved in the discussions say.
Yesterday, Wachovia Corp. said it will participate in the fund. "While it's not a significant issue for us, we plan to participate at an appropriate level because we want to help improve the stability of the markets," a spokeswoman said.
Among the firms offering support for the plan are Fidelity Investments and Federated Investors Inc. Both hold debt issued by an arm of Gordian Knot Ltd., one of the SIVs that could benefit from the fund.
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