Treasury’s Distressed Debt Plan Said to Begin With $20 Billion

The US Treasury Department may initiate its program in order to encourage purchases of mortgage-backed securities from banks with about $20 billion in public and private money. This has been down as much as $100 billion from what it was announced in March, it was said by two people who were familiar with the matter.

The treasury has planned to provide $1.1 billion in capital to eight to 10 money managers which it will pick for the Public-Private Investment Program, according to the people, who have asked that it should not be identified before the details are announced. $1.1 billion each will be raised by the firms for funds to buy distressed mortgage securities. This is less than what they had expected from the government to support. About $10 billion in government-backed loans is also included in the plan.

This program has been unveiled by the government when losses tied to home loans hobbled banks such as Citigroup Inc. and Bank of America Corp. and threatened to choke off lending required to revive the economy. Since then, more than $100 billion were raised by the 19 largest US banks. For doing this they sold equity and assets, swap preferred shares for common and offer debt, easing concern that the lenders will not be able to handle a deeper, longer recession.

A separate portion of PPIP was postponed indefinitely last month, which was run by the Federal Deposit Insurance Corp. and which has been designed to aid the sale of whole loans from banks to investors. It was said by the Treasury Secretary Timothy Geithner that interest in such kind of US programs may be waning as it improves the market confidence.

Expansion Possible

It was said by Geithner that in March the government might commit as much as $50 billion in public capital just in order to match PPIP funds that is raised by private firms. It has been told by the treasury officials that the program could be rolled out in stages and it can also be expanded over time.

A Treasury spokesman Andrew Williams refuse to comment. It may be announced by the department that the program’s start as soon as next week.

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