Private equity titan BlackRock Inc. (BLK) is in early-stage negotiations with UBS AG (UBS), Switzerland's largest bank, to take over and manage its remaining U.S. mortgage assets, Bloomberg News reported Monday. UBS has been sent reeling by more than $38 billion in subprime and mortgage-related write-downs in the past 12 months, and is expected to post another hefty loss in first quarter earnings scheduled for release Tuesday morning. Via Bloomberg's coverage:
BlackRock, the manager of almost $1.4 trillion of assets, is seeking cash from investors to create a new entity that would hold and eventually sell the mortgage assets of Zurich-based UBS as the markets recover. New York-based BlackRock is targeting returns of more than 15 percent, said the people, who asked not to be identified because they aren't authorized to disclose the information. The talks may not lead to an agreement, they said. "It's tremendous news for the economy once the banks are willing to seriously start shedding these assets," said Roger Kormendi, a principal at Washington-based investment bank Kormendi\Gardner Partners, who helped the U.S. design the partnerships that liquidated bad loans during the savings and loan crisis in the early 1990s. "This is the right thing to do."
It's worth noting that BlackRock recently helped bankroll PennyMac, a distressed asset servicer headed up by Countrywide expat Stanford Kurland. Sources tell HW that the negotiations with UBS would likely involve the use of the newly-funded PennyMac platform to manage the assets until they could later be sold at a profit. Bloomberg reports that BlackRock is holding similar negotiations with other financial institutions, essentially exploring the formation of a "bad bank" that would take chunks of distressed mortgages and assets tied to them off of the balance sheet of affected banks, and hold them until they could be disposed of at a profit. News of BlackRock's move towards UBS comes as numerous other private equity and hedge fund players are saddling up to ride back into what's left of a decimated mortgage market, in an attempt to recover value from assets -- either whole loans or the securitized paper tied to them -- that some say have been pushed below their intrinsic value by current market conditions. UBS is expected to report roughly $11.4 billion in additional write-downs when it releases first quarter earnings Tuesday morning, as well as possible layoffs amounting to 10 percent of the more than 80,000 employees at the firm. Disclosure: The author held no positions in BLK or UBS when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.