The PPIP revisited

Back in March, The US Treasury announced the Public-Private Investment Program (PPIP), an initiative designed to help Banks remove toxic assets off their balance sheet. Essentially, it was an offer to the private sector to raise funds, which the government would subsequently match, to buy distressed assets off US Banks. Initially, the idea was to approach 4 to 5 large Asset managers and Hedge Funds, who will each commit to raise USD 7 to 10 billion of private money for a Distressed Asset Fund. The Government will then commit as much as USD 50 billion in public capital to match the PPIP funds raised.

However, as a sign of changing needs, The US Treasury announced that the program will now be around USD 20 billion in size, down from the targetted USD 100 billion. The plan now is to pick 8 to 10 Managers, who will each commit to raise USD 1.1 billion in private money. The Government will then match this amount with Government-backed loans. This change of plan is a reflection that the worst of the Banking crisis is behind us. The need to remove the "toxic assets" is less relevant with the rising asset prices. US Banks have also successfully raised over USD 100 billion by selling equity and assets, easing market's concern.

A separate portion of the PPIP to be managed by the Federal Deposit Insurance Corp (FDIC), and designed to aid the sale of loans from Banks to investors have also been postponed indefinitely. Essentially, interests (Banks) in such programs have waned considerably as confidence improved substantially.

In addition, US Banks have also returned Government aid back to the Treasury. There is a consensus that the worst of the Banking crisis is over. Yes, there is a gradual unfreezing of credit and liquidity. However, the question remains: How quickly will it be, before things normalise back to pre-crisis levels? A long time, I think....