Toxic Assets Plan Expected Soon

Highlights include Citigroup Inc. (C), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and PNC Financial Services (PNC).

The details of the Obama Administration's plan to purchase toxic assets from the banks in a public/private partnership are expected to be released as soon as this week.

The plan was a part of the overall "Financial Stability Plan" announced by the Secretary Geithner early last month, but few details were released then. It was reported then that a Public-Private Investment Fund (PPIF) is being established together with the Federal Reserve and the FDIC, seeded with government money, in order to remove the toxic assets currently clogging the banking system.

It is expected that several competing funds will be established with capital from both public and private sources, and the bidders will have access to low-cost government financing to buy the assets and also some form of insurance to protect them against downside risk. On the other hand, if the assets appreciate, the investors will profit from the upside.

The idea is to start a market for the real estate-related assets and to provide a mechanism for valuing these assets. The program will start with $500 billion, but would be expanded later to ultimately provide up to one trillion dollars in financing capacity.

The problem of toxic assets, particularly the mortgage-related assets, are the main cause of problems at the banks like Citigroup Inc. (C), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), PNC Financial Services (PNC), etc. Resumption of normal lending at these banks and smooth functioning of the credit markets will depend a lot on the success of the proposed plan.

Read the full analyst report on WFC