Remember the Big Bank Bailout Fund – They Are Back

Remember all the hoopla about the big bank bailout fund, well things are progressing. Now they are looking for people to throw some of their money into the pot. However, it is still amazing what we don’t know about the fund. From the WSJ:

The three big banks assembling a plan aimed at thawing credit markets are expected next week to start soliciting their industry brethren to pitch in with the effort, according to people familiar with the situation.

The move will be a significant step in forming the so-called superfund that has been in the works since September. It is aimed at providing an alternative for off-balance-sheet entities called structured investment vehicles that have run into trouble amid a lack of liquidity in credit markets. The SIVs issue short-term debt to buy other, higher-yielding assets but have been hurt by market upheaval that has left buyers for that debt on the sidelines.

The fund will create a potential buyer for SIV assets. SIV managers won't be required to sell assets into the fund, which will only buy high-quality assets in an attempt to maintain investor confidence in the fund.

In another sign of progress, Black Rock Inc. is expected next week to be named the manager for the $75 billion to $100 billion fund, people familiar with the matter said. In that role, BlackRock will be considered a neutral party and will help set pricing for the assets. As of now, it doesn't appear BlackRock would invest in the fund.

The participation of other banks will play a significant role in the fund's success. B of A Corp., Citigroup Inc. and J. P. Morgan Chase & Co. have created a structure for the fund, but it isn't clear how other financial institutions will respond to it. Although some banks have expressed informal interest, the real test will come as they assess the financial terms.

Bankers involved in assembling the plan have said they would like to get the superfund running by January.