FDIC taps BlackRock to manage sale of failed bank assets

WASHINGTON — The Federal Deposit Insurance Corp. announced Wednesday it would tap the world's largest asset management firm, BlackRock Financial Market Advisory, to assist it with selling the former securities portfolios of Signature Bank and Silicon Valley Bank. The portfolios amount to approximately $27 billion and $87 billion, respectively, and are composed primarily of agency mortgage backed securities, collateralized mortgage obligations, as well as commercial mortgage backed securities.

BlackRock focuses on the fixed income, currency, and commodities markets. After the 2008 financial crisis, the Federal Reserve employed its services to dispose of hazardous mortgage securities from Bear Stearns and American International Group. As it continues to conduct its role as the receiver for failed banks, the FDIC is responsible for the disposition of the failed banks' residual assets. The agency's decision to retain BlackRock bolsters the firm's long perceived coziness with government agencies. 

Columbia Law Professor Todd H. Baker thinks that the FDIC's decision to recruit BlackRock is unsurprising and underscores their reputation as the government's go-to partner for selling failed institutions' leftover assets.

"It is not unusual [for FDIC to hire asset management firms like BlackRock]. Regulators used BlackRock extensively to sell assets during the 2008 financial crisis," Baker wrote in an email.

One of the agency's former lawyers, Todd Phillips, says the FDIC regularly works with firms that specialize in asset sales to help find them the best price. Partnering with BlackRock can help the agency fulfill the statutory requirement of replenishing the deposit insurance fund to the maximum extent.

"BlackRock's primary business is marketing securities, and the FDIC's is not. It makes sense for the FDIC to hire an outside advisor to sell assets in receivership so as to obtain the best price and refill the [deposit insurance fund] as much as possible," Phillips wrote in an email. "The FDIC frequently hires outside firms to engage in activities for which they have the expertise."

The portfolio sales process will be gradual and orderly, FDIC says.

"[They] will aim to minimize the potential for any adverse impact on market functioning by taking into account daily liquidity and trading conditions," FDIC wrote in an accompanying release. 

Though the announcement means FDIC intends to market the remaining portfolios, additional details on the process remain forthcoming.