UPDATE 1-UBS Americas backs infrastructure bank funded by U.S.

Tue Sep 21, 2010 7:50pm EDT

* UBS Americas CEO recommends no private ownership

* Says bank should be capitalized by Treasury Dept

* Proponents see revenue from projects, tax savings

* Pensions funds, private equity could invest

(Adds infrastructure investment figures, companies, Sen. Kerry quote)

By John Crawley

WASHINGTON, Sept 21 (Reuters) - UBS Americas (UBSN.VX) (UBS.N) threw support behind the Obama administration's proposal for a U.S. infrastructure bank on Tuesday, but warned against creating a quasi-government agency like housing finance enterprises Fannie Mae and Freddie Mac.

"Creating a national infrastructure bank is an idea whose time has come," Robert Wolf, chief executive of UBS Americas, told a Senate Banking Committee hearing called to explore alternatives for financing infrastructure projects.

Wolf said Congress should establish an institution that would leverage private investment to finance transportation and other big-ticket projects like rail, road, water, broadband or airport upgrades.

He recommended that it not have private shareholders. Rather, Wolf said, it should be capitalized through the U.S. Treasury to avoid the problems experienced by hybrids Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) that were held by private shareholders but benefited from government sponsorship.

Fannie and Freddie were seized by Treasury two years ago after losses during the U.S. housing market collapse and recession. Taxpayers have poured $150 billion into the lenders to keep them afloat.

Obama proposed a $50 billion infrastructure spending program earlier this month to rev up the economy and create jobs. The bank, Obama said, could be one way of financing the highest-priority projects through grants and loans. Wolf favors a loan-focused arm.

Obama envisions creating the bank as part of long-term infrastructure spending legislation expected to take shape in 2011. Presidential advisers have suggested capitalizing the bank at $25 billion.

Obama, many in Congress and transportation experts acknowledge that present infrastructure funding mechanisms that leverage gas taxes and other user fees cannot keep pace with necessity and demand and that other options are necessary.

Last year, the federal highway trust fund nearly ran dry before Congress rescued it with emergency cash.

Public investment in transportation infrastructure in 2006 was about $140 billion, split between the federal government and state and local governments.

The U.S. has been slower than other regions to adopt forms of private financing for infrastructure. Europe's infrastructure bank, the European Investment Bank, financed $350 billion in projects from 2005-09 to help modernize ports, reconfigure city centers and expand airports and rail lines.

Australia's Macquarie Group (MQG.AX) is the global leader in private infrastructure investment, according to Infrastructure Investor magazine rankings.

Others include Goldman Sachs (GS.N) and Alinda Capital Partners, the largest U.S. manager of pension funds for infrastructure investment.

Companies like equipment maker Caterpillar Inc (CAT.N), General Electric Co (GE.N) and privately held engineering firm Parsons Corp could benefit from stepped-up spending in this area.

The American Society of Civil Engineers estimates it will cost more than $2 trillion to bring roads, bridges, and other infrastructure to a state of good repair.

"We're talking staggering sums here, and it clearly reflects just how much we have neglected our infrastructure," said Senator John Kerry, who is a lead voice for an infrastructure bank in the Senate.

Proponents have said that investments from private equity and pension funds and other sources would complement federal capital.

Projects could generate revenue through tolls or other fees that would provide long-term, low-yield returns for investors. Other projects would offer tax advantages as the primary benefit of investment.

Wolf, who said any infrastructure bank should be transparent and work alongside other government-run credit programs for infrastructure construction, cited figures that show $180 billion in private capital available for infrastructure investment.

"When I hear that an infrastructure bank will not cost taxpayers a dime, I wonder why federal resources and guarantees are needed," Senator Richard Shelby said during the hearing.

Pennsylvania Governor Edward Rendell said a bank would be a part of an effort that would include more traditional transportation funding and other successful subsidy programs like Build America Bonds, taxable financing that has lowered borrowing costs for state and local governments. Obama has proposed making this program permanent.

(Reporting by John Crawley; Editing by Phil Berlowitz)

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