Hedge Funds

Veteran of S&L crisis sees gold in toxic assets

NEW YORK (Reuters) - The U.S. Treasury’s toxic assets clean-up plan is the greatest market opportunity since the savings & loan crisis, says veteran investor Bill Bartmann.

He should know: Bartmann made a fortune snapping up distressed loans from the wreckage of failed savings banks some 18 years ago.

“The current crisis is creating a whole new playing field and, with that, a whole new opportunity,” Bartmann said in an interview. “It’s going to be a bigger opportunity this time than last crisis.”

Bartmann’s Commercial Financial Services was among the first to purchase distressed assets from the Federal Deposit Insurance Corp and the Resolution Trust Co following the failure of some 2,500 thrifts in the late 1980s and early 1990s.

Now, Treasury’s plan to help private fund managers purchase securities and loans from struggling banks has inspired the Tulsa, Oklahoma, businessman to dust off his Rolodex, assemble his partners and raise a $1 billion (670 million pounds) fund from wealthy investors and hedge funds.

Bartmann, who is 60, said his fund would purchase consumer loans from struggling banks through the public-private investment partnership. With a matching co-investment from Treasury and as much as six-to-one leverage through FDIC-backed bonds, Bartmann could purchase up to $14 billion in loans.

Several major fund managers, such as Ray Dalio of Bridgewater Associates, have poked holes in the government plan and said they will not participate. Yet Bartmann argues Treasury may finally have found the tool that will revive banks and put the economy back on its feet.

“It’s a great opportunity for us to finally get back on the road to recovery, but we can’t get there until we admit we have some really bad loans stinking up the books of our financial institutions,” he said. “This is going to be their chance to purge.”


In the last crisis, Bartmann said his closely held firm bought 4.5 million loans with a book value of $15 billion from 800 failed banks. Bartmann packaged these loans into $3 billion of asset-backed securities that were then sold into the market, raising cash to finance new purchases.

This time around, Bartmann hopes to have his fund in place and ready to invest within two months. The fund, he said, would target credit card loans and other consumer assets.

The government, he explained, also needs to act quickly.

Commercial real estate losses, expected to rise as the recession drags on, have only begun to impact results, he said. Indeed, without the toxic-assets plan, Bartmann estimates some 500 banks could go bust.

Treasury, he said, will help banks unload problem assets and boost capital so they resume lending and help fuel the economy, he said. The cleansing process will also restore investor confidence in banks.

“What the FDIC is telling 8,300 banks is, ‘Gentleman, we have a bad loan amnesty program,’” he said. “They’re saying, ‘Give us your bad loans, pull them out from their hiding places, all those loans you’ve been in denial about or trying to defend, and we will let you disgorge them.’”

Bartmann, who in the 1980s struck it rich investing in Oklahoma oil wells, said inspiration for the new fund came last fall. That’s when then-Treasury Secretary Henry Paulson announced the $700 billion Troubled Asset Relief Program.

The TARP ultimately became a capital- injection plan, but the government has followed up with a series of taxpayer-funded bailouts. Yet current Treasury Secretary Timothy Geithner’s toxic-assets plan, announced last month, served to reassure Bartmann that his investment plan was the right idea at the ideal time.

“We saw the TARP as a wonderful opportunity,” he said. “Little did we know there was $2 trillion more right behind it. This is wonderful squared.”

Reporting by Joseph A. Giannone; Editing by Tim Dobbyn