Alert June 09, 2009

FDIC Updates Status of the Legacy Loans Program

The FDIC announced that development of the Legacy Loans Program (“LLP”) will continue, but that a previously planned pilot sale of assets by open banks will be postponed.  The LLP is the portion of the Public-Private Investment Program that is intended, through the provision of FDIC debt guarantees and possibly Treasury equity co-investment, to attract private capital to purchase real estate loans that banks currently hold on their balance sheets.  For a further discussion of the LLP, please see the March 24, 2009 Alert.  In making the announcement, FDIC Chairman Sheila Bair stated, “Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system.  As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector.”  As a next step, the FDIC will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer.  The FDIC expects to solicit bids for this sale of receivership assets in July 2009.