Invesco picked to help revive ‘toxic asset’ market

To Atlanta-based Invesco, the so-called toxic assets that have sent many banks tumbling dangerously into the red present a golden opportunity.

The investment management firm plans to raise up to $1.1 billion over the next three months to buy troubled assets — primarily mortgage-backed securities — from financial companies.

Late last week, the U.S. Treasury selected Invesco and eight other investment firms to join the government in a public-private program designed to resurrect the moribund market for toxic securities.

The goal of the program is to clean up banks’ balance sheets so they are able to make new loans, thus kick-starting the sluggish economy.

Invesco, Atlanta’s largest investment management firm with about $389 billion in assets under management, said the program offers opportunity for investors able to hold onto securities long enough for the market to turn.

“Any investment, as you know, is in the eye of the beholder,” said Marty Flanagan, the company’s president and CEO. “At one price it’s toxic, at a lower price it’s of value.”

Since the program was announced a few months ago, the value of securities has appreciated, Flanagan said.

The government will match the money Invesco is able to raise, up to $1.1 billion, with profits and losses shared by investors and taxpayers. The government will also make loans available to boost the size of the investments and raise the price of the securities, motivating banks to sell.

Invesco makes its money by charging a management fee.

But it’s far from clear that the program will work, said Don Sabbarese, director of the Econometric Center at Kennesaw State University. A key question, he said, is whether banks will be willing to sell at prices investors want to pay.

Invesco officials say they don’t expect the market for toxic assets to suddenly return to normal, that a slow thaw is more likely. For example, small banks less able to hold onto securities than their larger peers may jump in first, creating a marketplace the big banks may join later on, once values have risen.

The market for mortgage-backed securities all but evaporated last year amid the subprime mortgage bust, sparking the biggest financial crisis since the Great Depression.

The financial firms that hold the securities have been caught in vicious circle. They’ve been forced to record big paper losses to reflect the plunging value of the securities. But they’re also reluctant to sell in such a distressed market, which is pushing down values even further.

As a result, many banks have been reluctant to make new loans, said Sabbarese. He lauded the government for taking steps to cleanse bank balance sheets.

“If you fix this, you’re going to fix the economy a lot faster, or at least make it a lot better,” he said.

The program has been set up so that firms like Invesco will raise funds primarily from large institutional investors such as pension funds. Invesco also recently formed a mortgage real estate investment trust to enable smaller retail investors to participate.

Invesco also has brought in Atlanta Life Financial Group as a minority partner in an effort to broaden the investment pool. Under terms of the program, Invesco must invest $20 million of its own money.

“We’re happy to do that,” said Flanagan, Invesco’s CEO. “We think there’s just real good investment opportunities in this sector.”