Geithner Says He’ll Soon Offer Details on Toxic-Asset Cleanup

March 16 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner said he will soon announce details of his plan to help banks clean up the non-performing assets that are clogging the financial system.

“We’re going to move quickly to lay out a new financing program to deal with these legacy assets,” Geithner said in an interview with Bloomberg television two days ago during a meeting of Group of 20 finance ministers in Horsham, England. “We have and expect to see a lot of support for this program” among potential buyers of the assets, he said.

Geithner disappointed investors and was criticized by U.S. lawmakers including Senator Kent Conrad of North Dakota, chairman of the budget committee, for outlining plans to address toxic assets without explaining how they will work. The Standard & Poor’s 500 Stock Index slumped 4.9 percent on Feb. 10, the day Geithner unveiled the plan.

Geithner’s program has three main elements: Injecting fresh government capital into some of the country’s biggest financial institutions; establishing a public-private partnership to handle as much as $1 trillion of banks’ bad assets; and starting a credit facility with the Federal Reserve of as much as $1 trillion to promote lending to consumers and businesses.

The Treasury hopes to unfreeze credit markets by providing new incentives to banks and investors to resume trading in mortgage securities and other troubled assets. U.S. regulators are conducting a new series of examinations to make sure banks have enough capital to accept losses when selling these assets, while also planning to provide government financing to the investors who might buy them.

Gauging Interest

More information about the public-private investment plan will be made available in the next week, a Treasury official told reporters in Horsham, speaking on condition of anonymity. The Treasury will roll out enough information for investors to gauge their interest in the new program, along with an operational timeframe, the official said.

In the interview, Geithner said the Treasury already is well on its way to starting “a dramatic lending program to help securities markets get flowing again.” He said regulators will ensure banks have a “backstop of capital” to make sure they can “do what’s necessary” to restore lending.

The Treasury also is looking to a new program, launched in partnership with the Federal Reserve, to encourage banks to make new loans. The Term Asset-Backed Securities Loan Facility is intended to revive the market for securities backed by consumer loans, yet it may start with just a handful of deals, according to participants in the preparations.

TALF Delay

Last week, the Fed delayed by two days until March 19 the deadline for submissions of proposed packages of debt that investors can buy with Fed financing. Brokers and investors have had difficulty agreeing over contract terms for the TALF, the people said.

The Treasury isn’t worried if the TALF gets off to a slow start, the Treasury official told reporters. The program is meant to be a longer-term effort to spur new lending, so a slow initial take-up shouldn’t be surprising, he said.

Details of another plan to spur lending to small businesses will be announced today by Geithner and President Barack Obama, according to a person familiar with the matter. The administration plans to use $375 million to expand federal guarantees and lower fees on small-business loans, the person said.

Geithner met over the weekend with Chinese Finance Minister Xie Xuren, days after Chinese Premier Wen Jiabao said he was “worried” about China’s investment in U.S. Treasury securities and wanted assurances that the holdings are safe. In Horsham, Geithner said the U.S. and the Chinese focused on their common goal of helping restore health to financial markets and the global economy.

Good Tone

“The tone was very good,” Geithner said in the interview, when asked about his meeting with Xie. “China is playing a very strong, very stabilizing, very important role in responding to this global crisis and we’re going to work closely with them.”

Geithner left the G-20 with a broad pledge from his counterparts to wield monetary and fiscal policy “as long as needed” to heal financial markets and the global economy. The ministers also were supportive of Geithner’s proposal to increase funding for the International Monetary Fund, without specifically endorsing his target to provide up to $500 billion.

On the subject of executive salaries and bonuses at institutions receiving bailout funds, Geithner said he wanted to see “guidelines for the future” to better align corporate pay and risk. The Obama administration has not yet released specifics of how it will apply its new executive compensation limits along with new restrictions passed this year by Congress.

AIG Bonuses

Separately, American International Group Inc., the insurer saved from collapse by a $170 billion taxpayer bailout, was ordered by the Treasury to scale back its $1 billion plan to give retention pay and bonuses.

AIG agreed to reduce some retention payments in 2009 by 30 percent and tie bonuses to the company’s recovery, according to a person briefed on the matter and a letter from AIG Chief Executive Officer Edward Liddy. The New York-based insurer still plans to distribute about $165 million on March 15 because of legally binding contracts, said the person, who declined to be identified because the talks weren’t public.

Geithner was “really upset” by AIG’s plan to distribute the bonuses, Austan Goolsbee, a top White House economist, said on the “Fox News Sunday” program yesterday. “You worry about that backlash” from the public, “but you’re also angry,” he said.

To contact the reporters on this story: Rebecca Christie in Horsham at Rchristie4@bloomberg.net;

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net