Newport Beach’s Pacific Investment Management Co. is raising $1 billion to buy problem loans from banks across the country that need to clean up their balance sheets.
Pimco, one of the largest bond fund managers, will acquire commercial and home mortgage loans and other debt, according to a report by Bloomberg, which relied on information from prospective investors.
Banks have been pressured from U.S. regulators to sell troubled loans since the financial crises took root at the end of the 2007.
New international requirements adopted in September require banks to more the double the ratio of capital in relation to the risk on their balance sheet.
At the end of the second quarter, there were 829 problem banks operating in the U.S.—more than 10% of all banks—according to the Federal Deposit Insurance Corp.
These banks held $403 billion in assets, a slight decrease from $431 billion in the previous quarter.
The 829 problem banks are the highest number since 1993, when there were 928.
The low was reached in the third quarter of 2006 with 47 banks.
Pimco’s institutional fund will target smaller lenders and community banks, and will avoid credit cards and auto loans.
Community banks, unlike their bigger rivals that wrote-off billions in bad loans during the downturn, can’t afford to take massive quarterly hits to their bottom lines. This has delayed the disposal of bad commercial real estate loans for many commercial banks in Orange County and nationwide.
Pimco controls about $1.2 trillion in assets.
