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US: House panel questions Bear rescue plan

by James Politi The Financial Times
April 8th, 2008

The rescue of Bear Stearns faced further scrutiny in Congress on Tuesday as a powerful Democratic lawmaker demanded more information on the selection of BlackRock as investment manager for $30bn in the bank’s mortgage assets. 

A key element of the takeover of Bear by JPMorgan Chase was the quick decision to bring in BlackRock, a New York-based asset management firm run by Laurence Fink, as a portfolio adviser for the $30bn (£15bn) of mortgage assets, which will be used as collateral for a $29bn loan from the Federal Reserve. BlackRock and the Fed agreed to determine the fee for the arrangement at a later date.

In a letter, Henry Waxman, chairman of the House oversight and government reform committee, asked Tim Geithner, president of the Federal Reserve Bank of New York, to answer questions on the decision to give BlackRock a “potentially lucrative position...without competition”.

“When contract terms are not defined in advance, it is usually the taxpayer – not the contractor – who suffers,” Mr Waxman wrote. “In Iraq and in the response to the September 11 attacks and Hurricane Katrina, taxpayers have incurred billions of dollars in unnecessary costs when federal agencies tried to negotiate terms with a private contractor that knows it has already won the contract.”

Mr Waxman asked that by the end of next week the New York Fed de­scribe the “basis” of the BlackRock choice, and whether the Fed would be able to solicit competing bids. A spokesman for the New York Fed declined to comment.

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