January/February 2011

FinalCut: NYT — ‘Great Liquidation’ About to Take Place on Wall Street

ABF Journal illustrator, Jerry Gonzalez’ visual interpretation of a top-ranked abfjournal.com news story according to our visitors.


The New York Times Deal Book noted in an article posted on November 10, 2010 that the biggest rummage sale in Wall Street history will herald what one investment company has termed as “The Great Liquidation,” as U.S. banks will begin to purge themselves of troubled assets or drop profitable businesses they no longer want.

The article posed the following question: What’s this stuff worth? Sensing opportunity, hedge funds and private equity firms have only just begun the haggling.

For example, Fortress Investment Group, which coined the “Great Liquidation” phrase, has acquired a hodgepodge of financial services businesses often at reduced prices. The investment management company picked up an 80% stake in American General Finance, a provider of consumer credit from its bedraggled parent AIG. Fortress also acquired the management rights to oversee pools of certain collateralized debt obligations, or CDOs, which are among the most troubled investments ever devised; a stake in a struggling Japanese real estate firm; the European mortgage assets and platforms from GMAC; and, more recently, a distressed life settlement portfolio from the Belgian bank KBC.

At the same time, some hedge fund managers noted that, so far, the great liquidation amounts to a mere trickle with the nation’s banks are still sitting on hundreds of billions of dollars of mortgage- and real estate-related securities and loans. Despite the most sweeping overhaul of banking rules since the Depression, banks have taken a wait-and-see attitude toward adapting many of the new rules or offloading billions of dollars of troubled securities.

Yet, quoting one hedge fund manager, the NYT said, “You’re going to see over the next five years, more financial asset liquidations than you’ve seen in the sum total of the last 100 years.” The hedge fund manager added: “If you’re in the market for a financial services garbage collection, there’s plenty to do right now.”