BlackRock has a new fund that is buying 15 billion dollars worth of Alt-A and Subprime paper from Zurich based UBS. The large bank is trying to reduce risk while BlackRock is looking to make a killing.

To me this is an inflection point. Typically when the larger institutions are dumping their portfolios and able to find buyers, we are very close to a bottom. The pain for management at the large institutions has gotten to great and it is all other peoples money. Plus, who can blame me (or fire me) for selling when things are this bad.

Yet this is exactly when the smart money guys jump into the game. BlackRock has been putting together a couple of funds for just this day. You know that UBS took a big hit on the deal, you always do when you publicly state that you are reducing risk.

So the large bottom feeders are coming into the game. My bet, this deal and a couple like it are going to give BlackRock a very sound position going into the next up market with deals like these.

The Zurich, Switzerland-based UBS noted that it sold positions with a nominal value of around US$22 billion to the BlackRock-managed new fund. Based on UBS categorizations, the vast majority of the positions are Subprime and Alt-A in roughly equal parts and the remainder is Prime.

UBS reported that the BlackRock-managed fund purchased the securities using approximately US$3.75 billion in equity raised by BlackRock from investors, together with a multi-year collateralized term loan of about US$11.25 billion provided by UBS.

Commenting on the securities sale, Marcel Rohner, UBS’ Group chief executive officer, said, “Risk reduction remains a critical part of our ongoing financial restructuring and this sale is a big step towards further reducing our positions in this asset class. We continue to manage our legacy risks in a flexible and creative way in the best interests of our shareholders.” via RTTNews

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