BlackRock Tasked With Cleaning Up Banking Mess

BlackRock, the world’s largest asset manager, also plays a less heralded role in the financial services industry: emergency plumber.

Following the collapse of Silicon Valley Bank and Signature Bank, the FDIC has found itself a reluctant owner of some $114 billion worth of securities. But everything must go, and the agency has recruited BlackRock’s Financial Markets Advisory (FMA) unit to help find some willing buyers.

Back in BlackRock

The FMA has been here before. Amid the last financial crisis in 2008, the firm was hired to help sort through the fallout from Bear Stearns’ and American International Group’s implosions. Then, when the pandemic rocked the world in 2020, BlackRock swooped in to help buoy the corporate bond market. Now, it faces its greatest challenge yet. SVB, Signature Bank, and First Republic Bank held more combined assets than all 25 of the federally insured institutions that went belly up in 2008’s economic meltdown, according to an analysis by The New York Times (for those keeping score at home, that’s about $532 billion today vs an inflation-adjusted $526 billion in 2008). And even with First Republic’s goodies already snapped up by JPMorgan Chase, the $114 billion worth of remaining assets that need to be sold off would mark the largest ever such job.

But a lot has changed since 2008. Asset managers, by nearly any metric, are now the clear kings of the financial services sector. BlackRock itself has exploded since 2008, with its assets under management growing from around $2 trillion then to a staggering $9.1 trillion today, according to its most recent earnings report. And while the FMA is usually a rounding error for the firm’s accounting books, analysts tell Bloomberg that the division’s role as the government’s trusted pipe fitter does offer something BlackRock values: influence and connections with Washington power brokers. Those cozy connections made it an obvious choice for the big clean-up gig:

• The FMA is sorting through roughly $87 billion of SVB investments and another $27 billion from Signature, according to Bloomberg. That includes residential and commercial mortgage-backed securities, as well as collateralized mortgage obligations.
• So far, according to Bloomberg, the firm has successfully handled a round of mortgage-backed securities sales. It’s now likely to sell around $2 billion worth of assets a week.

“BlackRock really does appear to be the go-to when it comes to large-scale, politically salient and systemically important types of asset sales and management,” Saule Omarova, a professor at Cornell Law School, told Bloomberg. “It creates this very important potential avenue for BlackRock to cultivate a kind of relational power with the federal government.”

Larry Fink’s Personal Revolving Door: That relational power manifests itself in obvious ways. Wally Adeyemo, the current US Deputy Secretary of the Treasury, worked at BlackRock for two years as a senior advisor and interim chief of staff to CEO Larry Fink. Brian Deese, meanwhile, worked as a BlackRock higher-up between stints as an economic adviser in the Obama and Biden administrations. Round and round and round the revolving door goes.