A committee of top international bankers on Sunday warned that the proposed $75bn mortgage securities superfund must be transparent in its pricing of assets if it is to help restore market confidence.
The statement by the Institute of International Finance reflects concern that the superfund, which is backed by Citigroup, JPMorgan Chase and Bank of America, is proposing to buy assets from troubled investment vehicles at higher than true market prices. Josef Ackermann, chief executive of Deutsche Bank and chairman of the IIF, stressed the importance of "proper valuations" and the need for financial institutions to "take the hits".
The IIF board, which includes Bill Rhodes, vice-chairman of Citigroup, said it welcomed market initiatives such as the superfund. But it added that it was "also important to create the transparency needed to restore confidence". The compromise statement came as the bankers sought to forestall an excessive regulatory response by launching a private-sector initiative to address market failures exposed by the credit crisis.
Mr Ackermann said these issues "needed to be addressed not only, but primarily by the financial industry". He said the committee of top bankers would examine risk management issues, the use of conduits and other off-balance sheet investment vehicles, valuation of complex products, credit ratings and transparency.
Many European bankers and officials remained lukewarm in their support for the proposed superfund, which has the active support of the US Treasury. "Although we don't have many details at this stage we do not expect to take part in the initiative," said Alessandro Profumo, head of UniCredit.
A top Group of Seven official said it was "not obvious" that the fund would help address problems in the asset-backed commercial paper market. However, Hank Paulson, US Treasury secretary, told the FT much of the criticism of the superfund was based on a misunderstanding of how it would work.
He said the Fed had been kept fully informed of developments, adding that there was nothing untoward about the Fed's silence on the plan. The plan has been openly criticised by Alan Greenspan, the former Federal Reserve chairman.
Bankers close to the plan say that Deutsche Bank has expressed concern about the proposed mechanism for setting prices for asset sales. The lead banks are proposing that prices be determined according to quotes provided by dealers for small transactions in the particular security rather than large trades. Critics say this means prices will be artificially high.
Stephen Green, of HSBC, and Bob Diamond of Barclays Capital, said their banks would consider joining if approached. ( FT )