The Treasury Department on Thursday defended the viability of its $1 trillion plan to get soured mortgage investments off of banks' books after JPMorgan Chase's chief executive said the company won't participate in the program.
Some analysts said comments by JPMorgan Chase & Co. CEO Jamie Dimon could spell trouble for Treasury's program, which is aimed at what many view as the heart of the current financial crisis — toxic assets that are weighing on banks' balance sheets and preventing them from resuming more normal lending to consumers and businesses.
Dimon said JPMorgan did not intend to participate in Treasury's Public-Private Investment Program, or PPIP, because it did not need to. The program is designed to support purchases of as much as $1 trillion in toxic assets.
"We have no intent on using PPIP at all. We don't need it. We have our own assets. If we want to sell them, we'll sell them," he told analysts. "If we want to buy them, we'll buy them."
The Treasury Department played down the concerns. Spokeswoman Stephanie Cutter said the department is confident there will be significant interest from other banks who do want to participate and that the program will be launched "as soon as possible."
Still, some analysts said Dimon's comments could lead to other large banks remaining on the sidelines.
"If JPMorgan is not going to participate, chances are that other large institutions won't be participating either," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University, Channel Islands.
Some large banks want to get away from doing business with the government over fears they will be subject to too many restrictions now or in the future, Sohn said.
Spokesmen for other major banks mostly had no immediate comment following Dimon's remarks. Like JPMorgan, which received $25 billion, several other recipients of government money under the bailout program — Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley — have expressed interest in repaying it soon.
"We have said that we support the government's plan to help financial institutions to shed troubled assets," said Julia Tunis Bernard, a spokeswoman for Wells Fargo in San Francisco. However, she added, the bank also is evaluating its own plans for buying or selling assets.
Goldman Sachs spokesman Michael DuVally in New York said the company continues to evaluate the public-private investment program "and have discussions with government agencies about it."
Treasury Secretary Timothy Geithner unveiled the PPIP on March 23. The goal is to take the toxic assets, sour real estate loans and distressed securities backed by mortgages, off banks' books so that they can resume more normal lending to consumers and businesses and help combat the country's recession.
Treasury is employing the resources of the government's $700 billion bailout program along with support from the Federal Reserve and the Federal Deposit Insurance Corp. to attract private investors to buy the distressed assets.
Cutter said the department had been pleased by the interest shown since Geithner unveiled the proposal.
"We've been encouraged by the interest by both investors and financial institutions who wish to participate in creating a market for these legacy assets," she said in a statement. "We are working to launch the program as soon as possible."
Last week, Treasury announced that it was making it easier for hedge funds and other private investors to participate in the program of buying toxic assets, a move seen by analysts as an acknowledgment that the interest level on the part of investors had been somewhat lackluster.
Alois Pirker, an analyst for the Aite Group, said if JPMorgan holds on to the assets, it may be betting the economy will turn around and they will be worth more.
In his remarks to analysts, Dimon said he did not believe toxic assets were still depressing lending.
"We hear this endless chatter about it, but the banks who are in the business are lending ... are lending pretty much as they did in the past," he said.
However, private analysts took issue with this view. They said toxic assets remain at the heart of what is the country's worst financial crisis in seven decades because those troubled assets were lowering banks' cushion of reserves and making it harder for banks to raise additional capital to expand their loan businesses.
"As long as troubled assets are on banks' books, it creates a great deal of uncertainty," said Mark Zandi, chief economist at Moody's Economy.com. "The banks don't know how much capital they will need and neither do potential investors in the banks."
Sohn said that the failure to address the toxic asset problem in Japan contributed to that country's lost economic decade in the 1990s because banks kept a mountain of bad loans on their books, preventing them from resuming normal lending.