BlackRock sees 'huge opportunity' in cast-off banking assets

BlackRock is poised to become a bigger buyer of assets that banks unload to improve their capital and liquidity, after concluding that the industry faces years of upheaval brought on by high interest rates, stringent new regulations and possible consolidation.

Gary Shedlin, a vice chairman of the world's biggest money manager, is leading efforts to position BlackRock funds as sources of capital for banks looking to sell asset-backed securities or large portfolios of consumer, commercial or residential loans.

There's no shortage of supply; lenders are offering assets every day to potential buyers like BlackRock and the pace of big loan sales is ramping up, Mr. Shedlin said in an interview. The shifts are part of a long-term secular trend that will see private capital playing a larger role in support of lenders, he said.

"It's a huge opportunity for BlackRock. It's a huge opportunity for our clients," said Mr. Shedlin, the firm's former chief financial officer and previously a financial institutions banker at Morgan Stanley. As part of the plan, BlackRock could start new investment vehicles that target bank assets, he said.

BlackRock will join an increasingly crowded field. Private equity and credit managers have been angling to buy dislocated assets from banks, and some of the country's largest alternative-asset managers tried to get into the U.S. government process to auction off lenders after four of them collapsed earlier this year.

Funds managed by BlackRock executives have long invested in asset-backed securities, and the company has advised financial institutions and regulators for years. The new effort reflects executives' assessment that there's more fallout coming from the industry's recent convulsions.

While Mr. Shedlin said the "mini crisis" is now mostly over, banks must still contend with money-market funds that are luring away depositors with higher yields and mismatches between the duration of assets on lenders' books and liabilities to their clients. Some assets including commercial real estate loans are at risk, he said.

While Mr. Shedlin doesn't see an immediate "massive fire sale" of bank assets, he said there will be a migration over the next two to three years to a new relationship between investors and banks.

He foresees banks increasingly pursuing an "originate-to-distribute model," meaning there will be more loans or assets that banks probably will package into securities or sell in portfolios to investors like BlackRock.

"We're not a competitor to them," Mr. Shedlin said of banks. "We bring, again, unlike a lot of people, incredibly flexible capital to the table."