Lehman to buy $291M in Phil. bank loans


Investors pulled out from the Philippines due to political instability and peace and order problems

By Amabelle Layug
CNN Hong Kong

MANILA, Philippines (CNN) -- Lehman Brothers has agreed to buy more than $290 million in soured loans from Metrobank.

That kick starts the U.S. investment bank's pledge to invest up to $1 billion in the Philippine Recovery Fund.

Metrobank -- full name Metropolitan Bank & Trust Co. -- is the Philippines' largest bank.

It will sell more than 15 billion pesos ($291 million) of its bad loans, and in the process creating an asset management company with Lehman, its comptroller said on Monday.

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But the asset-management company needs to wait for two key pieces of legislation to pass in Manila.

In all, the bank has assets of 386 billion pesos ($7.5 billion), 17 percent of which are bad.

Lehman stake in recovery fund hailed

A letter obtained by CNN last week shows that Lehman has pledged up to $1 billion, with private parters, to the Philippine Recovery Fund.

Lehman said it would front cash for "economically viable opportunties," writing to President Gloria Macapagal Arroyo on December 13.

The speaker of the Philippines house championed the move as "certain" to lead to optimistic results in the first quarter.

Lehman's stake -- as yet unspecified -- comes as the nation's banks struggle with rising defaults, particularly from manufacturers hit hard by the global economic slump.

Analysts predict Metrobank's deal will set a trend for Philippines banks to seek out investors like Lehman to help clean up their bad loans.

Priority bills have to pass first

Metrobank hopes to set up the asset-management company this month, to buy nonperforming loans, Comptroller Alfredo Javellana said at a press conference Monday.

He said the two companies signed a memorandum of understanding last month.

But the deal will have to wait until the Philippine Congress approves two bills, one insider at Metrobank.

Those are the Securitization Act , and another bill that would allow the creation of asset management companies.

The Metrobank executive, who did not want to be named, said the deal has been signed with Lehman but is pending the legislation passing. Though the bills seem to have support, the exact timing is up in the air, the executive said.

If passed, the securitization law would let firms or agencies remove nonperforming assets from their balance sheet, and make new loans from the proceeds of selling securities to investors.

The law will also allow banks to sell an estimated 70 billion pesos ($1.36 billion) worth of foreclosed properties to the government. The Arroyo administration hopes that will support low-cost mass housing.

Securitization is the process of converting bank loans and other assets into marketable securities for sale to investors.

Analysts said the passage of the bills would give the government alternative ways to generate revenues while developing a liquid and active market.