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Moment of Reckoning for Leading Asset Management Firm

Friday, October 10, 2008

The Treasury Department is working quickly to hire companies to help manage the toxic assets crippling the U.S. financial system. Only a handful are capable of taking on such an enormous task. One of the leading contenders is the company BlackRock. WNYC’s Lisa Chow took a trip to its headquarters in Midtown Manhattan.

REPORTER: It could be the most important company that you’ve never heard of.

Can I ask you a question?

HALAL CART OWNER: What?

REPORTER: I want to know, have you ever heard of the company BlackRock?

HALAL CART OWNER: Black rock. I don't know that this black rock, where?

STORE PLANNER: No I can't say that I have.

CHAUFFEUR: No. Never. What they do?

REPORTER: Have you ever heard of BlackRock?

COLLINS: Yes.

REPORTER: Do you work at BlackRock?

COLLINS: Yes I do. First off, let's go off the record. Turn it off. Shut it off.

REPORTER: That's the company's communication director, Bobbie Collins, standing in front of BlackRock's headquarters. She couldn't schedule an interview with a company executive in time for this story. But she did invite me for a more formal visit soon.

LEE: BlackRock is one of the largest independent asset management companies in the world, and definitely within the U.S.

REPORTER: Robert Lee is an equity research analyst with Keefe, Bruyette, and Woods. He says one of the reasons BlackRock is not a household name is the company deals largely with money from governments, endowments, and corporations, not from people like you or me. In total, BlackRock manages more than $1.4 trillion from clients around the world. Christopher Sparh is an analyst with Deutsche Bank. He says there are a couple of reasons BlackRock is an attractive hire for people at Treasury.

SPAHR: They’re going to chose asset managers that have scale, that can actually charge the government less money. And you also want people with proven experience in doing this. They’re not going to just chose some fly by night shop that has absolutely no proven track record to manage these assets.

REPORTER: And it turns out BlackRock is already a player. Remember Bear Stearns? The investment bank that nearly went bankrupt this spring. J.P. Morgan Chase bought it, and the Federal Reserve backed the deal, leaving taxpayers on the hook for 30 billion dollars of bad Bear Stearns assets. Well guess who’s managing those bad Bear Stearns bets? BlackRock.

LEE: The Federal Reserve needed someone to help manage that pool of assets.

REPORTER: Again Robert Lee.

LEE: Help make decisions regarding it, who’s an expert in those assets, who can figure out what’s going on, what the right values are.

REPORTER: Now how did BlackRock become an expert in these assets? Laurence Fink, the man who founded the company. Charles Murphy is an adjunct professor at the NYU Stern School of Business. He worked with Fink in the 70s and 80s.

MURPHY: He was one of the two individuals who were preeminent in creating the mortgage market, which as we all know now is one of the largest markets in the world.

REPORTER: Now okay, someone from the outside may say, hold on. He helped create the concept of a mortgage backed security. I mean how do you respond to people who say does that mean he helped kind of create this mess?

MURPHY: No, I think. I'll make it simple. What he created back in the late 70s and early 80s basically did incredibly well for the first 20 or 25 years.

REPORTER: And yet, now these mortgage securities are causing today’s financial crisis. BlackRock has emerged relatively unscathed. And it's looking to make money managing toxic assets for the government. But analyst Robert Lee says, the deal may not necessarily be lucrative.

LEE: I don't think this will be the killing to end all killings in terms of making a lot of money off of it. But I do think there clearly is a business prestige to being selected.

REPORTER: It was this Wednesday that BlackRock bid to help handle the country’s mortgage mess, just five days after Congress passed the $700 billion bailout plan. Treasury could hire BlackRock as early as today. For WNYC, I’m Lisa Chow.

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