Weak investor demand for second round of TALF

By Kristina Cooke

NEW YORK (Reuters) - Investors requested just $1.7 billion in loans for the second round of the Federal Reserve's program to revive consumer lending, significantly less than in its March debut and showing managers remain wary of taking part.

Investors requested about $800 million of loans for securities backed by auto loans and $900 million for loans for credit card asset-backed securities in the Term Asset-Backed Securities Loan Facility, known as TALF, the New York Fed said on Tuesday.

Even though the list of eligible securities had been expanded in the April round, investors requested even less than in the first round. In March, investors requested $4.7 billion in loans from the Fed.

It's a small fraction of what the U.S. central bank has pledged to lend -- up to $200 billion in the first phase of the TALF. The Fed has said the program, which aims to revive consumer and small business lending, could grow to $1 trillion.

"The expectation was that it would be bigger in the second round," said Ron D'Vari, chief executive and co-founder of New York-based advisory and asset management firm NewOak Capital. "At the current level it would take something like 60 years to fill the $1 trillion size of the Fed's program."

Analysts said worry that terms of the program could be retroactively changed combined with uncertainty about whether other government programs might offer up a better deal kept investors on the sidelines. Lingering issues surrounding the terms of participation, including restrictions on borrowers on the hiring of foreign workers, likely also dampened appetite for the loans.

Issuance of TALF-eligible securities was also minimal, with only five deals worth a total of about $3.2 billion. That was substantially short of last month's $8.2 billion of eligible securities.

"There are definitely some continued concerns both on the investor and issuer side over what may happen in the future and what the government may do to change the program," said a syndicate source.