BlackRock in talks to manage UBS mortgages-report

NEW YORK, May 5 (Reuters) - BlackRock Inc (BLK.N: Quote, Profile, Research) is in talks to form a fund that would help UBS AG (UBSN.VX: Quote, Profile, Research) slash its exposure to assets that have generated more than $37 billion of write-downs in the past year, Bloomberg News reported on Monday, citing two unidentified people with knowledge of the discussions.

BlackRock, which manages about $1.4 trillion of assets, is raising cash from investors to create a vehicle that would hold mortgage assets sitting on the books of UBS. In time, the fund would sell the assets as markets rebound and generate returns exceeding 15 percent, Bloomberg reported.

Under the UBS deal, BlackRock would earn a fee for managing the assets and a percentage of profit after certain return targets are met. BlackRock would invest its own capital and UBS would retain a minority interest, these people told Bloomberg.

BlackRock and UBS declined to comment.

UBS chief Marcel Rohner has told shareholders he intends to stop the losses at UBS' investment bank division, which expanded recklessly into fixed income trading.

"We have identified areas where we no longer want to operate and have transferred the respective risk positions to a separate unit," Rohner said at the bank's annual meeting April 23. UBS reports its first-quarter results on Tuesday.

BlackRock is managing other similar distressed debt funds.

The Federal Reserve chose BlackRock to manage $30 billion of Bear Stearns assets. In March the Fed agreed to lend $29 billion to a vehicle that would buy and later sell the assets.

The funds giant is teaming up with Highfields Capital Management to raise $2 billion for a new entity, PennyMac, that will buy delinquent mortgages. BlackRock also raised $5 billion for two other funds to buy various distressed debt.

(Reporting by Joseph A. Giannone, editing by Richard Chang)