Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Legacy Assets

What it is:

Legacy assets became a hot topic during the financial downturn of 2008, because many struggling banks had them on their balance sheets and were having trouble attracting the capital they needed to stay in business. The assets, virtually worthless, were part of the motivation for the Troubled Assets Relief Program (TARP) Public-Private Investment Program for Legacy Assets (PPIPLA) that was designed to help banks attract capital by minimizing and getting rid of legacy assets that were in trouble. In many cases, the U.S. Treasury purchased the troubled assets; in others, it provided guarantees and low-cost financing to private buyers who were willing to purchase certain legacy assets from struggling banks.

How it works (Example):

For example, let's say that Company XYZ makes computers. It keeps 25 of every computer model of every model year for its corporate museum and the occasional public relations or teaching event. It has done this since its inception in 1979. Accordingly, it has several hundred computers in its possession and thus on its balance sheet. However, these assets are very old and worth virtually nothing in the resale market. Thus, they are considered legacy assets.

Legacy assets can be financial assets. For example, if Bank XYZ buys Bank ABC, it acquires the assets of Bank ABC, which could include a bunch of really old loans that may or may not be in good shape in terms of repayment. Stock holdings can also be legacy assets for companies.

Why it Matters:

Legacy assets are assets that have been on a company's balance sheet for a long time and are usually obsolete.