Bill Gross — U.S. Treasury To Invest In Fannie & Freddie
Kurt Brouwer August 6th, 2008
Very interesting piece from Bloomberg [emphasis added]. So far, Bill Gross has been pretty darn accurate so I’d have to bet on him versus Freddie’s CEO.
Pimco’s Gross Says U.S. Will Rescue Fannie, Freddie (Bloomberg, August 6, 2008, Kathleen Hays and Shannon D. Harrington)
Bill Gross, who manages the world’s biggest bond fund, said the U.S. Treasury will probably be forced to buy as much as $30 billion of preferred shares in both Fannie Mae and Freddie Mac to help shore up their capital.
“By the end of the third quarter, the preferred stock in Fannie and Freddie will be issued, the Treasury will have bought it,” Gross, co-chief investment officer at Pacific Investment Management Co., said today in an interview on Bloomberg Television. “We’ll be on our way toward a joint Treasury-agency combination.”
Gross adds to a growing chorus of investors and analysts predicting U.S. Treasury Secretary Henry Paulson will need to use his newly won power to prop up Freddie and Fannie. Freddie posted a second-quarter loss that was three times wider than analysts estimated and said credit losses doubled in three months, heightening concerns it may not be able to weather the worst housing slump since the Great Depression.
Freddie Chief Executive Officer Richard Syron today told investors the company will wait for its stock to improve before starting its planned $5.5 billion capital raising. Freddie agreed in May to raise the capital but failed to complete a sale as its stock slumped as much as 80 percent.
“I have enormous respect for Bill Gross,” Syron, 64, said today in an interview with CNBC. “I think he’s an extraordinarily talented manager, particularly on the fixed income side. But based on the information I have now, I do not believe that the Treasury will end up having to inject money into Freddie Mac.”
…About 61 percent of the holdings of Gross’s Pimco Total Return Fund were mortgage-backed securities as of June 30, mostly debt guaranteed by Fannie, Freddie or U.S. agency Ginnie Mae, according to data on Pimco’s Web site.
The fund has returned 5.5 percent annually over the past five years, beating 86 percent of its peers in the government and corporate bond fund category as of Aug. 5, according to Bloomberg data. Pimco, a unit of Munich-based Allianz SE, has $830 billion of assets under management…
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