Naw, he's gotta be kiddin', whoooda thunk it possible?
bloomberg.com
Pimco's Gross Says U.S. Will Rescue Fannie, Freddie (Update2)
By Kathleen Hays and Shannon D. Harrington
Aug. 6 (Bloomberg) -- 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.''
`Matter of Quarters'
Gross is among investors and analysts predicting that won't be enough. The government will probably buy $10 billion to $30 billion of preferred stock, Gross said.
``If they're unable to tap the markets to raise capital, we're talking a matter of quarters before the government has to step in,'' said Joshua Rosner, an analyst with independent research firm Graham Fisher & Co. in New York.
Freddie needs to raise at least $10 billion immediately, according to Paul Miller, an analyst at Friedman Billings Ramsey & Co., who rates the stock ``underperform.'' The company's reluctance to raise more capital will hurt its recovery and increase the odds it will need federal aid.
``The company is defiant that all they are going to need is $5.5 billion in capital, and the Street is not going to accept that,'' Miller said. ``Are they waiting for better times? It's just going to get worse over the next six months.''
Shortened Timeline
Freddie said today its capital is $2.7 billion above the mandatory target surplus set by its regulator, down from $6 billion. The fair market value of its assets, a measure of insolvency, declined to a negative $5.6 billion.
``This report significantly shortens the timeline for Treasury intervention,'' said Ajay Rajadhyaksha, the head of fixed-income research for Barclays Capital in New York. With the value of Freddie's outstanding stock now at $4.3 billion, Rajadhyaksha said, ``I don't see how they can raise capital by themselves without a capital infusion from Treasury.''
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 |
