Bill Gross & Dan Fuss say new GSE deals need Treasury Support

August 25, 2008 by · Leave a Comment
Filed under: Industry News 

I agree with Bill Gross of Pimco (world’s largest bond manager), I would also need government for any deal that involved funding our two troubled government sponsored enterprise (GSE). I am surprise this actually made news, I thought we all knew this was “implied“. Enjoy.


Two of the biggest U.S. bond investors said they would get involved in a capital raising by Fannie Mae and Freddie Mac as long as the U.S. Treasury participates in the new deals.

But Bill Gross, chief investment officer at Pacific Investment Management Co., and Dan Fuss, vice chairman of Boston-based Loomis Sayles, disagree on what shape any deal with Treasury should take, according to separate interviews on Friday.

Gross would be drawn to a straight preferred stock offering similar to securities sold by Fannie Mae and Freddie Mac in raising capital this year and last, while Fuss wants an offering of convertible debentures.

“We would buy preferred stock subject to significant Treasury participation and an attractive yield,” Gross told Reuters by email.

Fuss, who helps oversee more than $100 billion in fixed-income securities at Loomis, has another idea.

Fuss told Reuters the troubled government-sponsored enterprises should raise $15 billion each in the form of 30-year convertible preferreds to build capital reserves.

The convertibles, which have characteristics of both a bond and a stock, would include a 5 percent coupon and a pre-set conversion price of around $6, Fuss said, given that Fannie Mae shares are now trading at $5.44 and Freddie Mac at $3.37.

“It is a long-term call on the common stock,” Fuss said. “Without such a plan like this, shareholders might get zero. You want zero or ongoing companies?” said Fuss, who owns Fannie Mae and Freddie Mac agency debt and preferred securities.

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