PIMCO´s Gross opposes nationalization of C+BAC

Investment Outlook
Bill Gross | March 2009

http://www.pimco.com/LeftNav/Featur...ll+Gross+March+2009+Hairy+Lips+Sink+Ships.htm

Question: What do you think about nationalizing the banks?

Answer: I think Roubini, Dodd and Greenspan haven’t thought this one through. The U.S. isn’t Sweden, and not just because our blondes aren’t au naturel. Their successful approach revolved around a handful of banks but we have 7,500, as well as many S&Ls and credit unions, which would have to be flushed into government hands. Regulators are overwhelmed as it is, and if you thought Lehman Brothers was a mistake, just standby and see what nationalizing Citi or BofA would do. Our banks remain at the heart of domestic/global financial transactions and daily clearing, while those Scandinavian banks were not. PIMCO would not dispute the need to further capitalize systemically important banks via convertible bonds held by the government, which unfortunately dilute shareholders’ interests. To go further, however, and “haircut” senior debt or even existing preferred stock similar to that issued via the TARP would create an instability policymakers should not want to risk. In turn, forcing creditors to take haircuts would undermine other financial sectors such as insurance companies and credit unions. The goal of future policy should be to recapitalize lending institutions while maintaining the basic infrastructure of credit markets. Outright nationalization and haircutting of creditors will do just the opposite.

Question: Enough already about this still confusing crisis – how should I invest my own money?

Answer: I’d give you an invitation to our PIMCO client conference next month in Newport Beach if you weren’t so busy here in Washington. Its theme is titled “Evolution or Revolution – The Future of Investing.” No golf or vintage wines though – just cheeseburgers and interesting conversation. But come on out if you care. I’m sure we’ll stress our current theme of “shake hands with Uncle Sam” – buying agency mortgages, and other developing areas of government policy support in the credit markets. But we’ll talk about the future of stocks too, leveraging and deleveraging, globalization and deglobalization, and why safe secure income may be the most desirable investment in this evolving economic and financial crisis. Tell you what, Madame Congresswoman, if you can’t make it I’ll write it up in next month’s Investment Outlook.

 

I talk to PIMCO PMs on a regular basis at work. They own huge amounts of "circle of trust" financial preferreds in their portfolios. Interestingly, they are no longer adding to these positions (which they were mouthing off about just a couple of months ago), and are now underweight financials. Me thinks they are truly getting worried that the gummint will nationalize or force them to take some kind of haircut on these money-center bank preferreds. Any yes, Bill Gross is perpetually talking his book.

 

You are more likely to see a UFO piloted by Elvis Presley crash-land into the Loch Ness monster live on TV before you see Bill Gross ever suggested a solution that would involve bondholders in the financial companies losing a dime.