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Wednesday, September 24, 2008
Treasury Will Make a Profit On Bailout: Pimco's Gross
Sam Mamudi
MarketWatch Pulse
NEW YORK -- Bill Gross, co-chief investment officer of bond manager Pimco, said he believes that the Treasury Department will eventually make a profit on its purchase of toxic assets from Wall Street banks. "I estimate the average price of distressed mortgages [that Treasury will buy]...will be 65 cents on the dollar," said Gross in Wednesday's Washington Post. "Financed at 3-4% via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7-8%," said Gross. He added, "My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that." Gross also said that proposals by Congressional Democrats to mandate forbearance on home mortgage foreclosures will be critical.
Copyright © 2008 MarketWatch, Inc.
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