Tuesday, March 24, 2009

Pimco gets behind Geithner plan. And: Private Equity Welcomes Toxic-Assets Plan

I'm thinking they see a lot of money to be made.
From the New York Times' DealBook blog:

The Treasury’s plan to buy up banks’ toxic assets has been warmly greeted not only by the stock market but by the Private Equity Council.

Douglas Lowenstein, the president of the Washington-based lobby group, said in a statement that the council “commends the Obama administration for its creativity in taking on this challenge” and that it was “hopeful” that the plan would reopen the credit markets.

Private equity funds are sitting on billions of dollars waiting to be deployed. But most of the funds have held off from making major investments during the current financial crisis as leverage, the life blood of the industry, has been in short supply.

Leverage, which generally means using borrowed money to increase one’s buying power, is a critical component of the Treasury’s plan, because it allows the government to parlay less than $100 billion in federal funds into $500 billion in purchasing power.

The government will require the investment firms it is working with to put up a fraction of the equity necessary to buy the distressed assets, effectively extending credit to the group — something the big banks used to do before the credit crisis began to take hold in 2007....MORE

From Dealscape:

Pimco co-founder Bill Gross is jumping on board with Tim Geithner's public-private toxic asset plan, giving the Treasury Secretary a big endorsement from the world's largest bond fund.

The co-chief investment officer of Pimco told Reuters that "from Pimco's perspective, we are intrigued by the potential double-digit returns as well as the opportunity to share them with not only clients but the American taxpayer," Gross said. "This is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically."

While the participation of the giant bond fund is likely to help draw more investors from the private sector into the process, the ringing endorsement from Gross may be used by critics of the plan as evidence that it is just another government giveaway to Wall Street as well....MORE