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U.S. picks managers to buy toxic assets; Pimco opts out

July 8, 2009 |  2:13 pm

The Treasury today picked nine money managers to launch its program to buy rotting mortgage-backed securities from banks.

One big surprise: Newport Beach-based bond giant Pimco isn’t on the list. The firm said it withdrew its application last month, after initially cheering the program.

The nine firms are: AllianceBernstein (and partners Greenfield Partners and Rialto Capital Management); Angelo Gordon & Co. (and partner GE Capital Real Estate); BlackRock Inc.; Invesco Ltd.; Marathon Asset Management; Oaktree Capital Management; RLJ Western Asset Management; TCW Group; and Wellington Management Co.

Oaktree is an L.A.-based firm famous for investing in "distressed" assets. RLJ Western Asset is a joint venture between Robert L. Johnson, the financier who founded Black Entertainment Television, and Pasadena-based bond manager Western Asset; TCW Group, a big investor in mortgage-backed securities, is the parent of Trust Co. of the West in L.A.

The Treasury said it would allocate up to $30 billion in government funds for the program, known as the Public-Private Investment Program, or PPIP. Each of the managers must raise at least $500 million in capital from private investors. Combining Treasury and private capital -- as well as government loans -- the firms then are expected to bid for troubled mortgage bonds, offering a way for banks to unload the securities.

Whether banks will want to sell, thereby locking in losses on the securities, still is a huge question. The Treasury acknowledged as much in its statement, noting that the program has been sharply scaled back from the original plan.

From the statement:

"Financial market conditions have improved since the early part of this year, and many financial institutions have raised substantial amounts of capital as a buffer against weaker than expected economic conditions. While utilization of legacy asset programs will depend on how actual economic and financial market conditions evolve, the programs are capable of being quickly expanded if these conditions deteriorate. Thus, while the programs will initially be modest in size, we are prepared to expand the amount of resources committed to these programs."

As for Pimco, the firm issued this statement about its decision to remove itself from consideration:

"As a result of uncertainties regarding the design and implementation of the program, PIMCO withdrew its application to serve as a manager for the PPIP in early June. PIMCO is participating in the TALF [Term Asset-Backed Securities Loan Facility] and other programs. We continue to believe that it is important for the public and private sectors to work together to resolve the financial crisis and improve the economic outlook."

A Pimco spokesman wouldn’t elaborate on which "uncertainties" about the program triggered its withdrawal.

Pimco bond guru Bill Gross lauded the PPIP when it was unveiled in March. "This is perhaps the first win-win-win policy to be put on the table," he said at the time. "We intend to participate and do our part to serve clients as well as promote economic recovery."

-- Tom Petruno