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Pimco, Goldman dropped from Fed's mortgage-bond purchase program

August 17, 2009 |  6:08 pm

The Federal Reserve Bank of New York plans to get along without the help of bond giant Pimco or Goldman Sachs Group as the central bank continues its massive purchases of mortgage-backed securities.

The New York Fed on Monday said it had "streamlined" its 8-month-old, $1.25-trillion program to buy mortgage bonds from four investment managers to two.

The bank is retaining Wellington Management Co. and BlackRock Inc., while Newport Beach-based Pimco (Pacific Investment Management Co.) and Goldman Sachs Asset Management will exit.

In a statement, the New York Fed said the changes were "not performance related."

Newyorkfed The bank said it had "anticipated that it would make adjustments to its use of external investment managers as it gained more experience with the program. . . . The New York Fed is committed to implementing its programs in the most efficient and cost effective manner possible."

But the bank didn’t indicate why Wellington and BlackRock won out over Pimco and Goldman, or whether the latter two wanted out for some reason.

A Goldman spokeswoman said the firm had no comment. A Pimco spokesman couldn’t be reached.

The mammoth purchase program is aimed at keeping a lid on mortgage rates by providing a constant source of demand for home-loan-backed bonds issued by Fannie Mae, Freddie Mac and Ginnie Mae.

Bloomberg News calculates that based on the contracts the Fed had with Pimco and Goldman, they each stood to earn $7.8 million in fees per quarter once the Fed’s holdings of bonds reached $1 trillion. The Fed has purchased $742 billion of mortgage bonds so far, according to Bloomberg’s tally.

Pimco in July surprised Wall Street by dropping out of the running for the Treasury’s program of partnering with private money managers to buy rotting mortgage bonds from banks.

Some critics of the Fed and Treasury purchase programs have questioned whether participating money managers could benefit from inside information that would give them an edge in managing assets of their other clients.

-- Tom Petruno

Photo: The Federal Reserve Bank of New York. Credit: The Fed