Not the most helpful denial of a story we’ve heard. CNBC reports, via Reuters, that an unnamed Pimco executive said that the tale that it had bought UBS’s entire portfolio of Alt-A securities was “an exaggeration.”
How exaggerated pray?
Entirely it seems. Pimco’s Mark Porterfield is quoted as denying the story outright to Dow Jones.
The rumour had Pimco buying about $20bn worth of securities from the beleaguered Swiss bank, at a hefty discount. The price mooted was 70 cents on the dollar.
Within UBS’s $26.6bn exposure to Alt-A, as revealed in its fourth quarter results, were two groups of assets. The AAA-rated, lower risk securities which totalled $21.2bn valued at about 96 cents and the riskier stuff, which UBS had exposure to $5.4bn in December, carried with a larger negative mark at about 80 cents. The bond investor could conceivably have been interested in picking up a portion, at the right, knock-down price.
Pimco has said that it would be on the look-out for cheap, quality assets amidst the market turmoil, such as highly rated CMBS, but founder Bill Gross has also been pretty disparaging of Alt-A backed securities.
While analysts at JPMorgan embraced the story that UBS had sold, calling it “highly likely”, their counterparts Dresdner Kleinwort thought it didn’t quite add up on the Pimco side.
Pimco had US$746bn of AuM at 12/07. UBS’s Alt-A book has a par value of ~US$31bn (E)*. 70% of this would be US$21.7bn. Pimco hinted lately at its interest to buy selective credit assets at deep discounts, but we would be surprised if Pimco would put 3% of its AuM into one single high-risk trade.
Realistically, Pimco’s bottom fishing would probably be much more gradual, stretched over time and involve assets in different underlyings and from different originators (not such UBS).
They add:
In our view, it makes more sense to assume that UBS is seen helping to liquidate Alt-A RMBS held by clients such as hedge fund Peleton. If this is what happens, then that would be rather bad news for UBS: it would hint at
exposure to a big hedge fund in liquidation, and more importantly, the liquidation of client assets would arguably put further pressure on the marks in UBS’ own books.