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PIMCO To Buy Billions In European Toxic Debt

Tyler Durden's picture


Earlier today we were surprised when none other than uber central-planning skeptic, not to mention bond fund manager, Bill Gross threw in the towel and in his latest letter advocated the purchase of risk assets - and Bill Gross is the last person needing reminding that in a day and age when the 10 Year yields just barely over 2.5%, this means not bonds but stocks. The surprise, however, promptly disappeared when we realized that PIMCO is merely the  latest entrant in the scramble for yield game following, with a substantial delay to all of its other "alternative" asset management peers, right into ground zero: European toxic debt.

WSJ reports that Pimco quietly has raised $5.5 billion to buy bank assets in the U.S. and Europe and has closed the fund to new investors, according to a person familiar with the fundraising. The Bank Recapitalization and Value Opportunities II fund, or Bravo II, is being led by deputy chief investment officer Dan Ivascyn and will target a range of unwanted assets on the balance sheets of banks, including residential and commercial real-estate assets.

In other words: toxic, non-performing debt, which is something Europe's bank certainly have a lot of. How much? Recall that it was the IMF itself which said in October of 2012 that European banks needs to sell $4.5 trillion in assets until 2014Naturally, they are way behind schedule, which means vulture investors will have a buyer's market in setting the price as banks have crossed the desperation point in finding buyers.

But it's toxic debt? How are non-performing loans, on which the obligor has most likely defaulted several times over, a good investment under any price? Well, the hope here, of course, is that as those tens of millions of unemployed workers find their way back into the work force, that the debt will be "worked out" and that recoveries on the said debt will make the purchase at deep distressed levels profitable.

WSJ adds:

Investors are lining up to snap up the unwanted loan portfolios and real-estate assets. Many of the targets lie in Europe, where banks have been busy shrinking their balance sheets primarily to meet stricter capital requirements.

The good news is that PIMCO will not have difficult finding willing sellers of such debt:

Last month, The Wall Street Journal reported that two of Italy's biggest banks, Intesa Sanpaolo and UniCredit were in talks with U.S. private-equity firm KKR regarding the sale of some of their restructured loans.


Commerzbank said in February that it had sold €710 million of Spanish commercial real-estate loans to investors. In the U.K. late last year, the Royal Bank of Scotland sold its first portfolio of U.K. commercial property assets to hedge fund Varde Partners, and in August, Spain's 'bad bank'—set up to house assets from the country's bailed out banks—sold its first real-estate assets to private equity group HIG.

Why is PIMCO doing this? Simple - following consecutive months of outflows, even the biggest bond manager in the world has finally "yielded" to the chase for yield, or as we described it last May - FOMO, aka Fear of Missing Out.

Pimco's new Chief Executive Douglas Hodge told Financial News last month that he wants to broaden the firm's equity expertise, including backing the hiring of teams by equity chief Virginie Maisonneuve. The firm offers products in derivatives, multi-asset, real estate, private equity, real return and emerging markets, but is still 90% exposed to fixed income

So as PIMCO too joins the great flood of one time skeptics who dare not look at themselves in the mirror and are willing to blindly follow the herd, one wonders: just how much more incremental dollars are out there left to chase assets that others are already selling. Because readers certainly remember that while algos, retail and momo speculators, not to mention TV pundit that invest with monopoly money, are rushing into the parabolic blow off top phase of the market, the smart money can't wait to get out, and its advice as of last August was simple: "sell now."

They can now also count PIMCO among the FOMO buyers.

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Tue, 03/04/2014 - 17:47 | 4509137 LawsofPhysics
LawsofPhysics's picture

So, it would appear that the path to success really is becoming too big to fail. Good luck with that.  One simple question, who will be insuring all of these "investments".  Where have I seen this before...

Tue, 03/04/2014 - 17:50 | 4509167 TruthInSunshine
TruthInSunshine's picture

I will be honest - lest I risk hypocrisy: Buying PIIGS bonds may be a rational play given alternate asset class returns, lest one truly believes that Germany & the relatively few solvent EU members will let the EU fall apart (and I once tended towards that line of thought, but lately...not so much).

Tue, 03/04/2014 - 17:51 | 4509176 wintermute
wintermute's picture

PIMCO the new AIG?

No wonder El-Erian has jumped ship.

Tue, 03/04/2014 - 17:52 | 4509186 fonestar
fonestar's picture

"Gross Toxic Assets"

fonestar will buy that for a satoshi!

Tue, 03/04/2014 - 17:54 | 4509199 HyBrasilian
HyBrasilian's picture

Satoshi = 'TOXIC SUSHI" [like Bill Gross will be eating in Newport Beach for the next 'rest of his life']...

Tue, 03/04/2014 - 18:02 | 4509238 fonestar
fonestar's picture

Satoshi and fonestar will be eating Beluga.

Tue, 03/04/2014 - 18:15 | 4509299 HyBrasilian
HyBrasilian's picture

You'd better TRY & buy it now then Poindexter... It's your last chance...

Tue, 03/04/2014 - 18:19 | 4509310 mvsjcl
mvsjcl's picture

He (Gross) received his marching orders from the money masters, and will comply.

Tue, 03/04/2014 - 18:20 | 4509326 0b1knob
0b1knob's picture

Wasn't it toxic Euro debt that sank MF Global?

Tue, 03/04/2014 - 18:29 | 4509366 emersonreturn
emersonreturn's picture

bill gross looks like he has cancer.  

Tue, 03/04/2014 - 18:40 | 4509419 max2205
max2205's picture

Bill is running the Dallas Buyers Club

Tue, 03/04/2014 - 18:53 | 4509454 y3maxx
y3maxx's picture

...What does the NSA have on Bill Gross that would make him switch to the Darkside?

Tue, 03/04/2014 - 19:33 | 4509522 Supernova Born
Supernova Born's picture

Bulging cans of opportunity must be consumed.

Wed, 03/05/2014 - 02:09 | 4510725 Four chan
Four chan's picture

el erian is gonna look like a genius, because this is why he split.

Tue, 03/04/2014 - 18:55 | 4509456 fockewulf190
fockewulf190's picture

He´d be better off buying about $2 billion worth of physical silver.  He would be talked  about for hundeds of years.

Tue, 03/04/2014 - 19:31 | 4509580 pitz
pitz's picture

How many people even remember the Hunt Brothers today? 

Tue, 03/04/2014 - 18:55 | 4509461 jbvtme
jbvtme's picture

apparently, billy passed on the nail guns...

Tue, 03/04/2014 - 19:05 | 4509503 Cacete de Ouro
Cacete de Ouro's picture

Uncanny resemblance to Little Bill in Boogie Nights

aka William H Macy


Tue, 03/04/2014 - 19:04 | 4509498 Not Too Important
Not Too Important's picture

"He (Gross) received his marching orders from the money masters, and will comply."

He works for Deutsche Bank. He hasn't been independent for years. Of course he'll do what he's told.

He's not in a position to 'moral up' and return investor monies. He'll simply become a prop division of DB and retire in comfort.


Tue, 03/04/2014 - 18:18 | 4509319 SafelyGraze
SafelyGraze's picture

if equities are overpriced and bonds have no yield, there is simply nowhere to turn

oh shit

not fonestar again


Tue, 03/04/2014 - 19:09 | 4509518 nmewn
nmewn's picture

Digital money to play around with digital debt, whats not to love? ;-)

Fire up da puter Mr.Yellen, we're takin this out a whole new door!!!

Tue, 03/04/2014 - 18:17 | 4509314 Overfed
Overfed's picture


Tue, 03/04/2014 - 18:21 | 4509329 fonzannoon
fonzannoon's picture

"Well, the hope here, of course, is that as those tens of millions of unemployed workers find their way back into the work force, that the debt will be "worked out"


I would have thought the hope here would be that the ECB takes it off their hands, kind of like the fed did with MBS, helping him make a killing....

Tue, 03/04/2014 - 21:04 | 4509944 Clever Name
Clever Name's picture

I agree, but I doubt he's relying on 'hope'. I assume he knows something, or just plans on using the 'investors' money as backstop for other purposes?

Given that hes "closed the fund to new investors", one assumes that these investors are big players, would that mean this ploy isnt trying to rope the little guy into it? I dont know what to believe anymore, but this guy is a 1%er, so he must be right. Right?

Tue, 03/04/2014 - 17:58 | 4509196 ZerOhead
ZerOhead's picture

$50 bucks says that Gross probably bought a couple of billion dollars worth of Pimco put options in an offshore account...

Tue, 03/04/2014 - 17:58 | 4509214 LawsofPhysics
LawsofPhysics's picture

Oh do tell, if true, then that's something I can trade.  Got a source or something?

Tue, 03/04/2014 - 18:42 | 4509423 max2205
max2205's picture

He knows GYELLEN will print a stealth bailout for the EU...Wait and watcb

Tue, 03/04/2014 - 19:06 | 4509505 Not Too Important
Not Too Important's picture

What do you mean 'will'? She already has. It's never stopped, since '07.

Well, it does go back further . . .

Tue, 03/04/2014 - 18:50 | 4509443 ZerOhead
ZerOhead's picture

Nah... just a silly hunch.

Otherwise it could only be explained by a very large brain tumor...

Tue, 03/04/2014 - 18:25 | 4509352 AC_Doctor
AC_Doctor's picture

Bill is losing it now that EL ERIAN isn't around to wipe his ass and give him a reach around!

Tue, 03/04/2014 - 18:13 | 4509293 elwind45
elwind45's picture

EL ERIAN went to Basel

Tue, 03/04/2014 - 18:03 | 4509244 rubiconsolutions
rubiconsolutions's picture

"I'll gladly pay you Tuesday for a hamburger today" - J. Wellington Wimpy

Tue, 03/04/2014 - 18:23 | 4509345 Ioannis
Ioannis's picture

When the world learns about Fukushimas effects on the US, Europe will seem a lot more desireable...

Tue, 03/04/2014 - 19:06 | 4509509 Not Too Important
Not Too Important's picture

They're no more than 2-3 years behind. Now, the Southern Hemisphere maybe . . .

Tue, 03/04/2014 - 18:01 | 4509229 ZH Snob
ZH Snob's picture

what else can he do, admit that all stocks and bonds are a fool's game at this point?  that they are all fixed and equally bound for the financial junkyard? 

Tue, 03/04/2014 - 23:19 | 4510355 TheReplacement
TheReplacement's picture

He could probably afford to quit playing the game and retire.  I've always wondered why rich old men work until they die.  What would be the point of living simply to accumulate more and more just to buy the farm and leave it all behind?  Very strange and sad really.

Wed, 03/05/2014 - 06:32 | 4510963 Wahooo
Wahooo's picture

Gross says he buys what the Fed is buying. This is not good.

Tue, 03/04/2014 - 18:05 | 4509260 kita27
kita27's picture

He looks like Fredo from the Godfather part 2.

Tue, 03/04/2014 - 18:37 | 4509407 kurt
kurt's picture

he's smart

Tue, 03/04/2014 - 19:40 | 4509606 Supernova Born
Supernova Born's picture

Fredo goes fishing smart.

Wed, 03/05/2014 - 02:12 | 4510729 Four chan
Four chan's picture

lol now that was funny!

Tue, 03/04/2014 - 20:33 | 4509864 Berspankme
Berspankme's picture

Is it me or does this guy have an enormous head

Tue, 03/04/2014 - 17:44 | 4509139 ebworthen
ebworthen's picture

Does Bill Gross think that mustache makes him look younger?

Ack!  Makes him look like an Australian pedophile.

Tue, 03/04/2014 - 18:05 | 4509252 TruthInSunshine
TruthInSunshine's picture

If The Village People were still together, Bill Gross would be singing YMCA.

Because gay mustache & female hormone treatments..

Tue, 03/04/2014 - 18:36 | 4509401 kurt
kurt's picture

philatest mate

Tue, 03/04/2014 - 17:43 | 4509140 NOTW777
NOTW777's picture

why not buy VIPS and YY and PCLN and CANN

Tue, 03/04/2014 - 17:44 | 4509142 yogibear
yogibear's picture

So who's backing Gross up? Gross is usually the middleman.

Tue, 03/04/2014 - 17:54 | 4509165 Rainman
Rainman's picture

I'm sure CalPers is in there somewhere. They got a nose for shitty deals. And they needs to hit a 7.5 yield forever.

Tue, 03/04/2014 - 18:06 | 4509263 KickIce
KickIce's picture

Janet, and there's got to be some serious strong-arming going on to make a company shift gears like this,

Tue, 03/04/2014 - 20:48 | 4509901 Spigot
Spigot's picture

Purely a national disintegration play: buy discounted bonds and sell them at face value to the FED.

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