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Pimco and Goldman Sachs exit Federal Reserve mortgage bond program

August 18, 2009|Tom Petruno

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.

Saying the changes were "not performance related," the bank said it was retaining Wellington Management Co. and BlackRock Inc.

Newport Beach-based Pacific Investment Management Co. and Goldman Sachs Asset Management will exit.

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."

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 Pimco and Goldman 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 money managers to buy rotting mortgage bonds from banks.

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tom.petruno@latimes.com

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