Fund Manager Sees $1 Trillion in Write-Downs

Chicago Tribune (07/25/08)
Bill Gross--manager of PIMCO Total Return, the biggest bond fund in the world--expects $1 trillion in write-downs by financial firms as a result of the U.S. mortgage crisis. Given that about $468 billion in write-downs and losses have been posted so far by such firms as Citigroup Inc., UBS AG and Merrill Lynch & Co., observers note that losses have not yet reached the halfway mark. According to Gross, "The problem with writing off $1 trillion from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth." He believes the $300 billion housing bill approved by the House would bolster the markets but not the government's rescue plan for the government-sponsored enterprises, as they already have begun to shrink their balance sheets.