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Gross: Bank Bonds a Screaming Buy

By    |   Tuesday, 28 Oct 2008 08:35 AM

What to do when the government invests in banks throughout the land? Join them, says bond fund manager Bill Gross.

Bonds for commercial banks included in the Treasury’s equity-purchase program are particularly attractive, says Gross, chief investment officer of bond giant Pimco.

KeyCorp, Ohio’s third-largest bank, and Regions Financial, Alabama’s biggest bank, are members of that club. KeyCorp will sell $2.5 billion of stock to the Treasury, while Regions will provide a $3.5 billion equity position.

After doling out $125 billion to nine of the nation’s biggest banks, the Treasury is now sending $34 billion more to 15 regional banks.

“We like the ones that are submitting applications,” Gross told Bloomberg TV. “The government is investing 10 to 15 percent of the banks’ total capital themselves into the company. So why not be a partner with the government at a higher yield than the government is giving?”

“It’s a slam dunk,” Gross says.

KeyCorp’s 10-year note due in 2011 carries a yield about 4.5 percentage points more than similar Treasury notes.

Other regional banks that have sold preferred shares to the government include SunTrust, Capital One, and PNC.

Most of the 15 regional banks in the Treasury program have solid balance sheets. Some have criticized the government for choosing winners and losers, Bob Meara, senior analyst at research firm Celent, tells USA Today.

“However, providing liquidity bolsters confidence in the U.S. banking system,” Meara says

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What to do when the government invests in banks throughout the land? Join them, says bond fund manager Bill Gross.Bonds for commercial banks included in the Treasury’s equity-purchase program are particularly attractive, says Gross, chief investment officer of bond giant...
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Tuesday, 28 Oct 2008 08:35 AM
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