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Tuesday, June 07, 2011

Even Pimco Got Sick From Lehman's Kool-Aid

News summary by MFWire's editors

In 2008, what did the Reserve and Pimco [see [profile] have in common? Both firms saw funds suffer losses thanks to Lehman Brothers debt. Today the Wall Street Journal's Tom McGinty, Mary Pilon and Mike Spector report that the Newport Beach, California-based fixed income titan stands to lose $3.44 billion to $3.84 billion on Lehman debt it bought in years leading up the investment bank's collapse. The WSJ published the story thanks to new court filings in the bankruptcy proceedings.

Pimco boasted $1.2823 trillion in assets as of March 31, meaning the maximum estimated losses its AUM will suffer would be 0.299 percent.

Fundsters may be surprised only by the size of Pimco's painful Lehman bet. As far back as September 15, 2008, the day Lehman filed for bankruptcy protection, a report surfaced that Pimco star Bill Gross stood to lose on the news.

Pimco marked the bonds down substantially in September 2008 after Lehman went under. Yet with $4.2 billion (in face value) of Lehman debt still on its books, the size of Pimco's loss on Lehman is still TBD, as Pimco and other Lehman creditors fight over a liquidation plan. 

Edited by: Neil Anderson, Managing Editor

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