Gross Sparks Media Flurry, Debt Changes at GE
By RAJIV VYAS
Even media savvy Bill Gross said he was taken aback at the flurry sparked by his comments about General Electric Co. last month.
A commentator on one news channel called the bond manager at Newport Beach-based Pacific Investment Management Co. the financial world’s equivalent of Britney Spears.
Another described Gross as a knockoff of Joseph McCarthy. “Bond geek,” as another media outlet put it, seemed polite by comparison.
The backlash was in response to a March column by Gross on PIMCO’s Web site. In it, Gross took issue with GE Capital’s short-term debt, which he contends is out of whack with the finance arm’s bank lines.
“Normally companies which borrow in the (commercial paper) market are required to have bank lines at least equal to their commercial paper, but GE Capital has been allowed to accumulate $50 billion of unbacked CP because of the lack of market discipline,” Gross wrote.
PIMCO, which manages more than $250 billion in bond funds, sold most of its GE commercial paper and bonds because Gross said he felt that GE had too much debt and wasn’t upfront with investors. PIMCO at one point had $1 billion in GE debt.
Gross also took GE to task for its fabled growth, which he contends is due more to acquisitions financed by stock and borrowing than “the brilliance of management or the diversity of their operations.”
The response to Gross’ barbs at the world’s most valuable company was swift. GE executives took to the media to defend their company’s debt and growth prospects.
“GE has all the financial resources necessary to achieve the growth objectives it has laid out for investors,” Chief Financial Officer Keith Sherin said.
BusinessWeek and other publications took in-depth looks at Gross’ comments. After the initial news broke, though, commentators and analysts on AOL Time Warner Inc.’s CNN and GE’s own CNBC went after Gross.
Of all the name calling, Gross said he prefers “bond geek” in his April column on PIMCO’s Web site.
“I guess I’ll be the bond geek, except geekiness implies a certain level of intelligence that I’ve never really possessed,” he wrote. “Mensa is beyond my reach I’m afraid, especially at 57 after having lost half of my brain cells. So I guess I’ll just be a bond guy, go home at 5 p.m., kiss my wife hello, and write Investment Outlooks at night that sometimes express an opinion or two.”
Gross is no stranger to media attention. Dubbed the “Baron of Bonds” by Barron’s, Gross is oft-quoted in newspapers, magazines and nightly business shows. His monthly “Investment Outlook” on PIMCO’s site has a big following.
For all the uproar sparked by Gross’ comments about GE, they did have an impact. Last week, GE Capital said it plans to trim its commercial paper holdings to around $80 billion by year’s end, down from about $100 billion now.
GE also plans to up the percentage of its commercial paper backed by bank lines from 34% as of last month to around 65% by December.
And Goldman Sachs Group Inc. recently turned down a GE request for as much as $1 billion in credit.
GE’s Sherin said in published reports that the company is trying to rebalance its portfolio with more long-term debt.
“At first people were skeptical of Bill’s concerns,” said Mark Porterfield, a PIMCO spokesman. “This is not just about a GE problem. It’s a problem that threads throughout corporate America,GE was merely the lightening rod that took his wrath.”
In his latest column, Gross sounded humbled by the experience.
“Sure these (columns) are well thought out, and yes, there is a certain amount of responsibility that goes with my treasured station in the financial world, but Britney Spears? Nah, this stuff’s just printed on paper, not gold leaf,” Gross wrote. “I do thank you though for being interested enough to peruse these monthlies. What’s an actor without an audience; what’s an author without a reader? I’m a lucky guy for having you. Still, I hope you know that I put my pants on one leg at a time just like everybody else.”
