Pimco Advisors LP, Vanguard Group Inc. and Franklin Advisers Inc. are among investment companies that may face losses of at least $86 billion after the collapse of Lehman Brothers Holdings Inc.
Mutual fund companies led by Newport Beach, Calif.-based Pacific Investment Management Co., manager of the world’s biggest bond fund, and Valley Forge, Pa.-based Vanguard, held more than $143 billion of Lehman bonds, according to data compiled by Bloomberg as of June 30.
Although bond investors will recover different amounts based on their ranking in Lehman’s capital structure, models of credit-default swaps usually assume that lenders will recoup 40 percent of their loans overall in a bankruptcy.
And investors might receive less than that, based on prices for Lehman’s senior bonds of as little as 35 cents on the dollar from price provider Trace.
“The losses look set to be widespread, hurting the public through their mutual and pension funds,” said Ciaran O’Hagan, a credit strategist at Societe Generale SA in Paris. “It’s clearly a disaster for public confidence.”
