Merrill brokers try to push Pimco on auction-rate buyback

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Wall Street’s big investment houses are turning on each other in the ramped-up blame game over so-called auction-rate securities.

Bloomberg has an interesting story on a campaign by some Merrill Lynch & Co. brokers demanding that Newport Beach-based Pimco (Pacific Investment Management Co.) and BlackRock Inc. in New York buy back the auction-rate debt they used to fund some of their closed-end mutual funds.

If Pimco refuses, its executives may ‘no longer be welcome in our offices,’ a group of Merrill brokers told the firm, according to Bloomberg. Read the full story here.

New York Atty. Gen. Andrew Cuomo has succeded in forcing five big brokerages, including UBS and Citigroup, to commit to buying back auction-rate debt they sold to clients. Much of the debt was issued by municipalities and closed-end mutual funds, then marketed for sale by brokerages.

Thousands of investors have been stranded in auction-rate securities since February, when the credit crunch effectively shut down the market. Investors were told the securities were as liquid as money market investments, which turned out to be bogus.

Merrill Lynch has offered its own plan for a buyback, but Cuomo says it doesn’t go far enough. If fund companies like Pimco were to step up they could relieve some of the potential financial burden on Merrill.

Some closed-end mutual-fund managers, including Nuveen & Co., Eaton Vance Corp. and BlackRock, have announced buyback programs for at least some of their auction-rate debt.

Pimco has made no such move, which has annoyed some of its rivals -- and, now, some of the brokers who hawk its funds.

Pimco’s ongoing response has been that it’s ‘looking at solutions’ for the auction-rate problem. A spokesman said the firm had nothing to say about the Merrill brokers’ campaign.