Why would <PERSON> be afraid of the <PERSON>? Well, it's a Balrog. It's a fearful thing. :)
More seriously, though, the <PERSON> were terrifying beings, even for <PERSON> and others of his level of power. The <PERSON> are Maia as well, just as <PERSON> and the rest of the Istari are. See here from the Valaquenta, the second book of the Silmarillion:
For of the Maiar many were drawn to his splendour in the days of his greatness, and remained in that allegiance down into his darkness; and others he corrupted afterwards to his service with lies and treacherous gifts. Dreadful among these spirits were the <PERSON>, the scourges of fire that in Middle-earth were called the Balrogs, demons of terror.
Not only are Balrogs on the same scale as <PERSON>, they were beings of terror and fire to begin with, while <PERSON>, for all his power, wasn't a warrior. He is described as "<PERSON> Maiar", and as a servant of <PERSON>, and of <PERSON>, and of <PERSON>, the Valar of wisdom and judgement and mercy and dreams, and not of <PERSON> or <PERSON>, the more warlike Valar.
Additionally, you have to remember that in <PERSON>'s cosmology, older is always better. 247
The world is always in a state of decay. The wonders of the Valar when the world was new could never be exceeded even by the greatest works of the elves in the First Age. Even <PERSON>'s Silmarils were but an echo of the light of the trees. Likewise, the hands of Man of the Third Age could never produce works as fine as the <PERSON> of Eregion in the Second Age, and certainly not of the works of <PERSON> himself.
So keeping that in mind, we remember that the Balrogs were the Captains of <PERSON> during the wars of the First Age. It took all the might of <PERSON>, Lord of the Fountain and one of the greatest captains of Gondolin and elvendom to defeat <PERSON>, lord of the Balrogs, and he took him with him to his death.
So when <PERSON> heard that a Balrog still lurks in the depth of Moria, of course he would be afraid. A Balrog is a terror of the First Age. And something that was a threat in the First Age would be an unstoppable terror in the Third. 381