Bear Stearns raises subprime exposure
Bear Stearns raises subprime exposure
By Ben White and Saskia Scholtes in New York and James Mackintosh in London
Copyright The Financial Times Limited 2007
Published: June 22 2007 21:09 | Last updated: June 23 2007 01:29
Bear Stearns raised its exposure to subprime mortgages on Friday, confirming it would extend $3.2bn (£1.6bn) in secured loans to one of its two in-house hedge funds suffering from bad subprime bets.
The announcement drove down shares in Bear and other investment banks, helping push the Standard & Poor’s 500-stock index down about 1.3 per cent.
The news came at the end of a week in which Bear struggled to satisfy creditors who have seized some of the funds’ assets.
Banks including Merrill Lynch, JPMorgan and Cantor Fitzgerald have sold some of the collateral. Under the terms of the loan, first reported by the Financial Times, Bear agreed to provide a $3.2bn credit line to its High-Grade Structured Credit Strategies Fund.
The loan did not address problems faced by the closely related but larger High-Grade Structured Credit Strategies Enhanced Leverage Fund, which borrowed at least $6bn from banks to make bets on the subprime market.
The enhanced leverage fund is down about 23 per cent this year to the end of April, according to people familiar with the matter. Bear is continuing to work with creditors to that fund.
The rescue package does not cover Barclays Bank, which is understood to have financed $200m-$300m of extra leverage for investors who wanted more gearing than Bear’s funds provided.
Barclays remains in negotiations with Bear, but market sources said it was likely to consider legal action.
Barclays said its loss was “not material” and declined to say more.
Sam Molinaro, Bear Stearns chief financial officer, said the bank was comfortable that the $3.2bn loan was over-collateralised by assets held by the fund.
However, he acknowledged that the value of those assets had declined significantly in recent weeks, making it unclear whether Bear could recoup the entire $3.2bn.
Bear Stearns shares fell 1.6 per cent to $143.45.
Joseph Mason, a professor at Drexel University in Philadelphia, said the outlook for subprime mortgages and securities based on them was bleak with defaults expected to increase with higher interest rates and lower house prices.
By Ben White and Saskia Scholtes in New York and James Mackintosh in London
Copyright The Financial Times Limited 2007
Published: June 22 2007 21:09 | Last updated: June 23 2007 01:29
Bear Stearns raised its exposure to subprime mortgages on Friday, confirming it would extend $3.2bn (£1.6bn) in secured loans to one of its two in-house hedge funds suffering from bad subprime bets.
The announcement drove down shares in Bear and other investment banks, helping push the Standard & Poor’s 500-stock index down about 1.3 per cent.
The news came at the end of a week in which Bear struggled to satisfy creditors who have seized some of the funds’ assets.
Banks including Merrill Lynch, JPMorgan and Cantor Fitzgerald have sold some of the collateral. Under the terms of the loan, first reported by the Financial Times, Bear agreed to provide a $3.2bn credit line to its High-Grade Structured Credit Strategies Fund.
The loan did not address problems faced by the closely related but larger High-Grade Structured Credit Strategies Enhanced Leverage Fund, which borrowed at least $6bn from banks to make bets on the subprime market.
The enhanced leverage fund is down about 23 per cent this year to the end of April, according to people familiar with the matter. Bear is continuing to work with creditors to that fund.
The rescue package does not cover Barclays Bank, which is understood to have financed $200m-$300m of extra leverage for investors who wanted more gearing than Bear’s funds provided.
Barclays remains in negotiations with Bear, but market sources said it was likely to consider legal action.
Barclays said its loss was “not material” and declined to say more.
Sam Molinaro, Bear Stearns chief financial officer, said the bank was comfortable that the $3.2bn loan was over-collateralised by assets held by the fund.
However, he acknowledged that the value of those assets had declined significantly in recent weeks, making it unclear whether Bear could recoup the entire $3.2bn.
Bear Stearns shares fell 1.6 per cent to $143.45.
Joseph Mason, a professor at Drexel University in Philadelphia, said the outlook for subprime mortgages and securities based on them was bleak with defaults expected to increase with higher interest rates and lower house prices.
posted by Carlos T Mock @ 10:45 AM
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