JayB Posted June 20, 2007 Posted June 20, 2007 "Merrill set to sell $850m of Bear Stearns fund assets By Ben White and Saskia Scholtes in New York Published: June 20 2007 03:00 | Last updated: June 20 2007 03:00 A highly leveraged Bear Stearns hedge fund that made bad bets on the subprime mortgage market was on the brink of failure yesterday after Merrill Lynch rejected a proposed rescue plan and prepared to auction off $850m of the fund's assets that had been pledged as collateral for a Merrill loan. In addition to large losses for investors and lenders to the Bear Stearns fund, some analysts fear the fund's failure could accelerate losses in the subprime mortgage- backed securities market and perhaps also trigger a crisis of confidence in the wider market for complex structured finance securities. That in turn could lead to heavy selling and large losses for investors, including Wall Street banks that hold some debt instruments before they are packaged and sold to investors." http://www.ft.com/cms/s/3e687946-1eca-11dc-bc22-000b5df10621.html Quote
G-spotter Posted June 20, 2007 Posted June 20, 2007 Funny how Fawell was attackin' the tubbies but never said anything about A PINK CARE BEAR WITH THE RAINBOW PRIDE STOMACH!!! Quote
JayB Posted June 21, 2007 Author Posted June 21, 2007 Anyone notice that this story made it to the front-page of the WSJ today? Looks like someone may have escaped a mauling for now. "You guys better bail us out so that we never have to put this stuff up for sale in the open market and put a real price on this stuff, because if we do, everyone is gonna know that all of the securities made from sliced-and-diced sub-prime-neg-am-I/O-ARMs or their cousins that you've got in your portfolios are also absolute shit and are, much like the absolute shit sitting in our imploding hedge-fund, worth way less than face-value - which is what you've got written on your ledgers at the moment, which is the value you use to calculate your fees - and then things are going to get real ugly real fast." It'll be interesting to see how much the other investment banks with a stake in this business are willing to fork over to keep this under wraps, as that should be a rough indication of how widespread and severe these problems really are. "The high-stakes game of brinksmanship began early yesterday on Wall Street, and continued throughout the day. Bankers traded telephone calls, frenetically negotiating the fate of two hedge funds. All wanted to avoid a fire sale in the troubled mortgage-securities market, but at the same time, not get stuck with an exploding liability that could result in steep losses. The day ended with deals that appeared to have forestalled a meltdown. But questions remained about how successful they were and whether they had merely delayed the inevitable. As the morning unfolded, lenders to two hedge funds at a unit of Bear Stearns, the investment bank, tried to ascertain what they could expect if they auctioned off mortgage securities with a face value of up to $2 billion. The solicitations were hastily withdrawn when investors reacted with little enthusiasm. But by the end of the day, some of the less-risky securities did change hands. At the same time, several lenders, including JP Morgan Chase, Goldman Sachs and Bank of America, reached deals with Bear Stearns that forestalled a need to sell securities in the open market. It appeared that some lenders pulled back over concerns about the effect that a large liquidation would have on bond prices and investor confidence. While the securities involved represent a fraction of the market, a liquidation could have forced a bigger sell-off while setting a lower price." http://www.nytimes.com/2007/06/21/business/21bonds.html?hp "Junior subbrime-neg-am-I/O-option-ARM CDO tranches....mmmmmmm" Quote
JayB Posted June 21, 2007 Author Posted June 21, 2007 Thankfully they're keeping a tight lid on this story at the moment... "Bear Stearns Hedge Fund Woes Stir Worry Updated: 1 hour, 8 minutes ago NEW YORK - The uncertain fate of two Bear Stearns hedge funds which loaded up on mortgage-backed securities that are now souring has cast a sharp light on the fragility of the collateralized debt obligation market, a strategist warned. Collateralized debt obligations, known as CDOs, are structured finance products that bunch together a portfolio of bonds and other fixed-income asset into a new blended security. These securities are divided between senior and subordinated debt. In theory, any losses taken by the security are applied first to later classes of debt before earlier ones. However, there are mounting concerns that the deterioration of many subprime mortgage-backed securities is yet to be properly reflected in the CDOs that hold them, according to Peter Schiff, president of Euro Pacific Capital. This is because the value of CDOs is measured by a "marked to market" technique that pegs them to their value in the market, rather than their book value. Complicating the situation is the fact that CDOs containing mortgage-backed securities seldom trade, which can mean that their "marked to market" value does not reflect recent events. "As long as these CDO bonds stay off the market, as they universally have, asset managers have the luxury of 'marking them to market.'" Schiff wrote in a research note. "Not surprisingly, using this method the vast majority of these bonds are valued at par or greater," according to Schiff. He argued that if the bonds in the Bear Stearns Companies Inc. funds were auctioned on the open market, much weaker values would be plainly revealed. "This would force other hedge funds to similarly mark down the value of their holdings. Is it any wonder that Wall street is pulling out the stops to avoid such a catastrophe?," Schiff said. He further cautioned that the impact of hedge fund losses would be pale in contrast to the likely impact of an open market auction of subprime CDOs. "Their true weakness will finally reveal the abyss into which the housing market is about to plummet," he said." http://www.cnbc.com/id/19359041/for/cnbc/ Quote
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