Bids Wanted at the Bear
Tradition dictates that hedge funds need to to build track records before they can attract significant assets.
Times have changed.
Bear Stearns Asset Management’s High-Grade Structured Credit Strategies Enhanced Leverage Fund is now infamous. Partially for its name, which is very long. And for its year-to-date losses, which are very large. You might not have heard of this particular vehicle, which is understandable given it is only 10 months old.
It is down 23% year-to-date through April, if you counting. Of course, that is subject to revision. The fund’s April performance figures had to be revised after Bear realized the 6.5% decline that they had fessed up to for April was actually closer to 20%.
The situation is so bleak that Bear Stearns’ asset management group is suspending redemptions at the onetime $642 million fund—meaning investors have no choice but to sit on their losses. And that’s got some hopping mad.
“At the end of the day, I’d like someone to be honest with me about what’s going on,” says one investor in the hedge fund, which bet heavily on bonds backed by subprime mortgages, or home loans to consumers with shaky credit histories. An investor in Europe, who didn’t want to be identified, says he’s been trying to get his money out of the hedge fund since February. Business Week
Sub-prime bodies are finally floating to the surface. UBS shuttered its Dillon Read Capital Management hedge fund in May after being caught in the maelstrom. And now this.
Of course, the upcoming Everquest IPO Bear had hoped to pawn off on the public will probably need to revise boiler plate in the prospectus. Not an easy task given that it was twenty one mind-numbing pages long.
The losses won’t likely dent Bear, although they probably have some skin in the game. But investors in the fund might want to lick their wounds and try to make up the losses elsewhere.
Because the Bear is trying to sell billions of dollars worth of mortgage-backed securities.
Bids wanted. Beer needed.
Bear Stearns’ Subprime Bath
Business Week
Bear Fund Is Facing Mortgage Losses
Wall Street Journal
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position in securities mentioned
Lehman Hitting on All Cylinders
Lehman Brothers (LEH-NYSE) earnings report yesterday did not disappoint. There is a feeding frenzy on Wall Street and Dick Fuld has staked out a seat at the table. It is hard to believe they almost went out of business nearly a decade ago due to a nasty case of Asian contagion, Russian defaults and the near Coup de Grace delivered by the good folks at Long Term Capital Management.
Lehman overcame the recent sub-prime fiasco by leaning on the other legs of the stool supporting the shop. Investment management revenue rose 30% y-t-y, debt and equity origination rose 87% and 60%, respectively. Taking management comments at face value, you can assume the sub-prime meltdown was a mere speed bump that should provide for easy comparisons in its fixed-income operations a year from now.
The health of their equities business is most impressive. And look for M&A activity, most likely outside of the U.S., to add to their equity and asset management segments in the future. Lehman is no longer a bond shop.
Fixed-income sales and trading, including bonds, currencies and credit derivatives, and debt-underwriting fees accounted for 44 percent of Lehman’s revenue in the second quarter, the smallest share since 2000. Only four years ago, that figure was 62 percent.
Lehman has become the largest broker of shares on the London Stock Exchange and third-biggest on U.S. bourses. Its team of U.S. equity-research analysts has ranked first in Institutional Investor magazine’s annual survey for four years. In 2003, Fuld made Lehman a bigger player in money management with the $3.2 billion purchase of Neuberger Berman Inc.
The Lehman Brothers of the 80’s and 90’s was a political snakepit. Dozens of big swingers left the internal bickering behind and later founded or strengthened firms such as Blackstone Group, Furman Selz and Evercore Partners. It was a brain drain.
Swiss Miss(step)
European’s have been making a mess of things in the America’s since the 16th Century. Cortez, Coronado, De Soto, Wuffli.
Wuffli?
OK, equating a botched experiment by a Swiss banker with the ruthless atrocities practiced by Spanish explorer’s might be politicaaly incorrect. But try consoling the scores of traders and analysts fired by UBS over the last few weeks. After years of producing more than $1 billion in profits annually for the bank, and making money every quarter for eight years, the team was unceremoniously booted from the firm after one bad month. Seems rather harsh to me. But that is life in the jungle.
And if you have been looking for casualties of the sub-prime debacle, your quest stops here:
The final straw came later in March, when Dillon Read joined the list of investors burned by bets on the U.S. mortgage market. The UBS account hemorrhaged as defaults surged on so- called subprime home loans to people with poor credit histories or high debt burdens, forcing Dillon Read to mark down the value of its mortgage bonds. The losses more than obliterated the account’s trading profits for January and February.
Costas said he immediately phoned John Fraser, chairman and CEO of UBS Global Asset Management, to report what happened, hopeful that UBS would tolerate a single month of losses after so many years of successful trading. Instead, Costas said UBS gave him two options: return the bank’s capital and stay in business managing the fund for outside investors; or let UBS take over its account at Dillon Read and cash out clients with their gains intact. He chose the latter.
``If this other plan doesn’t work I have to liquidate that portfolio,’’ Costas said. ``Funds don’t take well to liquidation.’’
Hedge Fund Loss Ensnares Wuffli With Debacle Reprising LTCM
Bloomberg
Playing Catch Up
Goldman Sachs is often a few chess moves ahead of the rest of the Street. They beat the Street to China and have planted their flag. Indeed, they are currently the only Wall Street bank allowed to manage deals in China, and actually rank third behind the Bank of China Ltd. and China Galaxy Securities co. Ltd., according to Bloomberg.
Everyone else is playing catch up. Hopefully Stephen Roach speaks passable Mandarin, if not perhaps Hilton Rogers can tutor him. After all, they will soon be neighbors.
By Cathy Chan
April 23 (Bloomberg)—Stephen Roach, the Morgan Stanley chief economist who predicts China will overtake the U.S. as the dominant economy within two decades, will become the firm’s Asia chairman, leading a push to arrange more takeovers and stock sales in the region.
Roach, 61, will take up his post in June and move to Hong Kong in September, Morgan Stanley said in an e-mailed statement. He replaces Alasdair Morrison, who retired this month.
A 25-year Morgan Stanley veteran, Roach in past years has repeatedly said the U.S. economy will stagnate, only to be proven wrong as expansion continued. Roach, who forecasts China may overtake the U.S. as the biggest contributor to global growth by 2025, cautioned on April 20 that failure to rein in lending and investment may derail the nation’s economic boom.
``China is at a critical juncture in its extraordinary development saga—needing to make the transition from an export- and investment-led growth dynamic to more of a consumer- led economy,’’ Roach said in an e-mailed response to questions.
``I am confident that China is up to this daunting challenge—but it will take both time and determination to pull it off.’’
Roach’s task in Asia will be to manage relationships with governments, companies and clients in the region, the release said. Hans Schuettler leads day-to-day operations as Asia Chief Executive Officer. Bloomberg
We are not sure if this is a promotion...but it gets the 61 year-old Roach out of John Mack’s hair. Out of sight, out of mind?
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
