Bear Ponies Up, Sort Of

Its official. Bear is providing $1.6 billion to the High-Grade Structured Credit Fund and is not providing any financing to the “Enhanced Leveraged” Fund.

“By providing this secured financing facility we believe we have helped stabilize and reduce uncertainty in the marketplace,” Bear Stearns CEO James Cayne said in a statement. AP story

The second fund apparently has much lower levels of repurchase agreements outstanding, $1.2 billion, than the $7 billion number that was bandied about last week.

“We believe the repurchase agreements are adequately collateralized,” Cayne said.

No doubt there will be “no material adverse effect” on the Bear. The investors in the funds will lose money, not Bear. They traditionally stake out the funds in their alternative division to some degree, but the amount of money they have at risk in these vehicles is negligible. And it is doubtful they can get hurt holding overcollateralized securities.

Too, the leverage the fund took on was part of the marketing pitch when they ramped up the fund. That should not come as any surprise to people who invested. They got greedy.

But Bear really burned some of the people they do business with. No doubt fund of fund analysts around the Street are on the hot seat, and the Private Client group at Bear can’t be very pleased. And the Everquest deal was brazen as anything I have seen. Nice try guys.

Bear solidified their reputation as street fighters, but at what cost?

The swoon in Bear’s stock set off some takeover speculation that is likely a bit premature, although any lasting multiple compression could continue to power the rumor mill. Management owns a bit of stock but Private Capital Management and mutual fund shareholders at Putnam and Janus were the short-term losers here. No real damage was done there, however.

Somehow Cayne, Marin et al will probably come out of this episode just fine.

But some people on Wall Street screwed up big time.

Because they trusted them. And now they are wearing a barrel.

Bear Puts Bailout at $1.6 Billion
AP
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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. No position in securities mentioned

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