Merrill’s Guy: Step Up Bear

Guy Moszkowkski has covered financials as long anyone on the Street. He hangs his hat at Merrill these days, and predictably is taking Merrill’s side in the ongoing shitshow that is subprime paper.

Bear stepped up for one fund but left investors in the other on the hook. With Rich Marin declaring victory and moving on, one can only wonder if the Bear plans on writing another check to the Street.

I kinda doubt it.

But Guy is looking for a check. Is it in the mail?

Investors ``can’t rule out’’ the chance that Bear Stearns will ``stump up even more for a similar, more-leveraged, fund,’’ Moszkowski, who rates the firm a ``buy,’’ wrote in a note to clients today. He estimated that the second fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund, owes about $7 billion to its financiers. Bloomberg

The stock market is getting hairy. There has been a bid under the market that feels like it will be pulled.

And if Bear thinks they can just flip the Street a middle finger and walk away, well they are sadly mistaken according to Guy:

``Investor and lender expectations are different for a fund managed by a large securities firm rather than a stand-alone hedge fund manager,’’ he said in the note. ``Whether legally remote from the parent company or not, a fund managed by a large securities firm would generally not be expected to be allowed to go belly-up.’’

He goes on to intimate that the episode could ultimately cost Bear the franchise. Might Bear be snapped up? Their assets might go up and down on the elevator everyday, but he thinks they could still fetch two times book.

``If the firm is not able to resolve its position without a meaningful loss, we think likelihood of a sale rises materially,’’ Moszkowski wrote in a separate note on Friday. He estimated that a buyer probably would pay at least $185 per share, or twice the firm’s book value.

Their fancy headquarters in midtown are worth something. More than their formerly good name, which is now synonymous with subprime slime.

In fact, they are starting to backpedal. They must have punched up their stock price today and decided that putting capital at risk was a bad idea.

Forget about $3.2 billion, how does a billion six sound?

Bear Stearns Cos. may put up only $1.6 billion to rescue one of its money-losing hedge funds, half as much as it offered last week, according to two people with knowledge of the situation.

The size of the bailout dropped after the Bear Stearns High- Grade Structured Credit Fund found buyers for some assets and creditors sold others, said the people, who declined to be identified because they aren’t authorized to comment for the firm. Bear Stearns, the biggest U.S. broker to hedge funds, said June 22 it would assume $3.2 billion of loans to prevent lenders from liquidating assets.

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Bear May Have to Save Second Hedge Fund, Merrill says
Bloomberg

Bear May Put Up Less to Rescue Hedge Fund
Bloomberg
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