Will Bear Stearns stay in tact very much longer? 28 days?
- 1 decade agoFavorite Answer
The Bear Stearns Companies, Inc. (NYSE: BSC) is the parent company of Bear, Stearns & Co. Inc., one of the largest global investment banks and securities trading and brokerage firms in the world. The main business areas, based on 2006 net revenue contribution, are: capital markets (equities, fixed income, investment banking; just under 80%), wealth management (under 10%) and global clearing services (12%).
On June 22, 2007, Bear Stearns pledged a collateralized loan of up to $3.2 billion to "bail out" one of its funds, the Bear Stearns High-Grade Structured Credit Fund, while negotiating with other banks to loan money against collateral to another fund, the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund. The funds were invested in thinly traded collateralized debt obligations found to be worth (that is, have a fair market value) less than the mark-to-model value that Bear had been reporting. Merrill Lynch seized $850 million worth of the underlying collateral but only was able to auction $100 million of them. The incident sparked concern of contagion as Bear Stearns may be forced to liquidate its CDOs, prompting a mark-down of similar assets in other portfolios. Richard A. Marin, a senior executive at Bear Stearns Asset Management responsible for the two hedge funds, was replaced on June 29 by Jeffrey B. Lane, a former Vice Chairman of rival investment bank, Lehman Brothers.
During the week of July 16, 2007, Bear Stearns disclosed that the two subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages (the funds' extreme leverage magnified their losses).
On August 1, 2007, investors in the two funds took action against Bear Stearns and its top management. The law firms of Jake Zamansky & Associates and Rich & Intelisano both filed arbitration claims with the National Association of Securities Dealers alleging that Bear Stearns misled investors about its exposure to the funds. This was the first legal action made against Bear Stearns, though there have been several others since then. Co-President Warren Spector was forced to resign on August 5, 2007, as a result of errant trades that led to the collapse of two hedge funds backed primarily by subprime loans. A September 20 report in the New York Times noted that Bear Stearns posted a 61 percent drop in net profits due to their hedge fund losses. With Samuel Molinaro's November 15 revelation that Bear Stearns were writing down a further $1.2 billion in mortgage-related securities and would face their first loss in 83 years, Standard & Poor's downgraded their credit rating from AA to A.
On March 10, 2008, Bear Stearns formally denied market rumors that it had developed cash liquidity problems. Yet, on March 14, 2008, the Associated Press reported that JPMorgan Chase, in conjunction with the Federal Reserve Bank of New York, would provide temporary funding because "Bear Stearns says its liquidity significantly deteriorated over the past day and the temporary funding will help it continue operating normally." The article further quoted Bear Stearns as indicating "there is no guarantee any permanent strategic alternatives will be successful." JPMorgan Chase will provide funding as necessary for up to 28 days and will also assist Bear Stearns in finding permanent financing.
Market reaction to the arrangement with JPMorgan Chase was negative with Bear Stearns stock trading up to 47% lower in active trading on NYSE leading some market observers to question whether Bear Stearns can remain an independent bank. Standard & Poor's lowered the counterparty risk rating of Bear Stearns three notches to "BBB" from "A" and warned that other cuts may be warranted. While S&P expected Bear Stearns will solve its funding problems, they warned, "...we consider it [the arrangement with JPMorgan Chase] a short term solution to a longer term issue that does not entirely affect Bear's confidence crisis
Yes they mightSource(s): whooo
- GoyoLv 61 decade ago
They're fine now, JP Morgan Chase just bailed them out.
- Anonymous1 decade ago
get out while you can.