BS losing another fund?

Discussion in 'Wall St. News' started by Eliot Hosewater, Jul 31, 2007.

  1. http://www.bloomberg.com/apps/news?pid=20601087&sid=aBuz_1cIZ_EQ&refer=home

    July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back.

    The Bear Stearns Asset-Backed Securities Fund had about $900 million invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said today in a telephone interview. The fund was overwhelmed by redemption requests, Sherman said.

    The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds. Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.

    ``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.

    Bear Stearns shares have dropped more than 25 percent this year on concern that the drop in subprime securities will hurt its income. The firm was the largest underwriter of U.S. mortgage bonds in the past two years, ceding the title to rival Lehman Brothers Holdings Inc. this year. Lehman shares have dropped 21 percent.

    Being `Prudent'

    Bear Stearns has no plans to close the fund, which has $50 million in cash and gets about $13 million in principal and interest monthly, Sherman said. By suspending redemptions, the fund managers can avoid selling assets at depressed prices.

    The Wall Street Journal earlier reported that the fund was up 5 percent this year through June, before its performance plummeted in July.

    The fund's managers can wait until the decline in mortgage securities is over because it owes no money, Sherman said.

    ``We don't believe it's prudent or in the interests of our investors to sell assets in this current environment,'' Sherman said. ``The fund portfolio is well positioned to wait out the market uncertainty.''

    The two previous funds, the Bear Stearns High-Grade Structured Credit Strategies fund and the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage fund both filed for bankruptcy protection in the Cayman Islands today.

    `Unprecedented Declines'

    The funds collapsed last month when creditors asked for more collateral after the value of its securities dropped. Bear Stearns extended $1.6 billion in credit to one of the funds before seizing its assets last week.

    Bear Stearns told investors two weeks ago that they will get little if any money back after ``unprecedented declines'' in the value of securities used to bet on subprime mortgages. Bear Stearns has said it expects to lose no money on its loan.

    Late payments on subprime home loans nationwide rose in the first quarter to the highest level since 2002, the Mortgage Bankers Association has reported. At least 60 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, according to Bloomberg data.

    The ABX index that tracks derivatives linked to subprime mortgage securities with the highest investment-grade ratings, created in the second half of 2006, has fallen by more than 6 percent last month. An ABX index tracking subprime debt with the lowest investment-grade ratings has declined 30 percent.

    A fund run by Macquarie, Australia's largest securities firm, said that investors in two of its high-yield funds may lose as much as 25 percent of their money because of declining asset prices in the U.S. subprime mortgage market.
     
  2. there is a similar thread talking about the same thing. check out the comments there.