Monday, June 18, 2007

Mortgages Give Wall St. New Worries / Margin Call For Bear Stearns´ Hedge Fund

the Bear Stearns saga continues.......nice to see that the leverage was only 10:1.......with more and more Asset Backed Financing also in the corporate financing we will see more of this down the road.....

Die Bear Stearns Saga geht in eine neue Runde.....nett zu sehen das der Hebel nur bei 10:1 lag.....da das Vehikel der ABS Finanzierung vermehrt an Fahrt gewinnt dürften wir in den nächsten Jahren noch genügend verglecihbares erleben.

After the first cracks in the subprime mortgage business appeared late last year, several large lenders were forced into bankruptcy


Now, the stress is sending tremors down Wall Street, as investment funds that bought a stake in those loans are starting to wobble.
Industry officials say they expect this second act to be longer and slower, unwinding over the next 12 to 18 months. The fallout could further constrict consumers with weak, or subprime, credit while helping to prolong the housing downturn.

On Wall Street, the impact could be far more significant: It could force banks, hedge funds and pension funds to acknowledge substantial losses, which had been tucked away in complex investment vehicles that are hard to evaluate. In turn, that could limit the money available for mortgage lending.
Yesterday, two hedge funds operated by a division of Bear Stearns, an investment bank that is a dominant player in mortgage bonds, fought for their survival as three lenders — Merrill Lynch, Citigroup and JPMorgan Chase — asked Bear Stearns to put up more capital.

The funds appeared to have won a reprieve after executives at Bear Stearns Asset Management told creditors that they had lined up $500 million in new capital from a consortium led by Citigroup and Barclays, the British bank, according to a person who had been briefed but was not authorized to speak publicly. Last week, the fund sold about $3.6 billion in high-grade securities backed by subprime mortgages.
The leveraged fund, which had raised $600 million in investments when it was started 10 months ago, leveraged itself, or borrowed, about $6 billion from numerous Wall Street banks and brokerage houses. When losses began mounting this spring, some investors stepped forward to redeem their money. In May, the fund stopped allowing redemptions......

The riskiest portions of mortgage bonds — which also hold the promise of higher returns — are held by a small group of investors. The biggest holders of that risk are investment funds known as collateralized debt obligations, or C.D.O.’s.

The holdings of these funds, which are once or twice removed from the underlying loans, are often hard to value because it is often unclear what portion of a bond they may own.....





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2 Comments:

Anonymous Bruce Sansom said...

Back in 1929 the banks, brokers and investment trusts operated leveraged funds under the radar. Eventually the house collapsed giving birth to the SEC. Today's hedge funds and private equity firms are back doing many of the same things. Where the hell is the SEC??? All of these schemes are blatant attacks upon the interests of legitimate investors. It will end in tragedy to us all. Bruce Sansom, a Canadian portfolio manager with a long memory!

6:12 PM  
Blogger jmf said...

Hello Bruce,

i agree 100%. same with the mortgage mess....

now the FED and other regulators are introducing new rules etc

just in time when there is nothing more to safe.....

7:57 AM  

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