Macquarie's Fortress Funds Fall Amid Subprime Rout

No wonder i havn´t heard the word "contained" for a few days now ....Except from a few unimportant Fed members :-)

Kein Wunder das man in den letzten Tagen das Wort "contained" immer weniger hört.....Mit Ausnahme von einigen Mitgliedern der Fed :-)

Aug. 1 (Bloomberg) -- Macquarie Bank Ltd., Australia's largest securities firm, said investors in two of its high-yield funds may lose 25 percent of their money as a rout in the U.S. sub-prime market spreads.

Macquarie Fortress Investments Ltd., with $873 million of funds, was forced to sell assets to avoid breaching its loan agreements, the firm said in a statement. The company's notes slumped while shares in its parent headed for their biggest drop in 5 1/2 years.

Funds are being caught in a downward spiral because banks are forcing borrowers to sell assets as the value of collateral declines. Bear Stearns Cos. halted redemptions from a third hedge fund yesterday while Sydney-based Absolute Capital and Basis Capital Fund Management Ltd. are trying to avoid making sales at distressed prices.

Asia Genesis Management, a hedge fund based in Singapore that manages about $450 million, today said it has increased cash holdings to 95 percent of its assets to avoid losses.

Bear Stearns's Asset-Backed Securities Fund, with about $900 million invested in asset-backed securities, including mortgage bonds, suspended redemption after investors demanded their money back, spokesman Russell Sherman said.

Fortress notes, which trade on the Australian Stock Exchange, slumped 23 percent to 58 Australian cents at 3:15 p.m. in Sydney. The company aims to pay investors a 10.1 percent annual yield by investing in loans to companies with good records of repaying debt, according to a prospectus dated Feb. 3, 2006, for a third series of notes.

Leveraged Investments
Fortress uses leverage of 4.5 to 6.5 times and allows individual investors with as little as A$5,140 ($4,350) to spend to buy the notes.

Macquarie Bank's shares headed for their biggest fall since February 2002 with a 10 percent decline to A$74.61. They have slumped 19 percent over the past two weeks, wiping A$4.6 billion from the company's market value amid concern that global takeovers may decline and prices will fall in debt markets. Shares of Goldman Sachs Group Inc. and Bear Stearns dropped 14 percent and 15 percent in July.

The stock of other Australian investment-related companies fell. Babcock & Brown Ltd., the nation's second-biggest investment bank, slid 7.8 percent and Allco Finance Group Ltd., a Sydney-based manager of energy and property assets, fell 6.5 percent.

Prices Fall
The average price of assets in the Fortress portfolios had fallen by 4 percent as at July 30, Lucas said in the statement. The value of the assets may decline a further 20 percent to 25 percent, he said. The funds had $873 million in assets on May 31.

Credit-default swaps based on $10 million of Macquarie Bank bonds rose $13,000 to $59,000 late yesterday, according to prices from National Australia Bank Ltd. That's up from $22,000 on July 10. Investors use the five-year contracts to speculate on credit quality. The costs, or spreads, increase as the perception of creditworthiness deteriorates.

Bear, Lehman, Merrill, Goldman Traded as Junk, Derivatives Show

Now we have gone from almost junk in March to finally junk. We will see if the rating agencies are correct in giving all the players still very high investment grade ratings. S&P has taken the lead with yesterdays action on Morgan Stanley.

GS & co sind über fast Junk im März nun bei Junk angelangt. Wir werden sehen ob die Rating Agenturen mit Ihrer Einschätzung der hohen A und AA hier richtig liegen.

S&P raises Morgan Stanley debt rating to "AA-minus".
Standard & Poor's on Monday raised its debt rating for Morgan Stanley, citing strength in the bank's core investment banking and trading businesses.

S&P raised Morgan Stanley's senior unsecured debt rating to "AA-minus," the fourth highest investment grade rating, from "A-plus."

>At least for now the market has spoken.......

>Momentan sieht der Markt das etwas anders.......


Thanks to benj

July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

bigger/größer

Thanks to Kevin Duffy / LewRockwell

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.


Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, rose to about $110,000 on July 27, from $30,000 at the start of June, indicating growing investor concerns.

`Wall of Worry'
Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''

> Here is another one

Losing Value
Investment-grade bonds of brokerage firms lost 0.47 percent on average since June, while securities with similar ratings returned 0.19 percent, according to Merrill indexes. Finance companies are the biggest part of the corporate bond market, accounting for 40 percent of the $2 trillion of debt outstanding, according to New York-based Morgan Stanley, the second-biggest investment bank by market value.


Investors demand an extra 1.25 percentage points in yield to own the bonds of brokers instead of Treasuries, up from a low of 0.64 percentage point on Jan. 29. The wider spread represents an extra $6 million in annual interest for every $1 billion they borrow. ....

Bond and credit-default swap prices suggest Wall Street firms are no safer for debt investors than companies teetering on the edge of investment grade, including mining company Freeport-McMoRan Copper & Gold Inc. in Phoenix and Stamford, Connecticut-based copy machine maker Xerox Corp.


Pimco Buys
Pimco bought bonds of banks and brokers in the past two weeks, expecting them to sustain earnings growth and benefit from global mergers and acquisitions, Kiesel said. Profits at Bear Stearns will rise to $14.53 a share this year and $15.66 in 2008 from $14.27 in 2006, according to the average estimate in a Bloomberg survey of 16 analysts.

> I know that bond manager have a different view than equity investors and i respect kiesel. He has written some great reports like "still renting" but to assume that Bear Stearns will have any increase in earnings is just nuts. Bear is the most dependend on the US bondmarket and has almost no international exposure. The only way is able to increase their earnings is to "exclude" special items like losses in subprime exposure. But this would be like GM exclusing losses from their SUV´s.....But i will not rule out that this time we will see new ways of hiding bad numbers :-)

> Ich weiß das Bondinvestoren ein anderes herangehen als Aktieninvestoren haben und ich mag Kiesel von Pimco wirklich sehr. Er hat einige großartige Reports verfasst. Wie man aber allen ernstes darauf kommen kann das ausgerechnet Bears Stearns auch nur annähernd einen Gewinnzuwachs ausweisen kann ist mir schleierhaft. Bear ist die Bank die fast ausschließlich vom US Bondmarkt abhängig ist und kaum internationales Geschäft vorweisen kann. Der einzig mir denkbare Weg Zuwächse zu erzielen ist indem man zum beliebten Mittel greift und "special items" hearusrechnet. Das wäre in diesem Fall aber so als wenn man bei GM die Verluste der SUV´s herausnehmen würde....Das heißt nicht das dies in den USA nicht möglich ist :-)

Marking Down
Bear Stearns analyst Ian Jaffe raised his recommendation on broker debt to ``overweight'' from ``underweight'' on July 13 because risk premiums increased and the economy is growing. Jaffe, who is based in New York, declined to comment.

CreditSights Inc., an independent bond-research firm in New York, also says investors should buy broker bonds.

Disclosure: Short GS, long UBS

Bear credit hedge funds almost wiped out: sources

What a surprise.....Too bad that leverage works both ways......The earnings call should be fun. I´ll give Bear a 50% chance that they are impertinent enough to report an earnings number excluding the implosion ... :-)

Get ready for the takeover spin to pump up the stock (heavy rotation).....To put things into perspective....Bear just pumped money into a worthless asset. Not insignificant with a marketcap of $20 billion ( 1.57 book value).....

Here te letter to clients

Zu blöd das der Hebel in beide Richtungen wirkt......Die Tefefonkonferenz dürfte Slapstick pur werden. Zudem gebe ich Bear eine 50% Chance das die sich die Blöße geben in Ihrem Quartalsbericht eine Ergebniszahl auszuweisen die das aktuelle Debakel herausrechnet ... :-)

Spätestens heute ab 14.30 Uhr wird die Maschinerie in Sachen Übernahmekandidat auf heavy rotation laufen. Wenn man bedenkt das die Marktapitalisierung bei lediglich 20 mrd $ (1,57 x Buchwert) liegt ist es umso erstaunlicher das Bear Stearns dem schelchten noch gutes Geld hinterhergeschmissen hat ..... Weiter oben gibt es den Link zum Brief an die Klienten des Hedgefonds

Leveraged fund worth nothing; larger fund reportedly loses 91% of its value

SAN FRANCISCO (MarketWatch) -- A Bear Stearns Cos. hedge fund that made leveraged bets in the subprime mortgage market is worth nearly nothing, according to two people briefed by the investment bank.

Investors have been waiting for Bear to update them on the High-Grade Structured Credit Enhanced Leveraged Fund and a larger, less leveraged fund called the High-Grade Structured Credit Fund. The Wall Street Journal reported on Tuesday that the larger High-Grade Structured Credit Fund is worth roughly 9% of its value at the end of April.

Bear said last month that it would pump as much as $3.2 billion into the larger High-Grade Structured Credit fund but didn't touch the more leveraged one.

>Here the link to the totally useless bailout.....

>Klickt auf den Link um den sinnlosen Rettungsversuch zu bestaunen....

Bear shares fell $4.11, or 2.9%, to $135.80 during after-hours trading on Tuesday. The stock has dropped 14% so far this year.

The problems have also roiled the subprime mortgage market and may have triggered big losses and big gains at other hedge funds, depending on which side of the trade managers were on.

Bear's hedge fund problems, combined with rising subprime mortgage delinquencies, have already triggered margin calls in mortgage-backed securities and CDO markets.

One cent bid
The reported 91% loss suffered by Bear's larger High-Grade Structured Credit Fund may be bigger than some investors were expecting, judging by recent activity on Hedgebay, a secondary market for hedge fund stakes.

A few weeks ago, activity on the Hedgebay market suggested investors were willing to sell their stakes in the High-Grade Structured Credit Fund for roughly 50 cents on the dollar, according to a person familiar with the market.

That dropped to 20 cents on the dollar more recently.

Late Tuesday, one investor was bidding one cent on the dollar to exit their position in the High-Grade Structured Credit Fund, the person said

via Marketwatch

ACA Capitals "Preferred Measurements Of Income" or "Blue Pill Accounting"

Oh Boy! Read the comments from the company which use their own measure of accounting and the analysts and you know how rotten the market has become. I think it is no coincidence that Bear Stearns is again involved. Needles to say that all 4 analysts have buy ratings on the stock! It gives you a good feeling when companies like ACA are providing insurance for billion of paper, doesnt´t it.....This number is taken from the 2006 annual report (large pdf ) titled "Understanding The Value" making allusions to the "enigma". This pdf could be real fun to revisit when the company runs into further trouble .......

ACA Capital’s Structured Credit business provides credit protection, using credit default swaps, on tranches of credit portfolios. We are primarily a seller of credit protection on tranches where the risk of loss is greater than that of the “AAA” rated level. We will sell credit protection below the “AAA” rated level but only when we see unusually strong value. The credits that underlie the portfolios on which we sell credit protection include corporate bonds and loans and mortgage and asset-backed securities

At the end of 2006, we had $39.4 billion of notional exposure in our Structured Credit business, with over 99% attaching at greater than “AAA” rated levels. ( End of Q1 already over $ 50.2 billion...)

Here is more from Mish on this topic

Das ist wirklich kaum zu fassen. Lest Euch bitte die Kommentare des Unternehmens durch die mal eben eine eigene Art der Buchführung benutzen. Dazu kommen einmal mehr vollkommen nutzlose Analysten die entweder wirklich nicht begreifen was Sie den ganzen Tag analysieren oder ..... Das verkneife ich mir lieber :-) Es ist sicher auch kein Zusfall das Bear Sterns erneut involviert ist. Überflüssig zu erwähnen das alle 4 Analysten Kaufempfehlungen haben. Zudem gibt einem das ganze doch gleich ein gutes Gefühle wenn Firmen wie ACA Mrd. von Papiern "versichern". Der o.g. Jahresbericht könnte in der Rückbetrachtung wenn ACA komplett implodiert ist recht lustig werden. Titel ist "Understanding The Value" und macht Anspielungen auf die Enigma....

By its own measures, everything looks good at ACA Capital Holdings, a financial management and insurance company. But other numbers do not look so good, and the stock price is falling rapidly. The company will not comment on what is going on.

In New York Stock Exchange trading yesterday, ACA shares fell 22 percent, dropping $1.87, to $6.59, on the heaviest volume in the company’s brief history. The shares have lost a third of their value since Thursday, and are trading at less than half of their value a month ago.

ACA has written billions of dollars worth of insurance on the value of financial assets, and it manages collateralized debt obligations, or C.D.O.’s — investment vehicles that invest in bonds backed by risky mortgages and other debt — on billions more. Some of the C.D.O.’s it manages for others were mentioned by bond rating agencies last week as candidates for downgrading.
But it is not clear how much pain ACA could suffer from the subprime market. In detailing its exposure to subprime mortgage loans on its Web site last week, the company said that nearly all of its direct exposure to subprime mortgage debt came through securities rated AAA by at least one bond rating agency. Such securities have generally held their value even as others have plunged in market value amid turmoil in the subprime market.
> "generally hold their value" ..... this comment is almost criminal

> der Kommentar das die AAA Papiere ihren Wert gehalten haben ist schon fast kriminell

Late yesterday, Standard & Poor’s, the rating agency, said it was considering lowering ratings on various securities issued by 19 C.D.O.’s, including 4 managed, though not owned, by ACA. The agency said the moves “reflect the increased probability of default” of underlying mortgages.

Until last month, ACA’s assurances had satisfied investors, although the stock suffered briefly on May 10, when it reported first-quarter earnings. Under normal accounting rules, those results showed that profits were down sharply, and that book value had plunged because of declines in market value of some assets.

But the stock quickly recovered to above $14 a share after the company pointed to its own adjusted measures of earnings, which showed rapid increases in both profits and book value.

In June, the shares began to slide again after the company said that insiders, primarily private equity firms that owned the company before it went public last November, wanted to sell 3.9 million shares, more than a tenth of the shares outstanding.

The proposed offering by insiders was quickly withdrawn after the stock came under pressure, but the selling intensified last week.

The company’s largest shareholder, with a 27.6 percent stake, is a fund managed by Bear Stearns Merchant Banking, an affiliate of the Bear Stearns Companies, whose own shares fell $2.58 yesterday, to $140.31. Last month, Bear Stearns was forced to bail out a hedge fund it managed that had suffered losses in subprime mortgage securities.

After ACA disclosed the extent of its subprime exposure last week, Craig Siegenthaler, an analyst at Credit Suisse, said the disclosure increased the risk profile for ACA, and reduced his price target on the stock to $12, from $17.

In a report yesterday morning, Geoffrey Dunn, an analyst at Keefe, Bruyette & Woods, reduced his earnings forecast, saying that ACA’s price had fallen because it “has no real comparable peers in the publicly traded markets, is very complex and seems to operate in areas that are at the heart of the market’s current concerns.”

But, Mr. Dunn said in an interview, “in our worst-case scenario, we think the stock has a double-digit valuation.” He said the price decline was not caused by “fundamentally legitimate concerns.” > What is this guy smoking? Worst case scenario and still double digit?

Under generally accepted accounting principles, ACA was required to take a loss for the fall in value of some derivative securities it owned, and to reduce its book value for the decline in other securities. A result was that profits were down 17 percent from a year earlier, although the company still reported profits of $11.4 million, or 31 cents a share. Its book value fell to $11.62 a share, from $13.96 at the end of 2006.

But ACA told investors that those numbers were misleading, and its chief executive, Alan S. Roseman, said the results “underscore our ability to produce significant growth throughout changing market conditions.”

Thanks to Randy Glasbergen

Mr. Roseman said that ACA’s preferred measurements of income, called net economic income and base economic income, were each up 41 percent from a year earlier. That was largely because those measurements ignored losses in derivative securities owned by the company. Assuming, as the company does, that those derivatives return to original value, there will be no long-term losses, the company explained.

In computing its adjusted book value, the company not only excludes those derivative losses but also adds in the value of future fees it will collect for managing C.D.O. portfolios. By that measure, adjusted book value rose to $24.91 a share, from $22.93.

ACA’s competitors in insuring C.D.O. values generally have AAA ratings from the rating agencies. But ACA has only an A rating, indicating a financial position that is less solid, although still good. In affirming that rating in June, Standard & Poor’s said ACA had insured $10.3 billion in C.D.O.’s that invested heavily in subprime mortgage bonds. While that made up nearly a quarter of all bonds insured by the company, S.& P. said that the bonds ACA insured were themselves rated AAA.

>Thank God for the always up to date rating agencies and the prudent due dilligence from buyers of this safe securities.....

> Gott sei Dank haben wir ja die stets aufmerksamen Wächter der Bonität und eine genaue Prüfung der Käufer der mit AAA besucherten Papiere..........

More from Bloomberg
ACA's statement showed that for $6.1 billion of ACA's contracts, the company would start taking losses even before all of the low-rated subprime-mortgage bonds from 2006 and 2007 defaulted

For another $2.8 billion of contracts linked to higher- rated debt, the company may lose money before all the derivatives on CDO securities within them defaulted. Analysts such as ones at Wachovia Corp. say among ``high grade'' CDOs, those made up of many CDOs may face the most losses. ACA also had $444 million in exposure to a CDO containing only CDO bonds, compared with $911 million of adjusted book value, Credit Suisse analysts said.

>If someone knows more about this company and has some insights about the insurance business please leave a comment. I still having problems how it is possible to insure tens on billion with equity under 500 mio and still get an AAA rating. I was a long time shareholder from Depfa (German stock) that is also involved in the financial guaranteed business. But they only provide the guarantee on state backed underlyings / public sector finance. Quite a difference to what ACA is doing.... I hope that i´m missing a point here...Otherwise this is even worse than i could have imagined it.....

>Wenn einer von Euch mehr Hintergrundinformationen hat wie es möglich sein kann das eine kleine Klitsche mit unter 500 mio an Kaiptal bei etlichen Mrd an Papieren als AAA Versicherer auftauchen kann laßt es mich wissen. Kenne hier als langjähriger Depfa Aktionär die gleiche Konstruktion mit dem Unterschied das die ausschließlich staatliche Underlyings garatnteirt haben. Ein nicht ganz zu unterschätzender Unterschied.......

got Gold?

Zombie Financial Media: Report on sub-prime fiasco

Hat tip to The Mortgage Lender Implode-O-Meter and iTulip

Bear to lend $3.2 bln to one of its hedge funds But bank doesn't lend money to other, more leveraged, fund

WOW! The $3.2 billion bail out was only for one (the less risky!) hedge fund.... Suddenly almost over night nobody wants to hold this ticking time bomb in his hands/books. But somebody has to..... This could be the story that finally brings risk premiums back to the market....At least for Bear Sterns :-)!

Donnerwetter! Die 3,2 mrd$ Kreditspritze für den in Schieflage geratenen Bear Stearns Hedge Fond betrifft nur den nicht ganz so riskant aufgestellten Fond. Es scheint fast so als wolle plötzlich über Nacht keiner mehr diese bereits seit Monaten tickenden Bomben in den Büchern haben. Warum diese Erkenntnis so lange gedauert hat ist mir schleierhaft. Ich denke diese Geschichte hat das Potential endlich die Risikobereitschaft auf ein normales Niveau zurückzufahren. Das sollte in jedem Fall für Bear Stearns gelten :-)!

SAN FRANCISCO (MarketWatch) -- Bear Stearns Cos. unveiled a rescue plan on Friday after a hedge fund it runs was hit hard by trading billions of dollars worth of mortgage derivatives this year.

But the bank didn't offer much help to another of its struggling hedge funds which borrowed more money to magnify its bets in the same market. Both funds control roughly $10 billion in mortgage-related assets.
Bear said on Friday that it has offered to lend up to $3.2 billion to the High-Grade Structured Credit Fund to ease the pressure of margin calls and pay off other creditors. The new loan will help the High-Grade fund reduce its leverage in an "orderly" way, the bank added.

The more leveraged High Grade Structured Credit Enhanced Leveraged Fund didn't get a loan, but Bear said its asset-management division will continue to work with creditors and counterparties to repay current outside lenders and free up cash. ....
Both funds, run by Bear mortgage veteran Ralph Cioffi, lost money in March and April when big mortgage bets went awry. The losses came after 14 consecutive quarters of gains, Bear Chief Financial Officer Sam Molinaro said during a conference call with analysts on Friday....

> That´s the beauty of a 10 or 20:1 leverage....... SCHADENFREUDE!

> Das ist doch das schöne am 10 bis 20 :1 gehebelten Einsatz...SCHADENFREUDE!

"When you have a situation like this, it puts a lot of pressure on asset values and spreads in the market," Bear's Molinaro said during the bank's conference call on Friday. "It appears to be relatively contained from our perspective. But we can only see what we're doing."

>It seems like there is no statement out there without "contained".....

> Jedesmal wenn Kommentare zu Problembereichen abgegeben werden ist selbstverständlich alles "contained" und damit nicht weiter schlimm......

The value of the mortgage-related assets held by the funds has dropped "significantly" during the past two weeks because the market was expecting the funds to be forced into selling assets to raise cash, Molinaro said.

"This will take several months to work out," he told analysts on the call. "Hopefully markets will stabilize relatively quickly once we eliminate the overhang of these securities potentially being sold into the market."

Loan 'secure'
Molinaro also said the loan Bear Stearns is extending to its High Grade hedge fund is "secure," noting that there's a high probability that it will be repaid.

"We are over-collateralized by a reasonable level," he added. That means there's more than a minimum amount of assets backing the loan. Borrowers in the debt and structured-finance markets often include more collateral than is required to get a better credit rating.

Still, Molinaro warned that further significant declines in the value of the collateral could cause a loss on the loan.

Enhanced fund
Molinaro was less forthcoming about plans for the Enhanced fund.

Both hedge funds invested in similar types of mortgage assets, including AAA and AA rated collateralized debt obligations, Molinaro said.

But the Enhanced fund had a layer of "mezzanine" assets, which provided the extra leverage, he explained. Mezzanine tranches of CDOs and mortgage-backed securities are lower-rated and riskier than some other parts of these structures. But they're not the riskiest parts.

There have been sales of assets from the Enhanced fund and there will be more in future, but Molinaro said Bear Stearns is "hoping to do this without forcing massive liquidations in the marketplace."

> Too late, the gates are now open.....

> Das dürfte ein frommer Wunsch sein. Die Tore sind geöffnet......

"We're working with all counterparties to effectuate as orderly a de-leveraging as we can with an eye to preserving as much capital as possible," he added.

Bear's Molinaro said on Friday that there's been a "dramatic widening (of spreads) in all of those pieces across the capital structure."

When spreads widen, that indicates investors have become more risk-averse and demand higher rates in return for holding riskier assets.

Magnitude
The hedge funds also ran into trouble because they couldn't meet investor redemption requests and margin calls, which came in much quicker than expected, Molinaro explained.

"When you have difficulty raising liquidity to meet margins calls, that causes more margin calls," he said. "The inability to satisfy margin calls from clients triggered further declines in values."
"These two funds invested in an asset class that went through a period of severe distress," he concluded. "Controls on the asset management side did not envision market dislocation of this magnitude and this kind of liquidity drain

> Remember this kind of story when somebody wants to argue that financials and investmentbanks should have higher multiples.........

> Diese Geschichte sollte man sich immer in Erinnerung rufen wenn gefordert wird das Finanzwerte und besonders Investmentbanken höhere KGV´s zuständen.......

Bear Stearns Plans $3.2 Billion Bail Out / Largest Since LTCM

How long can they avoid the inevatable? I can smell fear......

Wie lange noch kann das nicht vermeidbare hinausgezögert werden ? Ich kann leichten Agnstschweiß reichen....

Bear Stearns Plans $3.2 Billion Fund Rescue to Halt Fire Sale

Bear Stearns Cos. plans to take on $3.2 billion of loans to stop creditors from seizing assets of one of its money-losing hedge funds in the biggest fund bailout since 1998, people with knowledge of the proposal said.

Largest Since LTCM
``The problem is not what we see happening, but what we don't see,'' said Joseph Mason, associate professor of finance at Drexel University in Philadelphia and co-author of an 84-page study this year on the CDO market. ``We don't know the price of these assets. We don't know which banks are exposed to this sector. These conditions are the classic conditions for financial crises across history.''

The bailout of the fund would be the largest since Long- Term Capital Management LP, which received $3.625 billion from 14 lenders in 1998. After Long-Term Capital, run by John Meriwether, lost $4.6 billion, lenders including Merrill and Bear Stearns agreed to take a stake in the Greenwich, Connecticut-based fund.

The Bear Stearns funds had borrowed $9 billion and made bets of more than $11 billion, one person said. Aside from Merrill, Lehman and JPMorgan, other creditors included Goldman Sachs Group Inc., Citigroup Inc. and Cantor Fitzgerald LP, all in New York. Bank of America Corp., based in Charlotte, North Carolina, Barclays Plc in London and Frankfurt-based Deutsche Bank AG were the other lenders.

Bears Stearns "How Could This Happen ?" / Minyanville

:-)! click on the headline to read the 4 other things you need to know

:-)! klickt bitte auf die Überschrift wenn ihr die anderen 4 Topics lesen wollt.

How Could This Happen?

“Traders and industry executives who saw lists of C.D.O.’s on offer from the Bear Stearns funds say that even as the manager of the funds, Ralph Cioffi, bought some protection against a deteriorating housing market, on balance his investments seem to be based on a belief that the subprime market would not crumble, or at least not soon," the New York Times reported this morning.

Now, that raises the following question: How would a smart hedge fund manager arrive at the belief that the subprime market would not crumble?

Probably by listening to the following experts:

-March 28, 2007: Federal Reserve Chairman Ben Bernanke said, "At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

- March 29, 2007: Treasury Secretary Henry Paulson said he thinks the economic damage from the subprime lending crisis is "contained."

- April 4, 2007: Federal Reserve Bank of Dallas President Richard Fisher said damage from the U.S. subprime mortgage market is "mostly contained."

- April 11, 2007: The subprime mortgage market is "little more than an asterisk in the overall U.S. credit economy," said Roth Capital Partners economist Donald Straszheim.

- June 12, 2007: Lehman Brothers Chief Financial Officer Chris O'Meara said Tuesday he remains confident that weakness in the nation's subprime mortgages is waning.

> Just one more example that Bernanke, Paulson & co are acting more like Spinmasters/PR-People than telling the truth like it is. With reality often so depressing no real surprise........

> Das ganze ist einmal mehr ein Beleg dafür das Bernanke, Paulson & co mehr oder weniger PR betreiben und selten reinen Weiin einchenken. Da die Realität teilweise so erschreckend ist kann man es Ihnen wohl nicht wirklich übel nehmen......

Bond Risk Rises on Concern Over Bear Stearns Hedge-Fund Losses

But i was told that the subprime problems were "contained" day in and day out...... with spreads everywhere close to lows this could help and reduce the unbelievable riks appetite that is out there...and this time maybe for longer than 2 weeks.....

Und mir hat man täglich erzählt das die probleme im Subprime segment isoliert sind.....nachdem immer noch alle Risikoaufschläge nahe historischen Tiefstständen notieren könnten die probleme im Hypothekenmarkt zumindest dazu beitragen etwas von dem unfassbaren Risikohunger aus den Märkten zunehmen (dieses Mal evtl. sogar dauerhaft)

The perceived risk of owning corporate bonds soared worldwide on concern over losses at hedge funds run by Bear Stearns Cos.

Credit-default swaps based on 10 million euros ($13 million) of debt included in the iTraxx Crossover Series 7 Index of 50 European companies jumped as much as 16,000 euros to 216,000 euros, the biggest one-day rise in three months, according to Deutsche Bank AG. The CDX Crossover index in New York surged as much as $10,000 to a nine-month high of $178,000. ....


Loans Index
The LCDX index of credit-default swaps on high-yield, high- risk loans fell for a ninth day, dropping 1.19 to 98.08, signaling a deterioration in the perception of the creditworthiness of the 100 U.S. borrowers included in the index. The LCDX is down 2.55 since May 22, when 13 Wall Street banks began offering the five-year contracts in the privately negotiated over-the-counter market.

As home-loan defaults rise, bondholders stand to lose as much as $75 billion of subprime-mortgage securities, according to an April estimate from Pacific Investment Management Co., manager of the world's largest bond fund. Investors in all mortgage bonds will probably take about $100 billion in losses, according to a March report from Citigroup Inc. bond analysts.

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.....