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Salvaging a Prudent Name
- New York Times
At Bear Stearns, the firm Mr. Cayne has worked at since 1969 and guided since 1993, the carefully honed reputation for sound risk management and cautious investing has suffered what he regards as a “body blow of massive proportion” from the near collapse of two hedge funds run by its asset management division.
“I’m angry,” he said as he took a deep puff on a freshly lit Montecristo cigar in a conference room next to his office. “When you walk around with the reputation for being the most rigorous risk analyzer, assessor, controller and that is trashed, well, you have got to feel bad. This is personal.”
In the last two weeks, Bear has found itself in a fiasco that some within the firm say is without parallel in its 84-year history….
Bear Stearns boss took refuge in blogging as hedge funds imploded
- The Independent
The sub-prime mortgage market meltdown threatens to become the first giant financial crisis of the 21st century. And it will be blogged.
At the investment bank Bear Stearns, where two imploding hedge funds threatened to trigger billions of dollars of losses across Wall Street, the asset management division’s boss, Rich Marin, was fighting valiantly "to defend Sparta against the Persian hordes", as he characterised it on his personal web page.
For the numbers stuff – the $30bn in failed bets on the mortgage market, the $3.2bn rescue package – you could hit the financial pages of the newspapers. For the blood, sweat and tears, there was Mr Marin’s blog.
At least there was, until it was spotted and Whim of Iron: Impulsive Ramblings from a Motorcycling Alpha Dog became the talk of Wall Street. Now it is invite only….[WSF Note: While the blog is now invite
only, we were able to find a cached
link with all of the posts from June if you want to take a look.
Scroll down to June 23 "My Week on Wall Street" for some comments on
Bear's subprime fiasco.]
Bear Stearns likely to face hedge fund lawsuits
- Reuters
Investors in two struggling Bear Stearns Cos. hedge funds that made bad bets on risky mortgages will almost surely file lawsuits in hopes of recouping losses, but legal experts say they could have a tough time proving their case.
Already, some investors in the funds are talking to lawyers about bringing cases. Potential lawsuits likely would hinge on whether investors were fully informed of risks, lawyers say.
Ross Intelisano, an attorney who handles investor cases against financial firms, said his law firm has been contacted by two investors in the Bear Stearns funds — a fund of funds and a small institutional investor he would not identify — about possibly bringing lawsuits….
Bear Stearns assured investors on leverage
- Financial Times
Bear Stearns told potential investors in a now-stricken hedge fund that it could cope with even higher leverage because it put money into “high quality” assets – many of them hard-to-value structured products based on subprime mortgage bonds.
However, Bear also warned investors that taking on higher leverage could increase its volatility and brings with it “an additional risk element”.
That warning, in marketing material inviting investors to switch into a more highly-geared version of its High-Grade Structured Credit Strategies fund last year, proved prescient…..
Subprime derivatives shake-up call rejected
- Financial Times
Dealers and investors who trade US subprime mortgage derivatives have rejected a proposed change to the terms of derivatives contracts from a hedge fund group concerned about possible manipulation of their value by investment banks.
More than 100 people descended on the New York offices of the International Swaps and Derivatives Association on Thursday to debate the proposal from Paulson & Co, the group’s leader.
Some banks are mortgage servicers as well as being lenders, underwriters for mortgage-backed securities and derivatives traders….
S&P, Moody’s Hide Rising Risk on $200 Billion of Mortgage Bonds
- Bloomberg
Standard & Poor’s, Moody’s Investors Service and Fitch Ratings are masking burgeoning losses in the market for subprime mortgage bonds by failing to cut the credit ratings on about $200 billion of securities backed by home loans.
The highest default rates on home loans in a decade have reduced prices of some bonds backed by mortgages to people with poor or limited credit by more than 50 cents on the dollar and forced New York-based Bear Stearns Cos. to offer $3.2 billion to bail out a money-losing hedge fund. Almost 65 percent of the bonds in indexes that track subprime mortgage debt don’t meet the ratings criteria in place when they were sold, according to data compiled by Bloomberg.
That may just be the beginning. Downgrades by S&P, Moody’s and Fitch would force hundreds of investors to sell holdings, roiling the $800 billion market for securities backed by subprime mortgages and $1 trillion of collateralized debt obligations, the fastest growing part of the financial markets…..
Subprime: Point to Where It Hurts
- Wall Street Journal
As defaults on home loans mount, mortgage companies are scrambling to work out deals to help as many borrowers as possible stay in their houses.
On the surface, it seems an obvious tactic. Lenders usually end up losing money on foreclosed homes because of legal and other costs and the need to sell those properties fast, often at a knockdown price. Also, politicians are pressing mortgage companies to minimize the damages foreclosures cause to families and neighborhoods.
Still, the effort to hold down foreclosures threatens to create clashes between mortgage companies and investors in securities backed by bundles of home loans, a $6 trillion market that has been shaken recently by losses on some of the riskier types of mortgage bonds. And because of the way these securities are sold, these efforts can pit groups of holders against each other…..
US SEC’s Cox says CDO probes are
subprime-related – Reuters
The U.S. Securities and Exchange Commission’s dozen investigations into collateralized debt obligations involve a range of issues related to the subprime mortgage market, the agency’s chairman said on Tuesday.
"Those cases relate generally to subprime, subprime issues, CDOs, troubled subprime issuers, the securitization process and the secondary market," SEC Chairman Christopher Cox told reporters after a House Financial Services Committee hearing.
"Each of these cases will turn out its own facts but this is the securities fraud enforcement piece of it, and not obviously anything to do with banking or lending-related issues," Cox said. He added that the investigations were launched in 2007…..
Can Subprime Woes Hurt Other Debt?
- Barron’s
Speaking at Morningstar’s annual investment conference Wednesday, Jeffrey Gundlach, the chief investment officer of TCW Group in Los Angeles, called that market a "total unmitigated disaster and it’s going to get worse."
Strong words. But Gundlach has the experience and credibility to back up that assessment, however harsh and depressing.
Gundlach’s duties include running TCW Total Return Bond I, which has a heavy dose of mortgages. None of those securities, however, are of the subprime variety. Gundlach launched the firm’s mortgage-backed securities business in the late 1980s and has been running the fund since 1993. The fund’s 10-year annual return of 6.83% ranks in the top 3% of its Morningstar peer group…..
Tags: Bear Stearns, Jim Cayne, Lawsuit
