There may be no money left for investors in the two troubled Bear Stearns hedge funds but last night Bear Stearns itself managed to squeeze some value out of one of the funds by seizing its assets. Last month, Bear Stearns assumed the debt of the less levered of its two structured debt hedge funds—said to be around $1.6 billion—after creditors started seizing assets of the more highly levered fund. Last night it announced it was seizing securities from the fund to control their sale as the fund unwinds.
Bloomberg makes it clear that while Bear Stearns may have made a show of “standing behind its hedge fund” (as one trader put it to us), it certainly isn’t planning on losing on money on those funds.
Bear Stearns told investors in the two hedge funds last week that they'll get little if any money after “unprecedented declines” in the value of securities used to bet on subprime mortgages, or loans to homebuyers with the weakest credit.
The firm has said it expects to lose no money from the debt it assumed from the High-Grade Structured Credit Strategies Fund.
``We don't anticipate any material change in financial exposure to Bear Stearns as a result of this action,'' Sherman said. He said the debt Bear Stearns took over from the fund last month is now valued at $1.3 billion.
Early reactions to the news that Bear was taking this action haven’t been entirely favorable. “This presumably protects Mama Bear from more pain, which for the most part has been limited to their reputation,” a writer at the 1440 Wall Street blog writes. “But this wound is self-inflicted, and the sellers are finally getting to brokerage stocks, and Bear's stock is the poorest performer by far over the past year. Ralph Cioffi will be out of a job soon, but walks with the bulk of his net worth intact. Scuttlebutt pegs him as having only 10% of his net worth in the game, he can comfortably live off the rest of his stash. Sounds familiar, no?”
To turn around an old Wall Street saying, “Where are the managers losses?”
Bear Stearns Seizes Assets From Failed Hedge Fund [Bloomberg]
Bear seizes collateral from Bear Fund [1440 Wall Street]