Bear Stearns Say Hedge Funds Now Essentially Worthless
- 18.07.2007
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Bear Stearns reported today that its two subprime mortgage-debt based hedge funds that created news a few weeks ago by nearly collapsing are essentially worthless. (h/t Housing Wire)
From the Wall Street Journal:
Weeks after the meltdown of two prominent Bear Stearns Cos. hedge funds that bet heavily on the market for risky home loans, the brokerage has told the funds’ investors that the portfolios’ assets are almost worthless, according to people familiar with the matter.
The assets in Bear’s more-levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the larger, less-levered fund are worth roughly 9% of the value since the end of April, these people said.
Housing Wire also quotes this gem from TheStreet.com on how shocking a collapse this truly is:
Sources say investors had been expecting a recovery of around 50 cents on the dollar for the less leveraged fund.
So this begs the necessary question, was the Chief Financial Officer of Bear Stearns Samuel Molinaro lying when he said in a Bloomberg article dated March 29, 2007:
The troubles haven’t had a large impact on Bear Stearns’ profit because making loans to borrowers with poor credit histories and packaging them into bonds accounts for 3 percent of Bear Stearns’s mortgage business, Chief Financial Officer Samuel Molinaro said March 15.
Bear Stearns is more protected from the declines in the mortgage bond market because it doesn’t keep any of the risk in the mortgages or the bonds it originates, Marano said today. “We’re not a warehouse; we sell the product,” he said.
Or is it simply a matter that the CFO didn’t have enough insight in to what has been called the most opaque of all securities traded on Wall Street? Or was it that these funds weren’t in dire trouble in March - but that the events of June sent these funds tumbling?
Regardless of what was known then vs. what is known now one thing is for certain - we have yet to see the end of the problems that could effect a large portion of $7 trillion in mortgage-related bonds.
