Wednesday, June 20, 2007

Bear Stearns' P*** Will Hit the Fan

This is not good news:

A day after managers of a troubled internal hedge fund at Bear Stearns Cos. presented lenders with a last-ditch plan to reinvigorate the fund with additional financing, creditor Merrill Lynch & Co. pushed forward with plans to sell hundreds of millions of dollars in collateral assets out of the fund, said traders late Tuesday.

Merrill has indicated plans to sell off at least $850 million worth of collateral assets, mostly mortgage-related securities, Wednesday afternoon, according to documents reviewed by the Wall Street Journal.

In related developments:

Two big hedge funds at Bear Stearns Cos. moved toward the brink of closing down ... as a bailout plan ... fell apart ...

The funds, which once controlled more than $20 billion in a combination of investor and lender money ... had invested heavily in various securities backed by subprime loans ...... the funds had effectively paid down $2.25 billion of their $9 billion in outstanding credit.

The first two lenders to exit their positions, Goldman Sachs Group Inc. and Bank of America Corp., agreed to unwind complicated transactions with Bear without dumping lots of bonds on the broader market. .

..By unwinding those loans in an orderly manner, rather than through a series of fire-sale auctions, Bear's fund managers ... could help stave off painful ripple effects in the broader market for mortgage-backed securities and related instruments. ...

Of course, "unwinding...without dumping" means that Goldman and BoA hope to maintain SOME value to the asset.

However, the news, in and of itself, will have its effects. Tempting as it may be, don't get into schadenfreude-mode over the hits taken by Bear Stearns.

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