2 Bear Stearns hedge funds collapse

Two Bear Stearns hedge funds collapse
Bear Stearns late yesterday informed investors in two battered hedge funds that their investments have become practically worthless. The firm's higher-risk Enhanced Leverage Fund, vested heavily in subprime mortgage assets, has effectively lost all of its value, but the more conservative High-Grade fund is also down 91 percent. Bear Stearns shares dropped 3.6 percent in after-hours trading. (The New York Times, free registration required) At the end of March, the Leveraged fund held $638 million of capital and the High-Grade fund $925 million. The meltdown is a "watershed" event, said Sean Egan of Egan-Jones ratings. "It begs the question of how other market participants have fared." (Bloomberg)

 

Bear is pretty diversified so the biggest risk to them from this is probably just reputational risk.

 

I think them coming out is actually good for their reputation. The fact is, they aren't the only investment house with these sub-prime packages on the books. But they were the first to wash their hands of it. That gives them a slight head start for FY'08, prestige-wise, IMO.

 

omen.