Merrill selling assets of Bear Stearns hedge funds
J.P. Morgan cancels auction, to negotiate with Bear fund managers
By Alistair Barr & Greg Robb, MarketWatch Jun 20, 2007
marketwatch.com
SAN FRANCISCO (MarketWatch) -- Merrill Lynch & Co. is selling roughly $850 million of assets from two Bear Stearns hedge funds that have been battered by turmoil in the subprime mortgage market, a person familiar with the situation said Wednesday.
The auction by Merrill, one of several investment banks that lent money to the funds, started at about 4 p.m. ET on Wednesday. The assets for sale include mortgage-backed securities, collateralized debt obligations and credit default swaps, the person added.
J.P. Morgan Chase, another creditor, also planned an auction for some of the funds' assets, but cancelled it on Wednesday afternoon, two other people familiar with the situation explained. J.P. Morgan has now decided to negotiate directly with the Bear Stearns funds to unwind positions via private transactions, they said.
It's usually a sign of trouble when a lender sells collateral from a hedge fund client. Treasury Secretary Henry Paulson was asked about the problems suffered by the Bear Stearns funds on Wednesday.
"I tried to make clear we will be dealing with the subprime issue for some time and that there will be losses along the way," Paulson said, while stressing he was not commenting specifically about the Bear Stearns situation. "It is a natural outgrowth of what we've seen in the housing market and certain lending practices."
"As mortgages continue to reset, this will take time to work its way through the system," he explained. "But I continue to believe that this risk is largely contained. It doesn't pose a significant risk to the economy overall."
The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High Grade Structured Credit Strategies Fund, run by mortgage veteran Ralph Cioffi, were close to being shut down Tuesday night as a rescue plan fell apart, The Wall Street Journal reported on Wednesday.
The funds slumped in the first four months of 2007 as bets on the subprime mortgage market went awry and investors asked for their money back, according to the newspaper. Bear Stearns spokesman Russell Sherman didn't return phone calls seeking comment on Wednesday.
The High-Grade Structured Credit Strategies Enhanced Leverage Fund sold roughly $4 billion of subprime mortgage-backed securities last week.
It was probably selling its highest-rated and most heavily traded securities first to raise cash to meet redemption requests and possible margin calls, hedge-fund investors and bond-market traders said on Thursday. They also noted that the fund probably retained riskier, lower-rated assets. |
