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Non-Tech : Bill Wexler's Trading Cabana -- Ignore unavailable to you. Want to Upgrade?

To: Doc Bones who wrote (2162)	6/14/2007 3:43:10 PM
From: RockyBalboa	Respond to of 6370

UPDATE 3-Bear Stearns sells bonds to cover hedge fund (Adds published hedge fund reports in eighth paragraph, trader comment in ninth.) By Al Yoon NEW YORK, June 14 (Reuters) - Bear Stearns on Thursday put on sale $4 billion of mortgage bonds, mostly top-rated assets likely to attract buyers, to help cover reported losses by one of its hedge funds, fund managers and other sources said. They said the sale appears related to losses sustained in subprime mortgages by at least one hedge fund managed by the investment bank. The sale came just as New York-based Bear Stearns said its quarterly earnings fell by a third, citing stress in the mortgage market that hurt bond trading revenue. For more, see [ID:nN14442334]. The securities for sale are among the least likely to suffer losses from the meltdown in risky mortgage assets caused by years of loosened underwriting standards and a slump in the U.S. housing market. That would ensure the money is raised expeditiously, the managers said. "These aren't the troubled securities; these are the liquid ones for raising cash," Allan Berliant, a fund manager who helps oversee $11 billion in structured assets at Boston-based GMO, said in an e-mail about the bid list. He declined to say if he bought any of the bonds. The bonds, primarily rated "AA" to "AAA," are among the most-easily traded in the nearly $7 trillion mortgage bond market because of their quality. They include the higher-rated portions of subprime bonds and securities backed by mortgages regarded as slightly better in quality, known as Alt-A loans, according to the list obtained by Reuters. Subprime mortgage bonds that carry the most risk of rising delinquencies and foreclosures are rated "BBB" and below. Bear Stearns wants to raise cash for redemptions and possible margin calls on its High-Grade Structured Credit Strategies Enhanced Leveraged Fund and a related portfolio, the Wall Street Journal reported on Thursday. The $6 billion fund made up mostly of borrowed money lost 23 percent in the first four months of 2007, the report said. Online publisher HedgeWorld.com last week reported that Bear Stearns Asset Management has already passed the riskiest of the hedge fund's bonds to Everquest Financial Ltd., a new specialty finance company it plans to take public. Hedge Fund Alert, an industry newsletter, reported the Bear Stearns hedge funds halted redemptions as investors tried to withdraw some $300 million in assets. "They're looking to unwind whatever they've been doing over the last few years. Just cut their losses and move on," said one trader of asset-backed securities. Bear Stearns spokesmen did not return calls seeking comment on the bond sale or the hedge fund. Chief Financial Officer Sam Molinaro, speaking on an investor conference call following the bank's release of second-quarter earnings, said profits will probably continue to be affected by difficulties in the U.S. mortgage market. Any impact from the Bear Stearns hedge fund mentioned in press reports was limited to the second quarter, he said. "We're very focused on trying to maximize the value of our clients' assets, and we're taking every action to ensure that we get a successful outcome," Molinaro said. The bid list includes hybrid ARM bonds from issuers such as Credit Suisse (CSGN.VX: Quote, Profile , Research) and Merrill Lynch (MER.N: Quote, Profile , Research) that were created in 2004 and 2005, before lenders unraveled underwriting standards and the worst-quality subprime securities hit the market. Hybrid ARMs have a low-fixed rate for an initial period before their interest rates reset. Also included are payment option ARMs from issuers such as Countrywide Financial Corp. (CFC.N: Quote, Profile , Research) and Washington Mutual Inc. (WM.N: Quote, Profile , Research), which are also mostly from 2004 and 2005, according to the list. Payment-option ARMs are viewed as risky by regulators since they allow a borrower's loan balance to grow over time. The bond sale, unusually large for a single seller, has not depressed prices of similar securities or disrupted the market since it was widely advertised to investors and comprised high-quality bonds, managers said. Yield spreads, or the extra return offered over government debt, were little changed. The sale "is close to the size of three separate (new) issues, and that wouldn't be enough to widen spreads," said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles. "Even if spreads did widen, there would be plenty of demand for those issues." (With additional reporting by Nancy Leinfuss and Dan Wilchins in New York) © Reuters 2007. All Rights Reserved.