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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Paul Kern who wrote (82903)	6/20/2007 4:37:25 PM
From: Paul Kern	Respond to of 110194

AT A GLANCE: Two Big Bear Stearns Hedge Funds Face Shutdown Last update: 6/20/2007 4:34:20 PM THE EVENT: Two big hedge funds at Bear Stearns Cos. were close to being shut down as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall Street and investors. THE DETAILS: JPMorgan Chase & Co. (JPM) has canceled a planned auction of assets that it was holding as collateral from Bear Stearns Cos.' (BSC) distressed hedge funds, according to a person familiar with the matter. Instead, JPMorgan is working with the funds to find a solution to the problems that have pushed them to the brink of shutting down, the person said. The assets of two Bear Stearns Cos. (BSC) hedge funds that are up for sale became smaller Wednesday after one of the creditors canceled its auction of complex financial securities that were used for collateral. But the mortgage bond world still has to contend with at least $850 million worth of mostly high-quality assets on the block. JPMorgan Chase & Co. (JPM) canceled its planned auction of assets, according to a person familiar with the matter. Instead, JPMorgan is working with the funds to find a solution to the problems that have pushed them to the brink of shutting down, the person said. Merrill Lynch & Co., one of the hedge funds' lenders, said it would move to seize collateral - much of it mortgage-backed debt - from the two funds and sell it, according to documents reviewed by The Wall Street Journal. At the same time, the funds' managers worked with a handful of other key lenders, including Goldman Sachs Group Inc. and Bank of America Corp., to pay off the funds' $9 billion in loans, according to a person familiar with the matter. Merrill is preparing Wednesday afternoon to auction off about $850 million of mostly high-quality assets it holds as collateral from Bear Stearns Cos.'s (BSC) distressed hedge funds, a person familiar with the matter told Dow Jones Newswires Wednesday. The assets, including collateralized debt obligations, derivatives and swaps, involve AAA-rated companies, the person said, adding that the assets are already drawing interest from people in the market. Merrill Lynch has "specified" that bids on the sale of assets from Bear Stearns' hedge funds were due at 4 p.m. Wednesday, according to Derrick Wulf of Dwight Asset Management. "It will take the seller a little while to collect the bids, sort through them, identify the best levels and then execute the trades with the various counterparties," Wulf said. Merrill apparently is the first bank to start selling assets as the Bear Stearns funds, stung by the turmoil in the subprime mortgage market, face the prospect of shutting down. But other banks may be heading in the same direction. JPMorgan Chase & Co. (JPM), Deutsche Bank AG (DB) and other firms are already in the process of selling assets held as collateral for loans to a Bear Stearns Cos. (BSC) hedge fund, CNBC's Charlie Gasparino reported Wednesday. JPMorgan began selling some of the seized assets Tuesday night, while Deutsche Bank has a list of $300 million in assets that it intends to sell, Gasparino said, citing sources he didn't name. Another firm or firms have drawn up a list of $575 million list of seized assets, Gasparino said. MARKET REACTION: Risky trades were alive and well Wednesday as investors showed few concerns subprime mortgage problems at two Bear Stearns (BSC) hedge funds could spread to other asset classes. The high-yield bond market was holding steady, with few signs of growing risk aversion. In the foreign exchange markets, carry trades - the riskiest of trades - remained popular. But most tellingly, government bonds, the classical safe harbor when investors turn nervous, were lower amid a continued onslaught of corporate bond issuance. The sale of collateral held by two hedge funds at Bear Stearns Cos. (BSC) has the mortgage bond world holding its breath as investors pore over more than $850 million worth of largely high-quality assets on the block. The forced sale, mostly of complex securities known as collateralized debt obligations, could have wider repercussions in the credit markets as investors rethink valuations of bonds where subprime mortgages reside, and the structured finance products where a bulk of these bonds live. So far, the fallout has been well contained. Trading on the subprime mortgage-based benchmark derivative index picked up modestly by midday Wednesday as investors waited for more clarity on troubles at Bear Stearns Cos. (BCS) hedge funds. Treasurys broke their recent winning streak Wednesday, with prices lower across the board, with the market showing little reaction to troubles over hedge funds run by Bear Stearns Cos. (BSC). Consider the similarities and linkages between the housing and the private equity booms. Now let's extrapolate from that the possible implications for the equity markets from Bear Stearns Cos.'s (BSC) distressed mortgage hedge funds, whose assets are being auctioned off Wednesday by creditor Merrill Lynch (MER). One doesn't need to know the minutiae of collateralized debt obligations to grasp that losses in one category of lending vehicle could affect confidence in others that have been eager buyers of loans used to fund leveraged buyouts. In fact, an analyst who sits on the trading floor of a New York brokerage said there are rumblings in the credit markets Wednesday afternoon that the liquidation in mortgage bonds are sparking a sell-off in other assets outside mortgages. (END) Dow Jones Newswires June 20, 2007 16:34 ET (20:34 GMT)