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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: Candle stick who wrote (796)	9/23/1998 11:45:00 PM
From: Freedom Fighter	Read Replies (2) \| Respond to of 1722

Now They're Bailing Out Hedge Funds? This is from tomorrow's Financial Times. Just where does it all end? Fed mounts hedge fund rescue Banks urged to extend credit lines to Meriwether's struggling Long-Term Capital Management, report William Lewis, Richard Waters and Tracy Corrigan in New York The Federal Reserve Bank of New York was yesterday mounting a rescue of one of the largest US hedge funds, amid signs that global financial contagion had begun to disrupt New York's financial markets. It remained unclear whether the financial lifeboat would be enough to save Long-Term Capital Management, which is headed by John Meriwether, the veteran Wall Street bond trader. Long-Term Capital disclosed earlier this month that it had lost $2bn this year during the global market turbulence. It is thought to have total investments worth far in excess of that sum. The Fed's intervention came amid reports of growing pressures in New York credit markets during the morning. The Fed had stepped in to "facilitate" negotiations between Long-Term Capital and several US commercial banks, according to one New York banker. The Fed had not suggested using its own resources to back a bail-out. The Fed is understood to have called a meeting of commercial banks in a bid to persuade them to extend new lines of credit to the struggling fund. The authorities are thought to have been concerned about the disruption that a forced sale of the fund's investments would have on the New York financial markets. At the beginning of September Long-Term had capital of more than $2.3bn. However, the fund's total market position will be far more because hedge funds leverage the size of their investments through borrowings and the use of derivative instruments. Investment banks and commercial banks could have exposures to the fund of several billion dollars each. John Meriwether is one of the best-known hedge fund managers and enjoys a glittering reputation on Wall Street. Many of Long-Term Capital's investments are thought to be in markets that have fallen heavily since Russia defaulted on its foreign debt last month, leaving the fund with the need to raise cash to stave off illiquidity. In recent weeks Long-Term has been seeking to raise new funds from clients. But according to people close to the fund it has failed to attract sufficient funds. Over the past few weeks Wall Street traders say the fund has been selling assets to meet margin calls from financial institutions it has borrowed from. Yesterday the Fed and Long-Term Capital both declined to comment. However, people close to the fund said it was engaged in a "last-ditch attempt" to raise new funds and lines of credit from banks. Long-Term Capital, based in Greenwich, Connecticut, specialises in bond arbitrage, using complex formulas in an attempt to exploit price discrepancies among different types of securities. Mr Meriwether was formerly vice chairman of Salomon Brothers, the investment bank now joined with Smith Barney and owned by Travelers Group. He was responsible for forming Salomon's US bond arbitrage unit, recently closed down by Travelers. A number of high profile hedge funds have in recent weeks disclosed substantial losses as a result of the turbulence in global markets. Earlier this month, Long-Term told clients it was down 44 per cent in August. Mr Meriwether wrote that "losses of this magnitude are a shock to us as they surely are to you". He also wrote that "our financing is in place", including secured and unsecured term debt and long term debt and long-dated contractual arrangements. "These term arrangements provide time to reduce our positions, if needed, as markets become more settled. We continue to work closely with counterparts," he wrote. Yesterday there were signs that the liquidity of the US Treasury repo market, which hedge funds use to help finance their positions, was under pressure. Banks said they were becoming increasingly reluctant to extend further credit to hedge funds.