Either it’s a horribly slow news day, or the Bloomberg people are besotted with the Bear Stearns story. I imagine journalists enjoy schaudenfreude as much as the next guy. From late afternoon until now, even after the Asian markets have opened, the top story on its “Breaking News” section is, “Bear Stearns Enlists Mortgage Chief to Help Funds, Person Says.”
Not only is Bloomberg reporting a personnel matter as the leading news item, but it is highlighting it is relying on a single source. “Person says“? In a headline? This is priceless.
And I thought I was in danger of becoming the “All Bear, all the time” channel. Not a chance.
Bear has now said for sure it is not bailing out the bigger, more troubled fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, which the company said had $1.2 billion in loans outstanding. I’m still having trouble making the number on that fund make sense, but it isn’t quite as loopy as I thought earlier.
When that fund got into serious trouble (meaning it was getting margin calls, as opposed to merely having big losses and halting investor redemptions), it announced an auction of $4 billion of what was then reported as “more than $6 billion in assets.” That auction went well, so the fund then presumably had in excess of $2 billion of assets left. What was left was reported to be pretty doggy, and in lousy markets the lousiest stuff is hardest to sell, so it’s pretty safe to assume that not much of what remained has moved since the tsuris began, on June 14.
Now I am woefully ignorant of how below investment grade MBS and CDO tranches are treated as collateral, meaning how much one can borrow against them. However, the Wall Street Journal reported that the fund raised $600 million in equity. has $699 million in equity as of year end 2006, and suffered 23% losses through end of April. Things certainly haven’t gotten any better, but let’s be generous and say 25% losses. That gives us a wee bit under $525 million.
$1.2 billion in loans and $525 million in equity do not add up to something on the high side of $2 billion. (remember, the asset and liability side of the balance sheet have to equal each other, so debt+equity should equal assets). Now we are only a few hundred million off here, so perhaps I am just being pedantic to worry about such trifling matters, but suspicious minds like mine start thinking about nefarious plots when a bit more disclosure would clear things up.
Update: As of 3:20 A.M. EDT, Bloomberg has finally put that embarrassing headline out of its misery, although the Bear story still has top billing. The lead now reads “Bear Stearns Turns to Marano for Bailout, Underscoring Risk of Losses.”