Hhhm, “orderly” seems to be the favorite word from the finance officialdom today, and we see yet another reference to systemic risk (in this case, that the SEC remains vigilant on that front). But as regards the Bear situation, the comment from the SEC isn’t much in the way of news (however, “now orderly” would have been a tad more exact).
The U.S. Securities and Exchange Commission’s top market-regulation official said Bear Stearns Cos. probably will sell assets and reduce leverage in an “orderly fashion” at its two hedge funds that almost collapsed last month.
“Although the situation remains in flux, it appears” that the Bear Stearns funds will “be able to unwind in an orderly fashion, with limited impact on the broader market,” Erik Sirri, the Washington-based SEC’s director of market regulation, said in prepared testimony to the House Financial Services Committee today.
The funds’ near-meltdown sparked concern that Bear Stearns would be forced to unload billions of dollars of securities at fire-sale prices. The New York-based firm eventually bailed out one of the funds with $1.6 billion in emergency financing. Bear Stearns said yesterday the second fund cut its debt in half to $600 million after negotiating with creditors and selling assets.
Shares of Bear Stearns, which dropped 4.1 percent yesterday on concern it may face losses on mortgage bonds, rose 97 cents to $138.93 in 12:40 p.m. New York Stock Exchange composite trading.
The debacle began after the funds, run by Bear Stearns Asset Management, bet on securities tied to subprime mortgage bonds and banks demanded more collateral to back up the loans. At least one of the funds blocked investors from withdrawing money.
Sirri likened the situation to the collapse last year of Amaranth Advisors LLC, whose losses on energy trades didn’t spread to other markets because of “ample liquidity and tight credit spreads.”
“But there is no guarantee that such favorable conditions will persist, and we must be prepared to assume that they will not,” he said. “Thus, the regulatory community must continue to engage with the systemically important banks and securities firms encouraging additional efforts to improve and expand risk- management capabilities.”