Merrill Lynch Postpones Auction of Bear Stearns Fund Assets

Merrill Lynch has elected to postpone an auction of $400 million in seized assets of the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund, which is down 23% through April after being hit by losses from bonds backed by subprime mortgages. Merrill made the decision after being informed by the fund that it has assembled a recapitalization plan. After intense negotiations, several firms, including Citigroup and Barclays, have agreed to give the fund an infusion of approximately $500 million to be used for margin calls. The fund will also invest about $1.5 billion of its own money, a significant bump in Bear's exposure from a prior $40 million. The plan obliges the lenders to refrain from making margin calls for 12 months, a commitment some of them are reluctant to make. Final approval of the plan will depend on the agreement of all the fund's creditors. If they do not all agree, the fund could face liquidation. A final decision is expected late Tuesday or early Wednesday.

Sources: Wall Street Journal, Reuters, CNBC
Commentary: Bear Stearns Hedge Fund Facing Mortgage Losses -- WSJ • Cracks in the Wall Street Ice - Bull Run Coming To an End? • Bear Stearns Criticized For Helping Delinquent Subprime Borrowers
Stocks/ETFs to watch: Merrill Lynch & Co., Inc. (MER), The Bear Stearns Companies Inc. (BSC). ETFs: iShares Dow Jones US Broker-Dealers (IAI), KBW Capital Markets ETF (KCE)
Conference call transcripts: Merrill Lynch Q1 2007

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