Bear Stearns, already smarting from the blow-up of two hedge funds heavily exposed to the imploding subprime market, has stepped in to prevent investors from redeeming their investments in a third. The Bear Stearns Asset-Backed Securities Fund is facing margin calls and a surge in redemption demands. The Bear fund has about $850 million in mortgage investments, although unlike the two now-bankrupt funds, it borrowed no capital and made almost no bets on subprime mortgages. Though the prospect of markdowns of mortgages of higher quality could put the fund at serious risk, "[t]here are no plans to shut down the fund," according to Bear spokesman Russell Sherman. "We believe by suspending redemptions, we can ensure the best long-term results for our investors." "This shows you don't necessarily have to be a subprime fund now to be having problems,'' said portfolio manager Bryan Whalen. Rumors of problems at other hedge funds vulnerable to tremors in the mortgage security market, as well as a warning by American Home Mortgage that it might have to liquidate assets to make margin calls, sent a 140-point rally in the DJIA on Tuesday swinging in the opposite direction. The index closed down 146.32 points at 13211.99, a swing of over 2%. BSC shares dropped a combined 8% in regular and AH trading Tuesday.
Sources: Wall Street Journal, Bloomberg, TheStreet.com
Commentary: Bear Stearns Hedge Funds Nearly Worthless • Barclays Might Sue Bear Over Hedge Fund Losses -- WSJ • Credit Suisse/Tremont Index Implodes On Bear Stearns Hedge Fund Meltdown
Stocks/ETFs to watch: BSC. Competitors: GS, LEH, MER. ETFs: IAI, KCE
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.