The Bear Stearns Rumor Speaks Volumes

If you are wondering why Bear Stearns (BSC:NYSE) was down 13% yesterday morning, even though other brokers, such as Goldman Sachs (GS)(-1%), Lehman Brothers (LEH)(-4.7%),and Merrill Lynch (MER)(-4%) were not taking the same pounding - here’s the answer.

Trading desks across North America were passing along a rumor that Bear is going to file for Chapter 11 protection. With a $7.5 billion market cap., and book value of $11.7 billion as of November 30, 2007, that’s quite a rumor. Unfounded as it likely is. The fire behind the rumour was a Moodys downgrade to some “Alt-A” mortgages on Monday morning.

The fact that it even got passed along was either due to:

The glee that those who are short the stock are taking in the rumor.

The fact the no one actually believes that financial institutions are yet able to say, definitively, that they know where all of the bodies are buried on their own balance sheets.

Yesterday morning, Merrill Lynch’s CEO came out and told Le Figaro that “we do not need to raise more equity” and “the worst is behind us.”

There is no doubt that market players will be looking for a similar statement from Bear Stears management.

Comments

[helplessobserver]

BSC has done the unforgivable, destroying its customers by letting its hedge funds collapse. This type of hurt has a long memory and stimulates bitter memories. Instead of customers BSC has ex-clients who hopes it gets destroyed like they are. They will do anything to wreck BSC, now and over future years