Continued Fun at Bear Stearns & Related News / Opinions

[TJ_98370]

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Dear Client of Bear, Stearns & Co. Inc,

Let me take this opportunity to provide you with an update on the status of the High-Grade Structured Credit Strategies and High-Grade Structured Credit Strategies Enhanced Leveraged Funds managed by Bear Stearns Asset Management.

A team at BSAM has been working diligently to calculate the 2007 month-end performance for both May and June for the funds This process has been much more time-consuming than in prior months due to increasingly difficult market conditions.

As you know, in early June, the Funds were faced with investor redemption requests and margin calls that they were unable to meet. The Funds sold assets in an attempt to raise liquidity, but were unable to generate sufficient cash to meet the outstanding margin obligations.

As a result, counterparties moved to seize collateral or otherwise terminate financing arrangements they had with the Funds. During June, the Funds experienced significant declines in the value of their assets resulting in losses of net asset value.

The Funds' reported performance, in part, reflects the unprecedented declines in the valuations of a number of highly-rated (AA and AAA) securities.

Fund managers and account executives have been informing the Funds' investors of the significant deterioration in performance for May and June.

The preliminary estimates show there is effectively no value left for the investors in the Enhanced Leverage Fund and very little value left for the investors in the High-Grade Fund as of June 30, 2007. In light of these returns, we will seek an orderly wind-down of the Funds over time.

This is a difficult development for investors in these Funds and it is certainly uncharacteristic of BSAM's overall strong record of performance.

Bear Steams has been working to achieve the best possible outcome for investors under these circumstances. On June 26th, Bear Stearns committed $1.6bn in a collateralized repo line to the High-Grade Fund

At this time, approximately $1.4bn remains outstanding on this line and we continue to believe there are sufficient assets available in the High-Grade Fund to fully collateralize the repo facility.

In the past weeks. Bear Steams has taken action to restore investor confidence in BSAM. On June 29th, we announced that Jeff Lane was appointed chairman and chief executive officer of BSAM. Tom Marano, head of Bear Steams' mortgage department, has been assigned to BSAM to aid in achieving orderly sales of the Funds' assets.

The risk management function at BSAM has been restructured so that it will now report up to Mike Alix, Bear Stearns' chief risk officer, creating an additional layer of oversight. Mike Winchell, former head of risk management for Bear Stearns and most recently with Bear Wagner, has been engaged to consult with BSAM with regard to its hedge fund risk management function.

Throughout this time, we have appreciated the support of our loyal client base and we will work to continue to provide you with the high quality products and services you have come to expect from Bear Stearns.

Let us take this opportunity to reconfirm that the Bear Steams franchise is financially strong and committed to meeting your investment needs.

Our highest priority is to continue to earn your trust and confidence each and every day, consistent with the Firm's proud history of achievement. As always, please contact us if we can be of service.

[TJ_98370]

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No bloodbath! Dow down 51 points.
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...As evidenced by a 1.2% sell-off in the more heavily weighted Financial sector, the resurfacing of the subprime fallout lending further evidence that the apparent meltdown is likely to become an industry wide crisis took an added toll on sentiment. Bear Stearns (BSC) reportedly telling investors that its two troubled hedge funds are nearly worthless prompted analyst downgrades on five investment banks (BSC, JPM, MS, GS, and LEH). JP Morgan Chase (JPM) was already weak after saying credit-loss provisions in Q2 tripled....
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[Jazen]

[deejayoh]

[Jazen]

[Lake Hills Renter]

[rose-colored-coolaid]

[TJ_98370]

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DJO,

Linked article (bolded paragraph) supports your earlier statements. I am still somewhat skeptical about CDO sales covering the majority of their loans though, especially if there was a margin call involved. Am I missing something here?

[url=http://www.marketwatch.com/news/story/wounded-bear-now-prey/story.aspx?guid=%7BB0D223C0%2DF7E4%2D4F4D%2DB3B5%2DDB7B62361655%7D&dist=TNMostRead]Bear hunting
Commentary: Bear Stearns' Cayne may have putted away the company[/url]

NEW YORK (MarketWatch) -- The demise of two hedge funds run by Bear Stearns & Cos. reminds me of one of those stories about another bear, the one who is shot by a gun and keeps charging.

In this case, Jimmy Cayne doesn't seem to realize his firm may be mortally wounded.

Cayne needs a refresher in the facts. At the end of 2006, these whiz-bang hedge funds were worth more than $1.5 billion. Today, High Grade Structured Credit Strategies and High Grade Structured Credit Strategies Enhanced Leverage Fund aren't even worth those nickel names Bear Stearns bought for them.

And you only thought your 401(k) did that.

Bear's CEO is most likely comforting himself with the fact Bear isn't going to take a financial bath on those funds.

The $1.6 billion bailout package Bear put up is almost certain to be paid back. The lenders who backed the funds initially have been paid back, too. The investors - Bear's clients - on the other hand, will get a "thank you" and "come again soon." ....
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[deejayoh]

[TJ_98370]

[TJ_98370]

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Bear Stearns Cos. said late Thursday that it seized assets from its High-Grade Structured Credit Strategies Fund after the hedge fund suffered huge losses in mortgage-backed securities and structured- finance markets.

The bank lent $1.6 billion to the hedge fund earlier this month after the losses. On Thursday Bear said that $1.3 billion of the loan remained.

Bear took control of the assets because the fund couldn't meet its margin obligations as part of the loan agreement, the bank explained.

"We do not anticipate any material change in financial exposure to Bear Stearns as a result of this action," the company said in a statement.

Bear (BSC) will continue to liquidate the fund in an "orderly" way and will be able to set up hedges to protect against any further declines in the value of the portfolio, if appropriate, the bank added.

The High-Grade fund lost 91% of its value in the first half of 2007, while a smaller, more leveraged fund called the High-Grade Structured Credit Strategies Enhanced Leveraged Fund was totally wiped out, Bear told clients last week. The two funds had about $1.6 billion in assets at one time, but through leverage they controlled more than $10 billion in mortgage securities and credit-related securities.

The crisis has dented the reputation of Bear Stearns, which has been known for its expertise in the mortgage market. Other hedge funds have also blamed the two Bear funds for triggering broader losses and margin calls in other parts of the asset-backed securities market.
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[Jazen]

[Jazen]

[TJ_98370]

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Bear Stearns Cos., the manager of two hedge funds that collapsed last month, blocked investors from pulling money out of a third fund as losses in the credit markets expand beyond securities related to subprime mortgages.

The Bear Stearns Asset-Backed Securities Fund had less than 0.5 percent of its $900 million of assets in securities linked to subprime loans, spokesman Russell Sherman said in an interview yesterday. Even so, investors concerned about losses sought to withdraw their money, he said.

Shares of New York-based Bear Stearns had their biggest drop in almost three months, pushing brokerage stocks lower on concern about shrinking profits from debt underwriting and trading. Bear Stearns triggered a decline in credit markets in June, when funds it managed faltered after defaults on home- loans to people with poor credit rose to a 10-year high.

``There will be more pain,'' said Felix Stephen, a strategist who helps oversee the equivalent of $7.5 billion at Advance Asset Management Ltd. in Sydney. ``I'm giving it a couple of months at least. It's not the subprime issue that really matters, it is the first card to fall in the tower of cards in this situation.''

.....Bear Stearns doesn't plan to close the Asset-Backed Securities Fund, which has $50 million in cash and gets about $13 million in principal and interest monthly, Sherman said. The fund, which probably lost money in July, can afford to wait until the slump in the mortgage market is over because it doesn't have any debt, he said....

....The collapse in July of Bear Stearns's High-Grade Structured Credit Strategies Fund and its High-Grade Structured Credit Strategies Enhanced Leverage Fund fueled concerns about subprime securities.....

...Both funds filed for bankruptcy protection yesterday, two weeks after Bear Stearns told investors they would get little if any money back. Bear Stearns in June assigned its top mortgage trader, 45-year-old Tom Marano, to get the best prices for the funds' remaining assets....
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[sniglet]