Bear Stearns

Is the worst now over? John Paulson may think so

Jim Kim — Mon, 08 Sep 2008 07:51:59 -0400

The idea that we need a big failure to get past a financial crisis has long been out there. That's one reason a lot of people assumed that the Bear Stearns implosion signaled the worst was over. Of course they were wrong. Still, now you have to wonder whether the demise of Fannie and Freddie signals a nadir? No less that star hedge fund manager John Paulson is entertaining the idea. The Financial Times reports that he has informed clients that while he is still bearish, he will also consider long positions in various financial companies. Paulson will launch his Recovery fund next month. He will allow clients to switch money from hugely successful Credit Opportunities funds, which rang up gains of 590 and 352 percent last year. Paulson is known as the $1 billion man for his correct bet against subprime and other mortgage assets.

For more:
- here's the article

CDS market: Risk concerns mounting

Jim Kim — Sun, 24 Aug 2008 09:54:29 -0400

Is anyone really afraid of another Bear Stearns? I don't think we'll get another rumor-driven failure. The Fed's new facilities make that much more unlikely, though the rumors can really cause problems for firms. There were lots of rumors about Lehman Brothers
a while back; some people were really nervous about its standing as a counterparty. While another Bear Stearns-like insta-implosion is not likely, there can still be failures. At some point, if earnings sour badly, capital is all too scarce and ratings agencies are forced to act, a bank could be forced into chapter 11. CDS spreads, as measured by Credit Derivatives Research, have actually been ticking up recently, reports Financial News Online. Fortunately, they are no where near the levels they were at in February, when the pyrotechnics were really hot. Stay tuned, though. We could he heading into another rough patch.

For more:
- here's the Financial News Online article

Lehman Brothers: How bad will it get?

Jim Kim — Fri, 22 Aug 2008 07:38:15 -0400

Lehman Brothers may not be facing a Bear Stearns-like insta-implosion, but it's staring at a long, drawn out demise that may prove just as painful. At this point, we have to question its ability to survive as a standalone bank. It's clear that raising capital will not be easy. For whatever reason, the talks with Asian investors broke down. It doesn't look like selling assets is going to work out, given the credit rating and earnings implications. Losses will mount. Writeoffs will continue. Perhaps Richard Bove, of Ladenburg Thalmann, has it right: he's telling clients to buy the stock because the stage is set for a hostile takeover. Is that why George Soros is loading up? (See next item.) But that begs the question: Who would want the entire bank? They might want the asset management properties, but the rest of the store may not be worth a lot. Debt underwriting--still Lehman's big unit--has tanked, so the options here are really limited. This is water torture, but then again maybe Lehman CEO Richard Fuld has something up his sleeve.

For more:
- here's a New York Times article
- here's a Forbes article

Third Point entwined in rumor probe

Jim Kim — Wed, 20 Aug 2008 17:43:32 -0400

When Third Point--the hedge fund operated by the well-known Daniel Loeb--registered as an investment adviser last year, the SEC undertook an audit and noted that managers often talk to managers at other hedge funds, notes the Financial Times. In a letter to shareholders, the fund says that the probe has since been upgraded to a formal investigation, which may be connected to the SEC's in-progress look at rumor-mongering and whether the practice has harmed various companies. Ex-Bear Stearns executives aver they were victimized. Loeb writes that the practice is legally sound, giving his managers a chance to "test our hypotheses and refine our thinking," and is thus in the best interest of their customers. We'll see where this goes.

For more:
- here's the letter to investors

Big debate rages about charges against Bear Stearns execs

Jim Kim — Mon, 18 Aug 2008 18:35:35 -0400

Recall that Ralph Cioffi and Matthew Tannin, portfolio managers of the two Bear Stearns hedge funds that collapsed a little over a year ago, have been charged with fraud--essentially for not disclosing the true extent of the funds' portfolios to clients. As TheDeal.com notes, a big debate has erupted over the legitimacy of the charges. One line of thought has been that the two were charged as scapegoats for the entire mess. Another line suggests that the two were charged to alleviate the pressure to charge others higher up the food chain. It starts sounding a little conspiracy oriented. We may not have seen the last of the charges, though you get the feeling the top execs will not be charged with anything. However, if the Bear Stearns managers decide to go to trial, we may hear a lot about the higher ups and what they did or did not do.

For more:
- here's some commentary from TheDeal.com

Bill Miller bets on Freddie Mac

Jim Kim — Wed, 13 Aug 2008 08:14:08 -0400

It's fair to say that the financial crisis has been unkind to a lot of value-oriented fund managers. The mindset--by on valuation dips--has proved to be a loser's strategy. Anyone buying on the likes of Bear Stearns, Merrill Lynch and Lehman Brothers on the way down took some big hits. Miller was long on a whole lot of financial stocks, including Citigroup and Countrywide. At one point the Legg Mason Value Trust fund was down a whopping 40 percent. So what's the answer? How can he start a new 15-year streak? In true value fashion, Miller is loading up on Freddie Mac. Fortune reports his fund owns 80 million shares (12 percent of the total). That's up from 15 million shares at the end of last year. Some might call this desperation. We'll see.

For more:
- here's the Fortune article

Jimmy Cayne's near-death experience

Jim Kim — Mon, 04 Aug 2008 17:07:24 -0400

It has been a rough road for Jimmy Cayne. He nearly died of sepsis last year, only to recover in time to watch his firm implode, which subjected him to some really tough media coverage. The Wall Street Journal was especially tough, noting his pot-smoking tendencies among other things. Now, Cayne is speaking out. He granted Fortune a series of interviews that led to a lengthy article that portrays the 74 year old as out of touch, fiddling as Bear Stearns burned. "By the summer of 2007 this creature of instinct was out of his element." Few careers end on such a sordid note. This is fascinating stuff for those who still care. Could it happen again?

For more:
- here's the profile

Now hear this: Morgan Stanley is hiring

Jim Kim — Thu, 31 Jul 2008 13:09:14 -0400

People tend to assume that getting hired on Wall Street right now is all but impossible--with all the layoffs. For John Mack, CEO of Morgan Stanley, that spells opportunity. The Financial Times reports Morgan Stanley is looking to hire top executives and upgrade its status in key markets, like derivatives, risk management and prop trading. In particular, it would like to add expertise in the Middle East and Asia. It has already snapped up a few former Bear Stearns employees. Morgan Stanley has saved $1 billion by cutting about 10 percent of its employees, mainly in investment banking, fixed income and research. Those savings are being redeployed.

For more:
- here's the FT article

CDS market: still wary of top banks

Jim Kim — Wed, 30 Jul 2008 13:40:25 -0400

A lot has been made of the mini-rally in bank stocks, but it's looking more and more like a dead-cat bounce rather than anything meaningful. For another look at how market participants view top financial firms, check out Credit Derivatives Research's Counterparty Risk Index, which averages CDS spreads of 15 major credit derivatives dealers--basically the top banks. As of Tuesday, reports the Financial Times, the index stood at 155.75 basis points. That's 2.3 points more than its previous close. This is weakest sentiment since at least March, when Bear Stearns imploded. Merrill Lynch was the worst performer; its CDS spreads soared 46 basis points. Interestingly, U.S. banks are judged to be three times as risky as their European counterparts.

For more:
- here's the FT item

What's Jamie Dimon waiting for?

Jim Kim — Wed, 30 Jul 2008 13:39:37 -0400

Most people assume the cagey Jamie Dimon is angling to make another purchase, specifically one to build the retail-bank side of the firm. The rumors are heavy regarding several companies, notably SunTrust with its strong Southern footprint and troubled Washington Mutual. Both are, ahem, attractively priced right now. Wachovia may also be a candidate for some kind of a deal. JPMorgan Chase is one of the few large banks well positioned to make deals right now. Citigroup has numerous issues to deal with, including capital troubles, and Bank of America has it hands full with the tricky Countrywide integration, so Dimon can afford to be choosy. Or can he? CNNmoney.com notes that a possible accounting change forcing banks to add off-balance sheet assets to their balance sheets could make it much harder to do a deal. So we may see a deal soon--or not at all.

For more:
- here's the CNNmoney.com article