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What is going on at Bear Stearns ?

Andy Nguyen

Andy Nguyen

Joined
5/2/06
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Anyone has any insights on what's going on

Share dropped 11% earlier during the day before closing up 0.67 for the day.
CDS spreads jumped from 200 to 750 bps.
Numerous rumors during the day about their cash crunch that prompted their CEO to reassure it's not.
I hear many people at work saying some Asian banks should buy Bear. One name got thrown around is HSBC.

We had a good day today after the Fed threw in $200 Bil to ease the liquidity crisis. Good day for all but definitely the long day is not over at Bear.

Thoughts ?
 
you might want to check out the deal proposed last fall with Citic Securities, which is a state-owned investment company of China. This company has extremely strong ties with both Beijing and Hong Kong... And Bear Stearns was trying to use this proposed plan to boost its image last fall... but I'm not sure if they have been able to follow up.
 
Would regulators approve a complete acquisition of Bear Sterns by a Chinese bank?

C'mon guys put your bets in... nice merger arbitrage opportunity :)
 
Absolutely no way! Also given the current climate, it is so politically incorrect. Indeed, I am very sure no foreign banks/companies (which have strong tie with their governments) will ever bother to propose a complete acquisition of any US based investment firm. There are enough articles about this kind of news on WSJ; it pretty much reflects what the Congress feels about it.
 
I'm more curious on the traders' sentiments toward Bear. From the little conversation I heard, people seem to have a constant bearish view on Bear (no pun intended). Even the good news yesterday moved the market up across the board, Bear didn't get much of a lift. Its CDS spread is still much wider than most other financial firms.

I just checked and CDS spread on Bear is trading at 570 bps level while 200 bps, 270 bps for Citi and Merrill respectively.

So the question is, why the view is so negative on Bear ? Is there something fundamental going on there ?
 
"takeover" can be a subtle thing of course.
If they get the right to a certain number of seats on the board, and a strong say in who gets hired, then it is not a formal takeover. They may even go for some for of warrant which can give them most of what they want for low political risk.
Also there is the fun and games to be had in a joint venture. Most of these have been big western firms using a local presence, perhaps one could create one where the control was the other way around.
 
What ever happens to the FBI probes of the 14 Wall Street firms on the subprime issue ?
FBI probes 14 firms for possible mortgage loan fraud - USATODAY.com

Any findings ?

Most firms are more diversified than BSC so if the outcome is bad, i don't think the Fed will allow BSC to blow up. They probably will approve some big commercial bank like HSBC to take majority ownership or some similar plan.
 
It is interesting..

I haven't seen these levels of spread ever before...and given that Bear has denied all the rumors about its liquidity issues, there is for sure something brewing behind the doors!
 
This
"Bear Stearns's balance sheet, liquidity and capital remain strong,'' Chief Executive Officer Alan Schwartz said in the company's statement. Alan ``Ace'' Greenberg, the former Bear Stearns chief executive officer and current board member, told CNBC that the liquidity rumors were "totally ridiculous.''
and this
Credit-default swaps protecting against a default by Bear Stearns for the next two years soared to 900 basis points, according to broker Phoenix Partners Group in New York. That's up from 514 basis points last week, CMA Datavision prices show.
from http://www.bloomberg.com/apps/news?pid=20601087&sid=aQoykcrKTOv8&refer=home

I also heard rumors that BSC is getting margin calls.

The main data indicator I work with is real time CDS and other credit indices and I have seen Bear CDS spread getting to new height almost daily. People are constantly saying "Did you see Bear spread? It's at xxx bps now!". And xxx is just getting bigger and bigger.

So if anyone out there that has any idea about what's going on, I'd like to make sense of the data i'm seeing.
 
LoL..if I knew I would be a millionaire!!

Also, if it is a takeover it's spread should decrease I would think..
 
http://business.timesonline.co.uk/tol/business/economics/article3542775.ece

Despite the Federal Reserve's efforts Wall Street fears a big US bank is in trouble

Siobhan Kennedy and Suzy Jagger

Global stock markets may have cheered the US Federal Reserve yesterday, but on Wall Street the Fed's unprecedented move to pump $280 billion (£140 billion) into global markets was seen as a sure sign that at least one financial institution was struggling to survive.

The name on most people's lips was Bear Stearns. Although the Fed billed the co-ordinated rescue as a way of improving liquidity across financial markets, economists and analysts said that the decision appeared to be driven by an urgent need to stave off the collapse of an American bank.

"The only reason the Fed would do this is if they knew one or more of their primary dealers actually wasn't flush with cash and needed funds in a hurry," Simon Maughan, an analyst with MF Global in London, said.
Mr Maughan said that the most likely victim was Bear Stearns, the first bank to run into trouble in the sub-prime crisis and the one that, among all wholesale and investment banks, is most reliant upon the use of mortgage securities for raising funds in the money markets.

"The average financial institution was up 7.5 per cent yesterday after the Fed's actions, but Bear Stearns rose just 1 per cent on massive trading volume," Mr Maughan said. "The market is telling you it's Bear Stearns."

The Fed's intervention sparked fears of deeper underlying trouble because it came only days after it had made $200 billion (£99 billion) available in emergency funds. The nature of the financing was also unusual, bankers say, because it was the first time that the Fed had offered to lend Treasury securities in exchange for ordinary AAA-rated mortgage-backed securities as collateral.

Chris Whalen, of the financial consultancy Institutional Risk Analytics in New York, said: "The Fed move is confirmation that at least one of the banks is in trouble. A huge part of the banks' inventories are illiquid. If a broker-dealer is illiquid, it dies."

Speculation has swirled for months about the collapse of an American bank as the credit crisis has escalated and spread from sub-prime to other mortgage-backed securities, treasuries and bonds. As well as Bear Stearns, attention has focused on UBS, the Swiss bank, which has been forced to make more than $18 billion in sub-prime writedowns, and Citigroup, the world's largest financial institution, which has turned to sovereign wealth funds to help to shore up its credit-stricken balance sheet.

Bankers say that mortgage lenders, such as Paragon, Alliance & Leicester and Bradford & Bingley, could also be teetering on the brink soon if they cannot raise enough money in the markets to continue to lend to customers. All the banks have denied that they are facing a cash crunch and each has said that its liquidity position is strong. Nonetheless, the speculation continues to mount. Alan Schwartz, the Bear Stearns chief executive, reiterated that stance yesterday after Punk Ziegel analysts gave warning that the bank could be forced to seek a merger partner.

"We don't see any pressure on our liquidity, let alone a liquidity crisis," Mr Schwartz told CNBC yesterday. He said that Bear had finished fiscal 2007 with $17 billion of cash sitting as a"liquidity cushion". He added: "That cushion has been virtually unchanged. We're in constant dialogue with all the major dealers, and I have not been made aware of anybody not taking our credit."

Yet banking sources said yesterday that a collapse seemed inevitable. One senior banker in London said: "Someone will go under in this crisis, that's for sure. The question is whether they stay under or get rescued. Let's see whether this latest round of stabilisation helps, but if it doesn't, it's difficult to see what Plan B is. The Fed can't just keep on printing money."

One problem with the credit crunch is that banks' solvency positions can change overnight. As banks force firesales of assets to recover their loans from hedge funds, the prices of those assets fall. But as the prices fall, the amount of capital that the banks need rises. Lena Komileva, a Tullett Prebon economist, said: "This is what is fuelling the vicious cycle. Things can deteriorate very rapidly and banks can reach insolvency almost overnight."

Ms Komileva said it was clear that the Fed was reacting to address a "specific counterparty risk", although she declined to comment on which bank might be in trouble. She said: "The speed and severity of their action appeared disproportionate to what had actually happened, so, consequently, it seems the Fed really reacted to prevent a Northern Rock-style problem in the US."

She said that the Fed's moves amounted to window-dressing. "All the signs of stress that were there before are still here," she said.
 
And we thought 570 bps is bad for BSC.
Here is an update from dealer this morning. This is 5 year CDS spread. BSC jumps 100+ bps since yesterday.
Code: 
      **Banks***                     ***Brokers*** 
  BAC     155/165    +15          BSC     705/735      +105 
   C      235/245    +15          GS      240/250      +25 
  WB      300/320    +25          LEH     405/425      +25 
  WFC     160/170    +15          MER     310/330      +25 
  WM      635/655    -10          MS      275/295      +15 
  COF     405/425    +10 
  COF(F)  495/515    +10             ***Agencies*** 
  HSBC(F) 330/350    +15          FNMA     82/87       + 5 
  AXP     255/265    +15          FRE      83/88       + 5 
  CIT      18/20
 
Stocks move up after S&P reports that the end for the mortgage mess may be in sight.
BSC CDS spread moves down to 680 bps level now.

Here is some technical color

Negative Credit View
Default swaps offer a means of taking a generic credit view by either selling protection (long credit) or buying protection (short credit). This is probably most important when that view is negative, as buying protection is typically much more straightforward than arranging term borrowing of bonds for selling short. As a result, the protection buyer may be willing to pay more for protection than the bid side of the asset swap spread driving the basis wider.
Click to expand...

The link from WSJ post that Pardasani posted today has a good article about Bear.
 
Andy, I think it is time to go long on Bear.

For whatever I compare, the BSC's balance sheet is actually much stronger than it was in 2007 January. I think it is the eternal phenomenon of irrationality in market sentiment that has surfaced again.

Correct me if I am wrong.
 
A thought and a question.

Thought: Bear is also a credit provider, vis-a-vis their prime brokerage operations. If they have no money to lend, adding to commentary by Unknown referenceid, Bear is hurt both ways. Abnormal default spread may very well be an exposure to a client. Carlyle, et al..Given a multiple of leverage extended, it is absolutely possible for a client to bring down a clearing firm.

Question: Can anyone think of the last time (anytime) the Fed did a 28 day bond swap with dealer firms? Not necessarily of this magnitude, very roughly 1/3 of their(our) total treasuries owned, just outright swaps?
I understand repos and I appreciate that this move is tantamount to a repo, but more than anything else, this reminds me of a circuit breaker when equities decline by a given percent(i.e. NASD rule 80-B) This has never ended well. I'm not clear what 28 days buys. (excepting margin calls from firms to clients as well as more data for proper pricing of the credits as opposed to no one will ever pay off their mortgage ever)

That being said, equity market action today does look like a floor on Bear, not to mention XLF, which leads to market in general; given financial have been driving the market.

Lastly, kind of like a double contrainian, or a true hedger, why is there no dollar rally nor dollar linked commodity decline associated with the alleviation in the stress on equities?

Dancining bananas rule:dance:
 
JPMorgan Chase Funding Bear Stearns
Friday March 14, 9:28 am ET

JPMorgan Chase, With Federal Reserve Bank of NY, to Provide Funding to Bear Stearns

NEW YORK (AP) -- JPMorgan Chase says that in conjunction with the Federal Reserve Bank of New York it will provide temporary funding for Bear Stearns.
The funding will be provided as necessary for up to 28 days. During that time, JPMorgan Chase will also help Bear Stearns find permanent financing.
Bear Stearns says its liquidity significantly deteriorated over the past day and the temporary funding will help it continue operating normally. The investment bank added there is no guarantee any permanent strategic alternatives will be successful.
There has been speculation this week that Bear Stearns was struggling with liquidity problems.
Bear Stearns shares spiked in premarket trading but then fell back on the news.
 
BSC : SHARES DROP 9% AT 9:32 A.M. (source : Bloomberg ) . JP Morgan and the NY fed will provide funding to BSC for up to 28 days. ...
I think BSC is a target for an acquisition but who would buy it ? JP-Morgan ?
 

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