Each business day HedgeCo.Net keeps you informed with the top hedge fund industry news, opinion and insight from around the globe. From the latest hedge fund launches, to the impact of regulation, competition, and investor activism - we track the topics and people that make a difference to you.
New York (HedgeCo.Net) – The infamous collapse of the two $1.8 billion Bear Stearns hedge funds that many believe helped spark the credit crisis is still being investigated, and now other banks and individuals are being probed in the process.
According to those familiar with the matter, prosecutors are now looking at the offering memorandum of the funds, a set of documents usually constructed by the legal team that list strategies and other pertinent information, along with investigating the individuals who prepared them.
Ralph Cioffi and Matthew Tannin, both hedge fund managers for the now defunct funds, have had criminal charges filed against them in federal court. The two men allegedly defrauded investors in the hedge funds by neglecting to communicate the sharp losses they were experiencing due to their exposure to mortgage backed securities and hefty amounts of leverage. Cioffi was also charged with insider trading.
Investors who experienced losses in the fund have a number of cases against Bear Stearns. Barclays Bank PLC also filed a suit last year after losing approximately $400 million in the funds.
The High Grade Structured Credit Strategies Fund and the High Grade Structured Credit Strategies Enhanced Leverage Fund collapsed last summer amidst the subprime mortgage fallout. The funds had sought liquidation in the Cayman Islands, possibly hoping to shield some assets from creditors. That request was denied in U.S. Court.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
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New York (HedgeCo.Net) – JPMorgan Chase & Co. has purchased Washington Mutual’s branch network for $1.9 billion, making them the largest U.S. bank by deposits. The deal was encouraged by the U.S. government after consumers withdrew over $16 billion from the nation’s largest savings and loan in the latter half of September.
WaMu was having trouble finding a buyer after the Treasury’s proposed $700 billion bailout package created reluctance among would-be investors. Others companies said to have been considering an offer included Citigroup and Wells Fargo.
Many believed that WaMu was next in line to sink thanks to over $180 billion in outstanding mortgage-related loans and the paranoia of a pending liquidity crunch. On top of that, Standard & Poors once again cut WaMu’s ratings to CCC from BB-, though the company was quick to quell any fears associated with the downgrade.
"Washington Mutual Bank’s deposit rating from Standard & Poor’s continues to be investment grade and it is important to note that Standard & Poor’s rating actions do not affect the safety of customer deposits, which are insured up to the limits allowed by the FDIC," said WaMu in a recent statement.
Washington Mutual continued to deny rumors of any problems. The bank recently stated they had over $50 billion in liquidity despite being hit hard by the subprime mortgage fallout.
It was just a few months ago that WaMu rejected a bid from JPMorgan for about $4 a share, even after JPMorgan urged the bank to consider a deal before the economy got worse.
JPMorgan, who also acquired Bear Stearns earlier this year, will not inherit WaMu’s liabilities, including claims by shareholders and subordinated and senior debt holders. By purchasing WaMu, Chase can now increase their presence on the West Coast and in Florida.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
BusinessWeek – Not many stocks were left standing when the Dow Jones industrial average crashed by 504 points on Sept. 15—the worst drop since the September 11 terrorist attacks. One stock that did stand firmly was Coca-Cola, the world’s largest soft drink company. When the tsunami-like wave of selling was done on that frenzied day, Coca-Cola’s stock stood at 54.75, up from the previous session’s closing price of 54.50.
True, it was a razor-thin rise, but considering the devastation in the marketplace that day, just staying upright was a mighty accomplishment, as the financial giants lost some 20% to 94% of their value. Nonfinancials also got ravaged, including General Electric, which tumbled 8.04%, ExxonMobil 5.48%, Sprint Nextel 5.70%, Intel 3.97%, and Merck 3.25%.
For a while there, Coke seemed to have lost its fizz. From 2003 through 2006, its shares traversed a narrow range, meandering between 37 to 50. In 2007, the stock came back, trading up to a high of 65 by early January 2008. But then the stock got caught in the market’s subprime-mortgage-driven decline in July, which yanked Coke down to a 52-week low of 49.60. Since then, it’s eased back to the mid-50s.
Buffett’s Beverage
That’s because Wall Street appears to have rediscovered Coca-Cola. Of the 17 analysts who follow Coke, not one recommends selling the stock, and all but two tag the stock a buy. Two analysts rate it a hold. (It’s also reassuring that Coke’s largest stakeholder is Warren Buffett’s Berkshire Hathawa, which owns an 8.6% stake.)
New York (HedgeCo.Net) – Despite valiant efforts to find investors and stay afloat the credit crisis, Lehman Brothers Holdings Inc. is now at the center of the biggest bankruptcy filing in history.
The fourth-largest investment bank filed for Chapter 11 protection in a Manhattan court today, after write downs stemming from the subprime mortgage fall-out that it helped create proved to be too much to take.
Lehman, who was the largest underwriter of mortgage-backed securities, listed over $613 billion in debt, including over $157 billion owed to unsecured creditors and over $155 billion owed to bondholders.
"The uncertainty, particularly among the banks through which the company clears securities trades, ultimately made it impossible for the company to continue to operate its business,” said Chief Financial Officer Ian Lowitt in the filing.
Shares of Lehman were trading as low as 29 cents this morning; a fitting finale after losing 94 percent of its market value this year. Treasury Secretary Henry Paulson and the Federal Reserve had been trying to come up with a deal that would keep Lehman afloat. Paulson made it clear that he did not want to use taxpayer money to bail out Lehman.
While London-based Barclays looked to be interested in investing in Lehman, they pulled out yesterday amidst concerns over the lack of guarantees from the U.S. government to protect against losses on assets. Bank of America then followed suit, withdrawing from talks with Lehman only to acquire Merrill Lynch shortly thereafter.
Lehman was planning on selling a majority stake in their asset-management unit for around $4 billion. While talks are still in the works, no conclusion has been reached. Speculations that more losses were to come coupled with its liquidity crunch have prevented any sale from taking place as of yet and ultimately led to the demise of the bank.
Lehman now joins Bear Stearns and Merrill Lynch in the group of banks that were "too big to fail,” that couldn’t weather the credit crunch.
Lehman’s assets are listed at $639 billion. They have about 25,000 employees worldwide.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
Reuters – JPMorgan plans to invest more than $1 billion in Asian real estate over the next three years, hoping to fill a gap as Indian and Chinese developers crave funds and rival investors recoil from property markets.
The investment bank, which has fared better than some Wall Street rivals because of smaller exposure to U.S. subprime mortgage investments, is using its special opportunities group to finance Asian property firms and their projects.
"It’s a fantastic opportunity for us at a time when a lot of our competitors are scaling down because of difficulties accessing their balance sheet," the group’s Asia real estate head, Bryan Southergill, told Reuters in an interview.
New York (HedgeCo.Net) – John Paulson, the infamous hedge fund manager turned billionaire who bet brilliantly against the housing market, will start a new fund later this year according to a report published on Bloomberg.com.
The new hedge fund will provide capital to financial institutions who have suffered losses due to mortgage writedowns. It was the exact scenario that Paulson predicted that caused the world’s largest banks to write down over $450 billion in losses stemming from the subprime mortgage fallout. In addition, it forced many hedge funds including the two from Bear Stearns that had invested in mortgage-backed securities to implode.
Paulson has not yet stated what his targets are for starting capital in the new hedge fund. Paulson made the Forbes annual list of billionaires for the first time, after taking home an estimated $3 billion in 2007. His firm, Paulson & Co. currently oversees over $33 billion in assets.
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
New York (HedgeCo.Net) – The two managers behind Bear Stearns’ infamous failed hedge funds have surrendered to face charges, in what will be the first criminal lawsuit stemming from the subprime mortgage fallout.
Ralph Cioffi, 52, and Matthew Tannin, 46, are part of an indictment resulting from a yearlong federal securities fraud investigation, according to a law enforcement official who spoke to The Associated Press.
Although Tannin’s lawyer is quick to pronounce his innocence, the two men are accused of misleading investors about market conditions and the risks associated with the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund and the High-Grade Structured Credit Strategies Master Fund.
Using heavy leverage, the funds invested in subprime-mortgage backed securities that started to plummet in value amidst the record number of foreclosures. The managers are accused of hiding performance information as the fund started to lose value rapidly, even citing it as “positive” at specific low points.
After a $1.6 billion failed rescue attempt by Bear Stearns, the funds were shut down in June 2007, leaving investors with nothing more than an apology.
This isn’t the first time Cioffi and Tannin have been hit with allegations. After the implosion of the funds, Barclays Bank, backed by other investors sued Bear Stearns, claiming they were misled about the funds as well.
Susan Brune, Tannin’s lawyer states, "He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal."
Julie Scuderi Senior Editor for HedgeCo.Net Email: julie@hedgeco.net
HedgeCo.Net is a premier hedge fund database and community for qualified and accredited investors only. Membership on www.hedgeco.net is FREE and EASY. We also offer FREE LISTINGS for Hedge Funds! Be sure to check out our sister sites. For more information, visit www.hedgeconetworks.com
