19 Mar 2013
This week five years ago, JP Morgan announced it would buy Wall Street rival Bear Stearns in a deal worth $2 a share – this ultimately rose to $10. Here, Financial News looks at the events in the run-up to the fall of the 85-year old independent investment bank.
Financial News compiled the timeline from press releases, contemporary media reports and William D Cohan’s account of the collapse of the bank, ‘House of Cards’.
May 21, 2007
After months of growing instability in the US sub-prime mortgage market, Bear Stearns chairman Alan ‘Ace’ Greenberg offers reassurances that the firm, heavily exposed to the market, is on top of things. “The sub-prime (issue) has been blown completely out of proportion,” he says, in comments reported by Dow Jones Newswires.
Serious problems become apparent at two Bear Sterns hedge funds with a high exposure to sub-prime mortgages. Investors in the High-Grade Structured Credit Strategies Enhanced Leverage Fund, which managed $600m, are informed that the fund has lost 23% of its value over the year to April, reports The Wall Street Journal. The fund begins a fire-sale to minimise exposures.
June 22, 2007
After the failure of a mooted rescue plan involving support from lenders, a new rescue scheme is announced by Bear Stearns, which offers $3.2bn for a bailout of a second fund - the High Grade Structured Credit Fund. The bank previously had only $45m invested in this fund’s equity, according to William D Cohan in House of Cards’. Bear Stearns later says it is providing $1.6bn to the fund rather than the original $3.2bn, citing the sale of assets. A decision is made not to rescue the High-Grade Structured Credit Strategies Enhanced Leverage Fund, according to Cohan.
August 3, 2007
Standard & Poor’s downgrades the bank’s outlook to negative. The bank says that concerns over its situation are “unwarranted” as the hedge fund fallout