Sunday, July 22, 2007

Credit Market Fall-Out #7 – Bear Stearns and Barclays

An issue that I posted about a few days ago concerned all the firms that lost money by investing in the Bear Stearns hedge funds that currently have no value and what they were going to do. Well, it did not take long for the issue to arise, from Market Watch.

Barclays Plc, once an investor in a now worthless Bear Stearns hedge fund that bet on subprime securities, is now considering its options for recovering $400 million it invested in the fund, the Wall Street Journal reported in its online edition on Saturday.

Barclays was an investor in the Bear Stearns Asset Management's High-Grade Structured Credit Strategies Enhanced Leverage Fund, which put billions of dollars in the subprime-mortgage market, the Journal reported.

Barclays lent the fund about $200 million and later offered an additional $250 million, the Journal reported. The $200 million loan has been paid off, while the $250 million was never extended, the Journal said.

However, Barclays is now considering its options for recovering $400 million that it invested in the fund separately from the loan . . . . The possibilities are a negotiated settlement or litigation.
(my emphasis)

Bear Stearns said earlier this week that two of its hedge funds that made big bets on subprime securities are worth virtually nothing.

The High-Grade Structured Credit Strategies Enhanced Leveraged Fund, in which Barclays invested, is worth nothing, while there is "very little value" left for investors in the larger, less leveraged High-Grade Structured Credit Strategies Fund, based on estimates at the end of June, according to a letter the investment bank sent to clients.

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