BH&F Blog

Kara Scannell of the Wall Street Journal Reports that the Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns Cos., specifically a surge in options contracts betting that the investment bank's share price would drop precipitously, according to people familiar with the matter.

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Mario Ritter and Steve Ember of the Voice of America report that the crisis in credit markets claimed Bear Stearns. The eighty-five year old investment bank in New York agreed on Sunday to sell itself to J.P. Morgan Chase. The price: just two dollars a share, as part of a rescue plan organized by the government.

Bear stock had traded at seventy dollars last week, and one hundred seventy last year.
The fall of Bear Stearns developed quickly. Banks were no longer willing to lend money to the company. The problems largely involved short-term loans, called repo borrowings, that are secured by assets like securities.

The problem was that lenders no longer knew the value of the assets that secured Bear's debt. Bear Stearns invested heavily in securities based on risky home loans.

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Mark Pittman of Reuters writes that even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments. None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

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Daniel McGinn of Newsweek reports that over the last six months the public has learned much about the business of subprime lending, the practice that put millions of Americans with low credit scores into homes—which many may soon lose to foreclosure. Richard Bitner, in contrast, received his subprime education earlier than the rest of us. In 2000 he and some friends founded a Dallas-based subprime mortgage company. For a few years he profited handsomely from this sector's boom, earning a paycheck in the high six figures. In the early days Bitner felt a bit like a modern-day George Bailey, as he helped marginal but deserving buyers achieve homeownership. But as lending standards slipped and mortgage brokers began gaming the system, he began to see more borrowers signing on to mortgages he suspected they couldn't afford.

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Charles Duhigg of the New York Times reports that managers at many nursing homes acquired by large private investors have cut expenses and staff, sometimes below minimum legal requirements.

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Labels: Nursing Home Abuse

Jonathan Stempel of Reuters reports that Regions Financial Corp (RF.N: Quote, Profile, Research) said it is replacing the chief executive of its Morgan Keegan & Co unit, and has received information requests from the U.S. Securities and Exchange Commission concerning Morgan Keegan mutual funds whose values sank in the credit crisis.

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Labels: Morgan Keegan Bond Fraud

The Memphis Business Journal and Reuters report that the U.S. Securities and Exchange Commission has requested information from Regions Financial Corp. related to some mutual funds run by Morgan Keegan & Co. Several bond funds operated by Morgan Keegan lost more than 50 percent of their value in 2007 because of their exposure to complex debt, often tied to mortgages, and investor redemptions, Reuters stated. It is rare for bond funds to suffer annual losses of that magnitude, it added. To read the full article click here.

Labels: Morgan Keegan Bond Fraud