Bear Stearns Gains on Speculation About Stake Sale

Bear Stearns Stock
Investment Bank / S&P500
http://realtimecharts.blogspot.com/2007/09/investment-bank-chart.html



Sept. 26 (Bloomberg) -- Bear Stearns Cos., the securities firm hit hardest by the collapse of the subprime mortgage market, rose 7.7 percent in New York trading on speculation that outside investors including Warren Buffett may buy a stake.

Bank of America Corp., Wachovia Corp., and two Chinese companies, Citic Group and China Construction Bank Corp., also are among the potential bidders, the New York Times reported, citing unidentified sources. Officials at Bear Stearns, Bank of America and Wachovia declined to comment. Jackie Wilson, a spokeswoman for Buffett, said nobody was available to comment. Officials at Citic and China Construction couldn't be reached.

``I don't think they need the cash infusion, but it could bolster the balance sheet and perception'' of the firm, said Erin Archer, an analyst at Thrivent Financial for Lutherans in Minneapolis, which manages $75 billion, including Bear Stearns shares.

Bear Stearns's stock has fallen more 15 percent since mid- June when two of the New York-based firm's hedge funds failed because of bets on mortgage-linked securities, damaging Chief Executive Officer James ``Jimmy'' Cayne's reputation for avoiding risk. The company's third-quarter earnings dropped 61 percent, the most in more than a decade.

Billionaire Joseph Lewis, the British-born, Bahamas-based currency trader, paid $860.4 million for a 7 percent stake in Bear Stearns earlier this month.

Shares Surge

Lewis, a onetime waiter whose business empire includes golf courses, a genetic engineering firm and Patagonian real estate, is the president of Aquarian Investments Ltd. and four other Bahamian companies that bought the Bear Stearns shares, according to a Sept. 10 filing with the U.S. Securities and Exchange Commission.

Bear Stearns, the second-biggest underwriter of U.S. mortgage bonds after Lehman Brothers Holdings Inc., rose $8.76, or 7.7 percent, to $123 in New York Stock Exchange composite trading. The shares climbed to $128 earlier today.

Credit-default swaps on Bear Stearns fell 15 basis points today to 75 basis points, according to Phoenix Partners Group in New York, signaling an improving perception of credit quality. The five-year contracts dropped to 70 basis points earlier in the day, the lowest in two months. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Speculation that Bear Stearns may sell a bigger stake has persisted for more than a month. Richard Bove, a Punk Ziegel & Co. analyst in Lutz, Florida, said Aug. 16 that Cayne might sell as much as 20 percent of the firm to an investor such as a Chinese bank.

Buffett and Salomon

China Construction Bank is the nation's second-largest lender by assets. Its shares rose 32 percent on its first day of trading yesterday in Shanghai. Citic Group's Citic Securities Co. is the world's fastest-growing brokerage, with a market capitalization of about $40.7 billion, more than Bear Stearns and Lehman Brothers.

Buffett, based in Omaha, Nebraska, invested $700 million in Salomon Inc. in 1987 to help the firm's chairman, John Gutfreund, head off a takeover attempt by investor Ronald Perelman. Buffett became interim chairman of Salomon in August 1991 after traders at the New York-based securities firm were caught rigging U.S. Treasury auctions. He led the company for nine months.

``A deal will happen because it may be necessary for the future health of the firm,'' Bove wrote in a note to clients today. He raised his recommendation on Bear Stearns to ``market perform'' from ``sell.''

The firm reported quarterly earnings last week that fell short of analysts' estimates after fixed-income sales and trading slumped 88 percent amid ``extremely challenging'' market conditions. The failure of two Bear Stearns hedge funds, which bet on mortgage securities, saddled the firm with $200 million of losses. Chief Financial Officer Samuel Molinaro said Sept. 20 that ``the worst is definitely behind us.''