Friday, February 8, 2008

Bear Stearns changes course placing $1 billion bet on the decline of subprime

Bear Stearns Cos., the U.S. securities firm that posted its first-ever loss last quarter on mortgage writedowns, is betting more than $1 billion that subprime home loans and bonds will continue to decline.

The wager, a "short'' position on subprime mortgage securities, was increased from $600 million at the end of November, Chief Financial Officer Sam Molinaro said today at an investor conference in Naples, Florida. The company also reduced its holdings of so-called collateralized debt obligations and underlying bonds, Molinaro said.

The sinking value of assets tied to mortgages led to Bear Stearns's fourth-quarter loss of $854 million. The company, the fifth-largest U.S. securities firm by market value, dropped 46 percent in New York trading last year, more than any Wall Street rival, leading James "Jimmy'' Cayne to hand the chief executive officer role to Alan Schwartz last month.

Two Bear Stearns hedge funds that invested in securities tied to mortgages collapsed in July, prompting investors to shun the debt. Bear Stearns had to bail out the funds and take possession of many of the securities.

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