Rumor of the Day: Bear Goes Belly Up

While I believe Bear has lots of troubles, I am not ready to declare them a zero.

Follow this course of events:

First, Lehman Bros was reported to be cutting 5% of their staff.

Then, posted the following downgrades: Moody’s downgrades 163 tranches from 15 transactions
issued by Bear Stearns ALT-A Trust; 155 tranches placed on review
(68.13 -1.95)  The ratings were downgraded, in general, based on higher than
anticipated rates of delinquency, foreclosure, and REO in the
underlying collateral relative to credit enhancement levels.

Then, with Bear Stearns trading down over $7, a CNBC commentator was going to "discuss weakness in financials, saying speculation surrounds BSC  ($62.35 -7.59).  Says one rumor is that BSC tried to shop their clearing operations a few weeks ago, which was a sign how badly they need cash, but they couldn’t find a buyer

I normally don’t pass along hedgie rumors, but this one strikes me as unusually pernicious, and since its already on CNBC. . .

UPDATE 2: March 10, 2008 12:59pm

[theflyonthewall] Bear Stearns-BSC says there is ‘no truth to liquidity

Blomberg cites a company spokesman.

UPDATE: March 10, 2008 12:50pm

Market beat reports the option activity in BSC, in Bearish Bets on Bear Stearns:

Options activity is heavily tilted toward bearish bets, with aggressive players buying put options on March options contracts at the $50 and $40 strike prices
which would be an enormous move in the shares, currently trading at
about $62.50 a share. Officials at Bear Stearns were unavailable for

However, “it’s very expensive to buy a put” at a $60 strike price, notes Sveinn Palsson, options analyst at Credit Suisse. “You’re
paying $4 for a $60 stock, and there’s not much more than a week left
in the maturity, so people are just trying to get that cheaper in sort
of a worst-case-scenario thing.”

March options expire at the end of next week, so these are
short-term bets, but heavy activity is being witnessed in April options
as well. Volatility has spiked dramatically in the options as the
bearish bets have multiplied; more than 31,000 March put options have traded today, compared with about 16,000 call options.
Meanwhile, spreads on the company’s credit default swaps have widened
dramatically, to between 700 and 800 basis points, compared with about
450 points Friday.

Thank, David!


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What's been said:

Discussions found on the web:
  1. Estragon commented on Mar 10

    Maybe it’s CNBC’s attempt to stay “fair & balanced” ;-)

  2. Vermont Trader.. commented on Mar 10

    On the Blackstone call this morning Schwarzman mispoke saying “since we went panic in June 2007”.

    He meant to say “went public”.

    Call just wrapping up, they have still not deployed any of the capital from the fund they raised to take advantage of current dislocation in debt markets. They think there will be a better opportunity in next 90 days.

  3. Ross commented on Mar 10

    It smacks of De La Vega’s 16th century “confusiones de confusions.”

    If you have a skitish market, start a rumour. Nothing here, move along.

  4. yoganmahew commented on Mar 10

    See the large stock purchase when the Bear price had bottomed. Is someone rigging the market?

  5. Pat G. commented on Mar 10


    That’s too funny!! I needed a good laugh. Thanks.

  6. Aaron commented on Mar 10

    Maybe we’ll get an oversold recovery in the market. Everyone will say smooth sailing ahead, we avoided the iceberg. But then what next? Would any market recovery simply complete the right shoulder of a much more significant head and shoulder’s top? (Presaging a really big down move.) Or would such a market recovery be a double bottom?

  7. Vinny Mozilo commented on Mar 10

    Hey Barry,

    You should cut down on attacking Bear Stearns. There is a rumor that Bear Stearns has contacted Mozilo-Gambino family here on Long Island. They want to whack you Barry. I hate to see you incidentally hitting a garbage truck while driving early one morning. I like you and hate to see you go, leave them alone Barry.

  8. Ross commented on Mar 10

    Screw the NYT quotes. You know you’ve ‘arrived’ when you get a threat from the families.

  9. 2and20 commented on Mar 10

    a good day for the brave…despite being pretty much a perma-bear, I just got long some C, FRE, LEH for a trade (missed the BSC lows so not in it for now). Whenever the selling of major companies seems to be based on fear, a near-term bounce is usually to be found.

  10. Stuart commented on Mar 10

    They’d all be pooched if they priced their assets at market prices.

  11. Dee Leverage commented on Mar 10


    Cramer’s pal, buudy, guest, investor Mr. Spitzer is in a world of trouble per CNBC.

  12. Ross commented on Mar 10

    Hey Dee,
    Any bets on whether the ring employed boys as well as girls?

    Whatever, at $5,000 a pop, they are the ones that got screwed.

  13. Jones commented on Mar 10

    Rumor of the day: Governor of NY, former NYS AG, democrat Spitzer is involved in a prostitution ring. (Not sure if he used a cigar though.)

  14. Ross commented on Mar 10

    “Forget about the cigar, was Cramer involved?”
    He was on the other side of that trade.

    He was one of the ones makin $5,000 a pop.

  15. Phil commented on Mar 10

    no suprise here either but well placed sources say Citibank is insolvent as well. Here we go loopty loo…

  16. A Lot Of Pops commented on Mar 10

    I was wondering where such a bad trader like Cramer was getting all the money. Now, it makes sense (5K a pop for a couple of years and you are a millionaire).

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