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Moszkowski Says Bear Stearns Rescue of Fund Unlikely (Update1)

Date: Wednesday, June 27, 2007
Author: Yalman Onaran, Bloomberg

June 26 (Bloomberg) -- Bear Stearns Cos. probably won't bail out the second of its money-losing hedge funds, Merrill Lynch & Co. analyst Guy Moszkowski said, a day after sounding the alarm that investors couldn't ``rule out'' such a rescue.

``We are increasingly comfortable that the fund will not receive a credit extension from Bear Stearns,'' Moszkowski, who rates Bear Stearns a ``buy,'' wrote in a note to clients today.

The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund owes creditors about $1 billion, two people with knowledge of the situation said yesterday. That compares with the $7 billion that Moszkowski estimated when he said in a note yesterday that Bear Stearns might have to ``stump up'' to keep the fund from being liquidated.

New York-based Bear Stearns is committing about $1.6 billion to save the other of its two money-losing funds, half as much as it anticipated last week. The size of that bailout dropped after the firm, the largest U.S. broker to hedge funds, found buyers for some assets and creditors sold others, the people said.

Moszkowski said in today's note that he didn't ``attach high probability,'' to a rescue of the second fund. Yesterday, he struck a different tone.

``Whether legally remote from the parent company or not, a fund managed by a large securities firm would generally not be expected to be allowed to go belly-up,'' Moszkowski said in the earlier note.

Bear Stearns shares fell as much as 5.3 percent yesterday before closing down 3.2 percent. The stock rose 25 cents to $139.35 at 4:12 p.m. in New York Stock Exchange composite trading today.

The Bear Stearns funds went into a tailspin earlier this month after losses on securities backed by risky home loans led creditors, including Merrill Lynch, to demand more collateral.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .