Bad Blood Boils Between Bear, Barclays

Date: Tuesday, July 24, 2007
Author: Hedge Fund Daily

A lost subprime investment appears to be straining the once-strong ties between Barclays and Bear Stearns. Citing people familiar with the matter, The Wall Street Journal reports that Barclays is contemplating its legal options as it attempts to recoup an amount that the bank would acknowledge only as “some” exposure. According to The WSJ, the two banks have long had a tight relationship, with Barclays lending Bear Stearns $200 million for its High Grade Structured Credit Strategies Enhanced Leverage Fund, and offered – but never delivered – an additional $250 million. BS has repaid the loan, but it also had invested what some says was $400 million the money invested in the hedge fund, either directly by Barclays or from its investors through its products is a different matter. On the table to deal with the matter, says The WSJ, is possible arbitration, a negotiated settlement, or even litigation. At issue, according to the paper, is whether BS violated terms of Barclays investment agreement. Among the restrictions, according to the paper, was a limit on the number of non-investment grade holdings and curbing exposure to collateralized debt obligations and asst-backed securities. Meanwhile, Bloomberg News reports that Bear Stearns is “doesn’t expect to lose even a dime on the bailout,” and in fact only two of 16 analysts have cut earnings projections. Further, despite its troubles, Bear Stearns has suffered the smallest drop in share price in recent weeks -- 3.8% -- among its peers Lehman Brothers (-8.4%), Goldman Sachs Group (-.5%), and Merrill Lynch (-4.2%).