Bear Stearns Denies Liquidity Crisis; Stock Posts Biggest Loss in 20 Years
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The chief executive officer of Bear Stearns Cos., Alan Schwartz, denied that the firm lacked sufficient capital after speculation about a liquidity crisis pushed the stock down the most since the 1987 stock market crash.
Bear Stearns, the second-biggest underwriter of mortgage-backed bonds, said in a statement that “there is absolutely no truth to the rumors of liquidity problems” and Mr. Schwartz said the company’s finances “remain strong.” The shares declined $7.78, or 11%, to $62.30 in composite trading on the New York Stock Exchange, the lowest level since March 2003.
“There’s an insolvency rumor and concerns on liquidity, that they just have no cash,” the head of equity trading at Lek Securities Corp. in New York, Michael Mainwald, said. “There’s been rumors of this for the past week or two.” Bear Stearns led Wall Street shares lower in the past six months as the world’s largest banks and securities firms wrote down $188 billion of assets linked to the subprime mortgage market. The company’s fourth-quarter loss of $854 million was its first, and analysts in the past month have lowered expectations for earnings in the first quarter.
“Bear Stearns’s balance sheet, liquidity and capital remain strong,” Mr. Schwartz, 57, said in the company’s statement. The former Bear Stearns chief executive officer and current board member, Alan “Ace” Greenberg, told CNBC earlier yesterday that the liquidity rumors were “totally ridiculous.” In December, the chief financial officer, Sam Molinaro, said Bear Stearns reduced its reliance on short-term commercial paper and increased secured term funding. The firm was able to meet all its “unsecured debt maturities over the next 12 months without issuing additional unsecured debt or liquidating assets,” Mr. Molinaro said at the time.
Bear Stearns’s so-called liquidity pool, consisting of “high quality” money market instruments, stood at $17.4 billion at the end of November, according to Mr. Molinaro. “Readily available secured and unsecured committed bank lines” were $8 billion.
Sanford C. Bernstein & Co. today advised investors against buying Bear Stearns and three of its rivals until the credit market stabilizes.
More writedowns are likely for these companies as “financial leveraging that had benefited the group” since 2004 “continues to unravel,” Bernstein analysts including Brad Hintz wrote in a report.
