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PAGE ONE

Remodeling Job

By KATE KELLY and RANDALL SMITH
August 4, 2007; Page A1
Bear Stearns Cos., a Wall Street trading titan that recently suffered the collapse of two mortgage-bond funds, took extraordinary measures to bolster its financial position amid investor fears that knocked down its shares and fed a broad stock-market swoon.
The big securities firm also plans to oust Warren Spector, Bear's powerful chief of stock and bond trading and one of the firm's two presidents, according to a person familiar with the matter. Mr. Spector, 49 years old, had been widely viewed as a leading candidate to become the firm's next chief executive. Bear's board is set to meet Monday to discuss Mr. Spector's departure, the person said.

A spokesman for the firm declined to comment.
In addition to detailing the steps it has been taking to raise cash, Bear said it has reduced its reliance on short-term loans so it isn't vulnerable to being shut off from the day-to-day loans required to fund its trading operations. Wall Street firms are especially vulnerable to crises of confidence, because they depend on lenders to finance their day-to-day securities trading and other operations.
During a call with investors held early Friday afternoon, Bear's senior executives attempted to quell investor fears, saying the firm is working to offset further drops in the credit markets, which have been roiled in recent weeks.
Besides turning to loans with longer maturities, it hedged existing positions that looked risky, such as securities based on pools of so-called subprime mortgages -- loans made to borrowers with weak credit.
Bear said it reduced its short-term unsecured debt known as commercial paper to $11.5 billion from $23 billion in January. Treasurer Robert Upton said the company has unused committed secured bank lines that are "of over $11.2 billion, $4 billion of which is available to be drawn on an unsecured basis."
Over the past eight months, it has raised more than $11 billion of cash. Mr. Upton also said the firm has "unencumbered collateral" -- or assets not underpinning loans -- exceeding $18 billion.

"We're facing an extremely challenging market environment," James E. Cayne, Bear's 73-year-old chairman and chief executive, said.
After 22 years in the securities business, "this is about as bad as I've seen it in the fixed-income market," Bear's finance chief, Samuel Molinaro, said during the call. Fixed-income securities generally refer to bonds and other interest-bearing securities.
The firm is in a delicate position: It needs to demonstrate to the market that it has a strong, liquid balance sheet without suggesting it is seriously weakened or taking desperate measures to strengthen its balance sheet.
Rather than soothe frayed nerves, however, the somber comments exacerbated the market drop, with Bear stock and the Dow industrials -- which had been off about 50 points before the conference call -- falling further.
"They called it the worst fixed-income markets in 20 years, grouping it with 1987 and the bursting of the Internet bubble, and said they needed a better August just to get to the lower end of their historical range of returns," said Mike Mayo, an analyst at Deutsche Bank AG.
Bear, which employs 13,566 people, has seen its stock-market value shrink by more than one-third during 2007, bringing its total market value to about $12.5 billion -- a relatively small figure for such an institution. Some analysts have suggested the firm could be takeover bait -- a notion that Bear executives have rejected.
The Dow Jones Industrial Average, which was in the red for most of the day, started to sink further after Bear's announcement. The index ended the session down 281.42 points, or more than 2%, at 13181.91. Although the Dow is still up 5.8% this year, it has fallen nearly 6% from its record close of 14000.41 on July 19. The Standard & Poor's 500-stock index fell 2.7% Friday, while the tech-heavy Nasdaq slid 2.5%. (See related article.)
As U.S. housing prices have weakened and many subprime loans have fallen into default this year, the stock of firms like Bear and Lehman Brothers Holdings Inc., which play heavily in the origination, trading and packaging of mortgages, have taken a beating. More recently, the dry-up in leveraged financing, which until recently was fueling the most euphoric buyout boom in history, has thrown a wrench into the brokerage firms' bond underwriting and advisory businesses, which could crimp earnings even more.
Concerns about Bear hit financial stocks particularly hard, amid mounting concern that banks are carrying more risk for mortgages and other loans now that investors have lost their appetite to buy securities backed by such debt. Lehman was downgraded by a securities analyst on Monday after it disclosed it has $43 billion of contingent commitments to finance debt-backed acquisitions by buyout firms and others, up from $13 billion six months earlier.
Lehman stock was hit particularly hard Friday, falling nearly 8%, or $4.67, to $55.78. Lehman says such commitments may be hedged or repriced to reflect market conditions. What that means is that Lehman might make offsetting trades or mark down the value of the positions if the market further deteriorates.
The market moves yesterday highlight just how jittery investors have become about the welfare of Wall Street's biggest firms, which depend on a combination of goodwill and short-term financing to stay in business.
"Everybody's waiting for the second, third and twentieth shoe to drop," said Mike Vogelzang, president of the money-management firm Boston Advisors.
During morning trading, Bear shares fell nearly 8% to $106.55, a new 12-month low. At that price, Bear stock was trading below 1.2 times its book value, or the difference between its assets and liabilities-the lowest of any major Wall Street firm.
The cost of credit protection -- or the amount investors bet against the chances that a company will default on its credit obligations -- for Bear is more than seven times higher than what it was at the start of the year. "The financial system relies on confidence, and investor confidence has been shaken in recent weeks," said Tim Compan, a corporate-bond portfolio manager at Cleveland-based Allegiant Asset Management, with $10 billion of fixed-income assets under management.
The downdraft started early in the day when ratings agency Standard & Poor's cut its outlook on Bear Stearns from stable to negative, saying its "reputation has suffered from the widely publicized problems of its managed hedge funds, leaving the company a potential target of litigation from investors who have suffered substantial losses."
The stock started to recover when Bear put out a statement saying the 84-year-old institution was "profitable and healthy and our balance sheet is strong and liquid."
Bear, traditionally a bond powerhouse specializing in mortgages, has been among the Wall Street firms most exposed to the turmoil and illiquidity afflicting the markets for mortgage and asset-backed bonds.
Already, the portfolio manager who ran the two high-grade hedge funds and the executive who had run Bear's asset management division have been sidelined after an embarrassing meltdown that cost investors as much as $1.6 billion and led to a bankruptcy filing.
Based on a relatively bullish bet on certain mortgage-related securities and an enormous amount of borrowed capital, the High-Grade Structured Credit Strategies Fund and a more leveraged sister fund performed well until late this spring, when the prices of those securities precipitously dropped. After poor returns spurred a slew of investor requests for their money back, the two High-Grade funds were faced with lender demands for additional cash and collateral that couldn't be met, ultimately forcing their closure.

Mr. Spector wasn't on yesterday's conference call. He has spent his entire career at Bear. Armed with little other than a business degree and a sharp intellect, he started at the firm in 1983 and quickly established his reputation for savvy mortgage-bond trading. Even in his late 20s, he was making such big bonuses that he caught the attention of Mr. Cayne, who had not yet become chief executive, and established a close rapport.
At 30, about two years after being named a senior managing director, Mr. Spector was given a board seat at the firm. Then a few years later, he was named co-head of fixed income, Bear's most important business unit.
In recent years, Mr. Spector, an established bridge player and golfer with homes in Manhattan's Greenwich Village section and on Martha's Vineyard, has overseen Bear's entire capital markets business - a plumb but demanding job that includes monitoring stock and bond trading.
The recent downturn in its bond business, notably in mortgage-backed securities, is a rare weak spot for Bear, a firm known for its quick-witted trading and risk management as well as its expertise in the world of home loans. And while Bear's chief financial officer, Mr. Molinaro, took note of gains in the equity and international businesses that will help to offset the revenue downturn in mortgage securities, the firm's business mix is weaker than that of peers such as Lehman, which has a robust investment-banking division as well as a huge mortgage unit.
At the right price, Bear would be an attractive candidate for a range of potential acquirers. But it has a history of resisting overtures even when times are good and is seen as unlikely to sell at a discount. Bear has extensive trading operations, as well as a prime brokerage serving hedge funds and processing their trades. The company also runs an investment bank that puts together mergers and acquisitions and corporate bond deals.
That mix of capabilities could prove desirable to a large commercial bank looking to expand ways to deploy its capital. That could include the likes of Swiss giant UBS AG, or even U.S. banks such as Wachovia or Bank of America.

FINAL TRANSCRIPT
BSC - Bear Stearns Responds to S&P Action

C O R P O R A T E P A R T I C I P A N T S
Elizabeth Ventura
Bear, Stearns & Co. Inc. - Head of IR and Corporation Communications
Sam Molinaro
Bear, Stearns & Co. Inc. - CFO
Jimmy Cayne
Bear, Stearns & Co. Inc. - Chairman and CEO
Mike Alex
Bear, Stearns & Co. Inc. - Chief Risk Officer
Bob Upton
Bear, Stearns & Co. Inc. - Treasurer

P R E S E N T A T I O N
Operator
Good morning, ladies and gentlemen, and welcome to the Bear Stearns conference call. All participants have been placed on
a listen-only mode. At the end of the prepared remarks, the call will be opened up for a question-and-answer period. If you

Aug. 03. 2007 / 2:00PM, BSC - Bear Stearns Responds to S&P Action
would like to ask a question (OPERATOR INSTRUCTIONS).
I will now turn the conference over to Elizabeth Ventura, Head of Investor Relations and Corporate Communications. Ms. Ventura,
please go ahead.
Elizabeth Ventura - Bear, Stearns & Co. Inc. - Head of IR and Corporation Communications
Thank you. Good afternoon, everybody, and welcome to the Bear Stearns conference call. Before we get started, I'd like to take
a moment to remind you that contained in this discussion are forward-looking statements. These statements reflect the Firm's
belief at this time and are subject to risks and uncertainties which could cause our actual results to differ materially from the
statements made during this call. Please keep in mind that there are many factors that affect our business and could potentially
change or affect our future performance. Some examples include changes in interest rates, market conditions, or the current
backlog of pending transactions.
In addition, our business can be greatly affected by shifting domestic or global economic conditions. A fuller discussion of these
risks is contained in our disclosure that we filed with the SEC in our most recent annual report and in our quarterly reports filed
on Forms 10-Q. In particular, read the section Management's Discussion and Analysis of Financial Condition and Results of
Operation and Risk Management. You can see these documents through our website. This audiocast is copyrighted material
of the Bear Stearns Companies, Inc. and may not be duplicated, reproduced or rebroadcast in whole or in part without our
consent.
Thank you for your attention and I'd like to turn the call over to Samuel Molinaro, our Chief Financial Officer.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Thanks, Elizabeth. And good afternoon, everybody, and thanks for joining us today. I'd like to begin the call by turning it over
to Jimmy Cayne, our Chairman and CEO, who would like to kick things off.
Jimmy Cayne - Bear, Stearns & Co. Inc. - Chairman and CEO
Thanks, Sam. Good afternoon, everyone. I'm Jimmy Cayne. I have asked for this conference call so that we can address the
market situation and some of the specific concerns about the health of Bear Stearns.
Every financial institution, Bear Stearns included, is facing an extremely challenging market environment. I've been involved in
the securities industry for more than four decades and I have seen a broad spectrum of market dislocations. In the stock market
crash in the late '80s, fixed income troubles in the mid '90s, and the bursting of the Internet bubble in 2001, this is not the first
time and certainly will not be the last time that Wall Street and the financial community will work through difficult conditions.
I understand there is a great deal of uncertainty in the marketplace surrounding the operating environment and specifically,
our Firm. Sam and I are here with others to try and address the concerns in the investor community and provide you with the
facts to help you better understand how the current conditions in the market are affecting Bear Stearns.
Before I turn the call over to Sam, I want to assure you that we are taking this situation seriously. We are applying all of the
energies and experience we have in the markets to manage the current issues. I'd also like to add that I'm extremely pleased
with the way my colleagues have been working to handle this situation. I want to thank everyone on the call for being with us
today. Sam will now make his presentation.


Aug. 03. 2007 / 2:00PM, BSC - Bear Stearns Responds to S&P Action
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Okay, thanks, Jimmy. I'd like to first report that our operating performance for the first two months of the quarter is solidly
profitable. In fact, notwithstanding the extraordinarily difficult market conditions we've experienced over the past month, we
expect July to also be profitable.
The first two months of the quarter, our equity franchises performed well and revenue continues to be strong, both domestically
and internationally. Global clearing services revenues also remained strong with record results in June and July, as margin
balances have been at record levels throughout much of the quarter. International revenues have also continued to show
positive momentum, with revenue levels up significantly from the prior year.
The diversification of our franchise has benefited our results as these areas have offset weaknesses in our fixed income area
attributable to the difficult market conditions being experienced in the mortgage, asset-back and leverage finance markets.
Fixed income revenues increased in June when compared to May as mortgage conditions improved. However, the significant
weakness in the subprime mortgage and collateralized debt markets have served to reduce revenue opportunities in our MBS
area during July. We believe we've managed these exposures well by avoiding several of the most problematic areas and
prudently hedging our exposures. The contraction in the leverage finance markets has resulted in many financing commitments
being either hung or priced down significantly in order to clear the market. We believe our leverage finance commitments are
manageable, well hedged and prudently funded.
With respect to liquidity, our balance sheet, capital base and liquidity profile remained strong. We have significantly reduced
our reliance on unsecured commercial paper and increased our usage of various secured funding sources. We maintain an
alternative liquidity plan that should allow us to satisfy maturing short-term debt obligations over the next 12 months without
needing to access the unsecured credit markets.
With that overview, I'd like to ask Mike Alex, our Chief Risk Officer, and Bob Upton, Treasurer of Bear Stearns, to briefly review
with you our exposures to high-profile risk factors and a more detailed discussion of our liquidity and capital position. Mike?
Mike Alex - Bear, Stearns & Co. Inc. - Chief Risk Officer
Thank you, Sam, and good afternoon to you all. I'd like to take a few moments to give you a high-level overview of our risk
management strategy and risk profile in the noteworthy fixed income sectors through this period of unusual market volatility
and illiquidity.
First, I should point out that generally our fixed income franchises, particularly our mortgage and securitization businesses,
have long focused on the origination, transformation and redistribution of risk. We've always managed the risk in this process
by adjusting the intake, the origination of risk, to the demand for the end products. And have managed the risk of loss in the
transformation phase of this process by identifying and putting in place liquid market hedges for the relevant risk factors. Of
course it's suggested in strong markets our hedges reduce the revenues a more directional strategy might produce, but it also
implies that in weaker markets, such as we are experiencing now, that hedges offset the losses from inventory for which investor
demand has subsided.
In recent years, we and others in the market have developed more liquid products for managing the inventory risk in our core
activities. Where we observe changes in relationships between positions and hedges, we quickly make adjustments. Though
the hedging strategies may vary by product and market, we have in fact seen substantial benefit from this approach.
Secondly, like others in our industry, we distribute some of the securities we buy or create to investors with financing. In
determining whether and how much financing to provide, we evaluate both the quality of the customer or counterparty and
the risk to the market value of this portfolio of securities we hold as collateral. We typically require margin for financing that

Aug. 03. 2007 / 2:00PM, BSC - Bear Stearns Responds to S&P Action
considers a stress move in market value and require an additional margin on a daily basis as market values erode. When
counterparties are unable to meet margin calls, we may liquidate collateral.
In more volatile markets, our credit professionals are in frequent contact with borrowers to determine how they are managing
liquidity and market risk and their vulnerability to further market deterioration. The combination of margin requirement and
daily scrutiny of the portfolio substantially mitigates the risk of loss from financing. So our core risk management practices are
disciplined hedging of market risks and stress based margining of secured financing positions.
With that, I'll briefly address some key sectors of interest.
In our mortgage businesses, we've put in place a variety of hedges to mitigate the credit risk inherent in our residential mortgage
inventory. In particular, well before the subprime market problems became apparent, we slowed the origination of subprime
loans. We run risk analytics to demonstrate that the Firm is well protected against further deterioration in both the subprime
and [altay] sectors across both whole loans and all securitization tranches.
In CDOs, our activities flowed this year, both in absolute size and relative to the market. We were 16th in the 2007 underwriting
link tables. So the inventory warehouse for securitization fell as well. The underlying positions have been mark to market and
have been hedged. In the CLO business where we have been more active, we have both macro and portfolio specific hedges
to reduce the impact of the market downturn.
Similarly, as Sam suggested, we've hedged our pipeline of leveraged loan commitments with liquid market instruments. While
current market conditions are forcing the funding of leverage loans, our hedges have performed as expected. In our financing
businesses, our exposures to mortgage originators and leverage mortgage investors remain well secured. Thank you.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Okay. Now, Bob?
Bob Upton - Bear, Stearns & Co. Inc. - Treasurer
Thank you, Sam and Mike and Jimmy. Good afternoon to all on the line. I would like to emphasize that Bear Stearns liquidity
and capital position is very solid. Over the last eight months, the Firm has taken several steps to strengthen our liquidity profile.
We've one, materially reduced our reliance on short-term unsecured funding, including commercial paper. We've two, greatly
increased our use of term and Evergreen funding for corporate securities. We've raised significant cash liquidity at the parent
company, and we've expanded our overall funding and capital base.
More specifically as of the close of business yesterday, August 2, 2007, we had a liquidity pool of approximately $11.4 billion in
cash available at the parent company. We had approximately $11.5 billion of commercial paper outstanding, which is down
from over $23 billion in January of this year. We had unused committed secured bank lines that were available of over $11.2
billion. $4 billion of that is available to be drawn on an unsecured basis. We had already readily identified an available
unencumbered collateral of over $18 billion that can be pledged under the aforementioned facilities. And we had total corporate
and equity (technical difficulty) and secured funding structures outstanding of over $35 billion -- $30 billion in the domestic
market and $5 billion in the foreign markets -- versus approximately zero 10 months ago. Virtually all of that funding is either
term or Evergreen in tenor.
With respect to capital and longer-term funding, our total capital at the end of July was in excess of $76 billion. That total capital
is long-term debt and equity. Over 90% of that $76 billion had a maturity of greater than one year. The upshot I think is that the
Firm's liquidity position, capital adequacy and funding capacity remains extremely solid notwithstanding the current difficult
market conditions. Beyond that, I would like to highlight that in a special comment update on subprime and related exposures
http://www.streetevents.com Contact Us 4

at US Investment Banks yesterday Moody's highlighted, and after having been in active dialogue with all the investment banks
including Bear Stearns, that they remain comfortable with the rating at high single A and the outlook at stable.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Okay. Thanks, Bob. So with that we're going to -- we've tried to cover as much of the ground as we can with respect to risk
profile, liquidity picture and operating performance, and we'll open up the call to any questions you have.
Q U E S T I O N S A N D A N S W E R S
Operator
(OPERATOR INSTRUCTIONS) Douglas Sipkin.
Douglas Sipkin - Wachovia Securities - Analyst
Hey, Sam, how are you?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Good, Doug. How are you?
Douglas Sipkin - Wachovia Securities - Analyst
I'm doing okay. Interesting July and beginning of August for the markets but otherwise hanging in. Just two questions. One,
first, I guess can you walk us through how liquidity has disappeared so rapidly in pieces of the fixed income market? And then
I have a follow-up.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, obviously there's a great deal of uncertainty in the fixed income markets over the level of default and loss expectations
in the subprime mortgage market and I guess generally in the broader mortgage market. That, of course, is backing up into the
CDO market and basically risk premiums are being priced back into the marketplace.
So with a great deal of uncertainty, we've seen volumes dry up pretty dramatically in the securitized product area, particular in
CDOs, CLOs; of course, the leveraged finance market. So the month of July obviously had been very difficult with more significant
risk premiums being priced in the marketplace.
Douglas Sipkin - Wachovia Securities - Analyst
And I guess what do you guys view as sort of a potential catalyst to have some liquidity restored to the marketplace and give
investors a little bit more confidence in sort of the -- just the general fixed income and derivative markets in general?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Doug, I don't know that I know what the answer to that question is exactly. I think that we've been in a period of gridlock for
quite some time. And it seems that with each new day and with each new month there's new information in the mortgage
market in terms of delinquencies and defaults. I guess every day has got new information. I don't know that I know what the
catalyst is going to be.
Douglas Sipkin - Wachovia Securities - Analyst
Okay. And then a question for Jimmy if he's still there. I know you guys have always have been big believers of building your
capital base given that you're a little bit smaller than some of your competitors. But you'd always sort of viewed as book value
as a place to potentially buy back stock. Obviously, given the environments that stock has sold off a decent amount in the last
couple of months. As your stock approaches book, is that something you guys would consider a little bit more over the next, I
don't know, X amount of time? Or are you sort of watching the markets and seeing how things develop?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Doug, Jimmy stepped out of the room but the answer to that I think is we've been in an extraordinary period here with the lack
of liquidity in the marketplace. And while we think the stock is very cheaply priced here and certainly not reflective of the value
of the Company in our opinion, we have been in a mode where we think the appropriate path has been to preserve our capital
and to try to weather the storm.
So I think that when we get back to more normal times, we get back to a philosophy where buying shares may be an appropriate
strategy, I think right now our goal has been to preserve liquidity and make sure that we were abundantly liquid and can weather
the storm.
Douglas Sipkin - Wachovia Securities - Analyst
Just one last follow-up. I mean obviously you guys have made tremendous strides in your equity business, I guess. Just from a
more holistic standpoint, how have the equity businesses worked to sort of diversify the weakness in the fixed income business,
both in the US and internationally throughout the period that you guys are talking through?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, as I mentioned in the comments, I think it's worked very well. The equity business has been performing very strongly.
Clearing business in particular we mentioned; record performance in both June and July; balances very high. So the equity
franchise has been quite strong.
The fixed income business is also continuing to perform well. So I think it's been that balance that's enabled us to navigate the
markets and maintain a solid level of profitability through the first two months. Clearly, the market environment in July has
been extraordinarily difficult. We think that our exposures have been well hedged and managed. Of course we've had to mark
things down in order to reflect current market conditions. But we think we've gotten through that pretty well. And as I said,
profitable for the month of July.
Douglas Sipkin - Wachovia Securities - Analyst
Okay, great. Thanks for taking my questions.

Operator
Guy Moszkowski, Merrill Lynch.
Guy Moszkowski - Merrill Lynch - Analyst
Good afternoon. Sam, I was wondering if I could ask you about the nature and the timing of the most recent S&P review, where
they actually came in and worked with you to look at mortgage positions, corporate lending commitments, the stuff that they
comment on and the hedges. Is there a recent in-depth review which was a catalyst for what they did?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
You know, Guy, I'm not -- S&P, all the rating agencies, we maintain an ongoing dialogue with. We speak to them on a regular
basis. We share information with them as they need it. We had a dialogue with them over the last several days. They have
expressed concern over the matters that they alluded to their release. We gave them quite a bit of detailed information about
our positions and exposures. I think they've tried to reflect them as they see fit in their release.
I think their concerns are what their concerns are. They've expressed concern about whatever franchise hit we may have taken
as a result of the [B. SAM Fund] problems. I think their commentary with respect to the size of our asset-backed and
mortgage-backed franchises and leveraged finance businesses, I don't think there's any surprise there. These are big businesses,
particularly our mortgage and asset-backed franchise. It's experiencing a cyclically difficult market environment right now. So
I don't think there's any big surprise there. I don't think it was commenting at all as to our risk exposures and with the things
that we've just gone through with you, which is one of the reasons that we felt we needed to get out today and address those
issues with you.
Guy Moszkowski - Merrill Lynch - Analyst
Thanks. Let me just follow-up with a question that addresses one of the comments that you made. Can you give us some idea
for what you mean by solidly profitable over the last couple of months? Sort of maybe within the context of your historical
range of return on equity which has been, I guess, somewhere between 12 and 20%?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Yes, I think it's reasonable to assume that given the environment that we have seen over the last couple of months, June was
certainly a hell of a lot better than July. I think we'll be at the low end of our historical range of returns but I'm not going to be
more specific than that.
Guy Moszkowski - Merrill Lynch - Analyst
Okay, great. Thanks very much.
Operator
Stephen Wharton, JPMorgan.

Stephen Wharton - JPMorgan - Analyst
I just wondered is there any way you could give us an update? You had mentioned on that [B. SAM] issue, you had extended
some collateral there and that it was adequately capitalized -- adequately backed in the past. Has that changed at all?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
No, well, what's changed there, just to bring you up-to-date on that, that repo line that we provided now which I guess goes
back to the end of June, which started at $1.6 billion through the process of liquidations that the Fund was able to achieve was
reduced to about [$1.3 billion]. We moved prior to the bankruptcy filing of the two funds to seize the collateral as a result of
unmet margin calls. We have done that. We have boarded those loans. The market value of the inventory approximately reflects
what the repo balance was. We've established appropriate hedging policies and we now own the inventory.
Guy Moszkowski - Merrill Lynch - Analyst
Okay, so basically it's still fully collateralized but now just everything is on your balance sheet?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Essentially, right.
Operator
Mike Mayo, Deutsche Bank.
Mike Mayo - Deutsche Bank - Analyst
Hey, Sam. The opening comments mentioned the 80's stock market crash, the burst of the Tech bubble and you keep referring
to weathering the storm. Do we compare what you're going through now with those other more significant times?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Mike, I don't know if you would consider them to be more significant or not. I think these times are pretty significant in the
fixed-income markets. I've been at this for 22 years. It's about as bad as I have seen it in the fixed-income market during that
period of time. So yes, I would say that these are -- this market environment we have been seeing over the last eight weeks
have been pretty extreme. And yes, we would make that comparison. I think it is a reasonable comparison.
Mike Mayo - Deutsche Bank - Analyst
And can you size your exposure? You've mentioned mortgages, asset-backed, (technical difficulty) loans, CDOs, CLOs, you take
that group of issues, what percent of your revenues would that comprise?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Mike, I don't even know what that number is to be honest with you off the top of my head. But I think that obviously the mortgage
business is an important business for us. We are in a period where there is -- activity levels have been reduced dramatically. The
lack of liquidity in the market is obviously the culprit for that. There's no doubt that this is a highly cyclical business. I'm sure

that we will come off of these lows as we have in the past and the business will continue to be very strong and vibrant in the
future.
So, the CDO business, I think Mike Alex commented a bit on our CDO position. Our CDO exposures are actually quite moderate,
quite manageable. We are not a large underwriter of CDOs. As a result we do not own large inventories of CDOs nor do we
provide a great deal of financing for investors who are investing in CDOs on a leveraged basis.
Mike Mayo - Deutsche Bank - Analyst
Okay. You want to complete the thought process, leverage lending?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Leverage lending is similar. I think our leverage loan exposures are not out of line or inconsistent with our balance sheet size
and capital base. We have a policy of hedging our leverage lending commitment pipeline. We think those hedges have operated
well. We've of course needed to [win] pricing quite significantly in a number of our facilities in order to clear the market. It is a
market that has necessitated us having to fund some obligations. We have done that. We have had adequate liquidity to do
that and again, we think that it's prudently hedged and managed.
Mike Mayo - Deutsche Bank - Analyst
You mentioned that you've marked some things down. What categories have you marked things down in?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Mike, I think any of the categories that under pressure, you can assume that there's been markdowns across the board and
obviously hedges have been marked up to reflect the offsetting nature of those hedges.
Mike Mayo - Deutsche Bank - Analyst
And lastly, the potential litigation related to [B SAM], anything you can say about that, the size or anything in the works or
anything that you've seen?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I think it's too early to say, Mike. We're still in the early phases of that and I think that's going to be with us for a little while.
Operator
Roger Freeman, Lehman Brothers.
Roger Freeman - Lehman Brothers - Analyst
Hi Sam. I guess I wanted to ask, back to sort of the ROE discussion. Are you saying that you expect to be at the low end of the
range for the quarter or that's where running quarter today?

Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I think that it's very hard to predict what August is going to look like. Certainly we're not coming into August exactly in strong
markets. But I would say if we resume to some level of improvement in the month of August, I would expect our quarter to be
at the low end of the historical range of ROEs. I don't know that that is a -- I want to say that that's -- I think that's indicative of
where we are right now.
Roger Freeman - Lehman Brothers - Analyst
Okay, can you frame July versus June? What percentage were revenues down July versus June?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I don't know what the revenue numbers are off the top of my head, Roger. I think that revenues have been under pressure,
obviously under significant pressure in the month of July. Certainly June was much more profitable than July was. As we talked
about in the earnings call, into the second quarter, I had told you that which market had been improving and that each of the
months in that period had shown improvement; that gets carried over into June, and of course July conditions have been
dramatically different.
Roger Freeman - Lehman Brothers - Analyst
I'd like to ask you how you go about hedging the leverage loans. My understanding is that the bigger ones are virtually impossible
to leverage just because there's not enough capacity in the CDS market. As I look at your hedged balance I think at the end of
the second quarter you had about $2 billion versus $27 billion of total lending commitments. So that seems to be a fairly low
number. I guess I'm wondering if it's still at those kind of ratios? And if you'd just talk about how you hedge if there's not a TDS
market in a particular security, what else you use? Is LCD actually a good option at this point?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Mike, you want to take that question?
Mike Alex - Bear, Stearns & Co. Inc. - Chief Risk Officer
Sure, I think it's safe to say agreed that there's not adequate CDS capacity on the individual names to fully hedge on a loan
specific basis. We do analysis that suggests relationships between the market in general and the underlying leverage loans,
taking into account all of the economics of the leverage loans and put in place those more liquid market hedges where there's
greater volume and ability to transact. So we have observed as we've gone through this period that the hedges have performed
very well relative to where some of these transactions have actually been executed; that is, there's been quite a significant
benefit from the hedges.
Roger Freeman - Lehman Brothers - Analyst
And so -- and you feel good about some of the larger transactions like Hilton and [Dreyfus] that you're involved in?

Mike Alex - Bear, Stearns & Co. Inc. - Chief Risk Officer
I think -- yes. Yes, we do.
Roger Freeman - Lehman Brothers - Analyst
Let me just ask you on the prime brokerage business, can you quantify or at least give rough proportions of what portion of
that business is serving credit hedged funds versus equity? There's definitely a perception in the market that you have higher
exposure to credit hedge funds.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Yes, I'll just to say generally, I don't have the specific numbers in front of me. But when we talk about our prime brokerage
business which is what we talk about every quarter (inaudible) in the business that has $100 billion type margin balances. That
business is virtually entirely in equity and corporate securities margin business. So there is virtually no exposure to any of the
types of product CDOs or CLOs that have been problematic in the market. So we have -- I know I've gotten a lot of questions
about that, a great deal of questions about what our exposures are and prime brokerage to those product areas and they're
virtually zero.
Roger Freeman - Lehman Brothers - Analyst
Okay, very lastly, in the asset management business with respect to any reputational fallout from the two hedge funds, have
you been seeing redemptions across other funds that we should think about?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Obviously, we've seen redemptions in the other asset-backed securities fund we have. I'm sure there will be redemptions across
several of the other funds. It has not been a tidal wave by any stretch but again, we are in the -- still early in this process. As you
know, we brought Jeff Lane in to become the CEO of the asset management division. Certainly one of our key efforts there is
to restore our investor's confidence in our business and our product and capabilities and we're in the process of doing that.
Operator
Tony Delafonta, John Hancock.
Tony Delafonta - John Hancock - Analyst
Yes, thank you very much for the call. Just a few questions and it's more to the S&P comments in their press release. Certainly,
I guess the comment that they make in terms of we expect the Firm to be profitable in the third quarter and then further down
they make the next few quarters which we expect will be at best difficult ones for the Firm. I guess the issue is I don't know how
much of that is their projections from your numbers or how much data you give from them or obviously from talking with them
they just upgraded Morgan Stanley and from talking to them they certainly look at issues. I guess in your view, is their comments
simply a significant earnings hit over the next few years or do they think basically a balance sheet capital type of situation in
terms of the outlook?

Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I'm not sure it's either of those to be honest with you. I think that what they're trying to say is that they think that the market
environment that we are operating in, particularly in some of our core businesses, is going to be challenging in their opinion
over the next several quarters. And together with the problems that they perceive that will emanate from the -- or it may emanate
from the difficulties to B. Sam hedge funds collectively or leading them to believe that there is a negative outlook.
Having said that, I think it's in the release. I know they've stated it to us but they're certainly willing to reconsider that as market
conditions change and as the risk profile becomes clearer as it relates to those hedge funds. So I think that S&P has had a
well-known reputation for being fairly quick to act on outlook changes. They make it clear certainly to us that they do that. We
give the same basic information to the other agencies and Moody's has seen it appropriate to affirm. So I think that I wouldn't
read anything more into that. I think if they had more substantial concerns about the balance sheet and liquidity profile of our
risk position, they would have said that.
Tony Delafonta - John Hancock - Analyst
And do you get the sense that a lot of this is coming from the reputation side? And for instance with the whole Morgan Stanley
situation a few years ago that was the issue for them, not so much the numbers per se or in your mind it's a combination of
both?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I don't really know where they are coming from on that. I think it's just a factor. I wouldn't make it the biggest factor. I think it's
just a factor. I think they're probably most influenced by the difficult market environment that we are operating in right now
and the impact that that environment is having on not only ours but everybody else's fixed income franchises on the street.
Obviously, fixed income and mortgages specifically are again, are important businesses to us. And in a more difficult operating
environment they're likely to make lower contribution to revenues and profitability. When the market environment will turn
around, I can't -- it's hard to predict. I think I was asked earlier when things will change. My guess is things will change when we
get to a level of liquidity rushes back into the market and people look to opportunistically buy. That will establish a floor. So
you know, I can't read their mind. I read their release. I think it's just those factors with no weight on any -- no more or less weight
on any particular one.
Tony Delafonta - John Hancock - Analyst
Just to clarify, I believe in the first quarter I don't know if you said in the second quarter, you commented that subprime
represented I think the number was 3% or 5%, one of those numbers, of your revenues. And I guess the issue, have you ever
commented what the mortgage part of the business. One, I just want to verify that that's what I heard on the first quarter call.
And I guess secondly, have you commented what the -- you obviously just said the mortgage business is important, but have
you ever commented what the mortgage business represents in terms of your Firm?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
We have not but the subprime business number that you are referring to was less than 3% of mortgage revenues came from
the subprime activities in 2006.

Tony Delafonta - John Hancock - Analyst
And so the issue is that in terms of that, one could say that the marks over even in the first quarter are obviously not as severe
as what's going on now and who knows what that number is going to be in the third quarter.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, I think the subprime movements were pretty severe in the first and second quarters and I think that those marks have
been reflected. We think that our positions not only are well hedged but the best way to hedge them is not to have them. So I
think we've avoided a lot of the most problematic areas. And again we think the positions are well hedged and reflective in the
discussion of what the operating results are that I've just referred to.
Tony Delafonta - John Hancock - Analyst
I guess in terms of liquidity, you talked about what you have done. I guess in terms of whatever commitments you have, as the
gentleman just talked about, in terms of your total number. Of those commitment, funding commitments, included in the
statistics you gave on your liquidity or should I take out some of those commitments from these numbers?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I'm not sure I followed that exactly.
Tony Delafonta - John Hancock - Analyst
Obviously, there are commitments that were presented in the Q in terms of loan commitments that you have to fund. And I
guess the question when you talk about your unencumbered collateral and cash you have and et cetera, and obviously the
other stuff with the repo lines, I'm assuming to fund those commitments you're looking at that stuff, that's not a net number
after those commitments?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
No, we have assumed the need to fund those types of commitments in our liquidity plans so we have raised appropriate amounts
of liquidity to do that.
Tony Delafonta - John Hancock - Analyst
So the numbers you give, I don't have to --
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Are inclusive. We have contemplated the impact of those commitments.
Operator
Jeff Harte, Sandler O'Neill.

Jeff Harte - Sandler O'Neill & Partners - Analyst
Sam, thanks for doing the call. A few questions. One, beyond having the balance sheet capacity to hold bridge loans. I'm assuming
your preference would be to syndicate them versus holding them on balance sheet. How confident are you in the underlying
credit quality of the lending commitments you have and may end up holding on balance sheet?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I think we're very confident in them. We do a -- whenever we make these lending commitments, a tremendous amount of time
is spent on making sure that we understand the credit and we're making loans to people that we're comfortable making loans
to, and obviously people who are important client. And so as a result of loans that we -- the commitments that we've made fit
that definition. Certainly our expectation is that we will syndicate them and move them into the market. But in the event that
we don't, we of course have to be prepared to own them and be comfortable with the credit exposures.
So in these instances, as I said, we've got a liquidity plan that contemplates that. We raise capital for that unlikely event that is
now happening so we have adequate capital for that. And again, we have hedging strategies that are designed to hedge the
spread risk that exists in the pipeline. So a lot of this movement has been offset by hedging gains.
Jeff Harte - Sandler O'Neill & Partners - Analyst
You talked a little bit about CDO, CLO holdings, they're not being particularly large. Of what you do hold, is that primarily self
sourced or self underwritten? Or do you have things you've kind of purchased that others have underwritten as well?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Be able to answer that?
Mike Alex - Bear, Stearns & Co. Inc. - Chief Risk Officer
Yes. It's Mike Alex again. We have a small secondary book. Our book has actually increased by virtue of, as we discussed, the
taking on the CDOs from the B. Sam from the high-grade repo. But it is still relatively modest and we have hedges against that
CDO portfolio that insulates the portfolio from material loss. So it has in the normal course, the CDO portfolio is very modest.
It has been increased by virtue of the high-grade CDO's -- the portion of the high-grade portfolio which were CDOs.
Jeff Harte - Sandler O'Neill & Partners - Analyst
Just quickly on to B. Sam, we obviously know the enhanced funds and all the asset backed funds. Are there other predominantly
MBS/ABS centric funds within B. Sam?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
No, that's not. There's one other fixed income hedge fund that comes to mind but it is not a predominant MBS fund. It's really
more of a structured credit fund. And quite a bit smaller than the other two.
http://www.streetevents.com Contact Us 14

Jeff Harte - Sandler O'Neill & Partners - Analyst
Okay, and finally you answered a little bit on reputational issues within B. Sam. Are you presently noticing any reputational
issues spreading beyond B. Sam, say into a private client or maybe clients potentially lost money or any other parts of your
business?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, Jeff, obviously people that lost money in the funds, you know that's difficult and we're having to deal with that. But I would
say more broadly than that we're not seeing any material reputational issues.
Operator
Michael Hecht, Banc of America.
Michael Hecht - Banc of America Securities - Analyst
Thanks for doing the call. Just a few questions. Can we step back and maybe talk a little bit about just the change that you guys
are seeing in the credit markets and that we've seen in -- and whether you see the spread widening going on really on the
corporate side now as kind of more technical imbalance that will work through here over time? Or whether you kind of see this
as more of a cyclical inflection point in the credit markets. And some of the pressure kind of going on in the leverage loan
markets and issues around hung bridges and stuff, any thoughts on how long it might take to work through some of the
commitments out there and in the interim the impact it's going to have on the leverage finance market and I guess your M&A
business as well.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, again, that's another hard question. I don't know that I have all the answers for this. Certainly there's a variety of factors
at work; one being the tremendous pipeline of leverage finance commitments that needed to be syndicated, which I think is
probably what started some of this. Secondly, it seems that the pendulum has swung where risk premiums are being priced
back in to deals that previously had seen those premiums shrink dramatically.
So, how long is this going to continue? I don't know. I think it's hard to say. I would suspect that it's going to take a little bit of
time to work that out. As to what it does to the investment banking business and M&A backlog more broadly across the board
and for the Street? Certainly it's going to slow things down, I would think. Though, when you look at kind of the current activity,
there's still been an awful lot of M&A activity taking place. So, deals are still getting done but you'd have to think that it's going
to slow things down a bit.
Michael Hecht - Banc of America Securities - Analyst
Okay, and then -- so clearly we're seeing the issues in kind of the credit areas and mortgage areas having difficulty. You touched
on this some in the beginning of the call but can you just kind of review again for me how some of the other areas of the business
are doing? You know, you have seen some areas benefiting from the pickup in volatility and activity including equity, derivatives,
cash equities, rates, commodities, FX, global clearing.

Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
You have rattled them all off. All those areas have been performing well. And as I said, the equity franchise has been very strong
both domestically and internationally. Global clearing has had two record months in a row, and June and July balances have
been very strong. The private client area has been operating at near record levels of revenues for the last two months. So really
across the board the rest of the franchise has performed well. Inside of fixed income, while mortgages and asset backs have
been struggling in the current environment, the rates business has performed reasonably well; certain aspects of the credit
business have performed well. But the leverage finance markets and the asset backed and mortgage-backed markets have
been very difficult.
Michael Hecht - Banc of America Securities - Analyst
Okay, great. Just coming back to the B. Sam hedge fund assets you brought on the balance sheet, any updated thoughts as to
how long it may take to kind of slow down that exposure?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Hard to say. We boarded the assets, established hedging parameters around the portfolio we think will protect us against any
further material price declines. And we will liquidate them as the market opportunities arise. Not in a particular rush to get those
assets moved vis a vis any others.
Operator
Glenn Schorr, UBS.
Glenn Schorr - UBS - Analyst
When talking about the markdowns earlier, I just wanted to make sure, does that include everything, meaning residuals and
retained interest if you had any assumptions that needed tweaking given the change in market conditions?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Yes.
Glenn Schorr - UBS - Analyst
Has that worked its way through on a quarterly basis?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Yes. All reflected.
Glenn Schorr - UBS - Analyst
All reflected, so --

Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
IT'S all been reflected in those.
Glenn Schorr - UBS - Analyst
So then just making sure like if the perfect storm, so to speak, has happened in July and to your comment you're still profitable,
is there any scenario you can envision book being impaired or not growing?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I don't envision that right now. I can't say that there's any scenario, I don't know. I'm sure there's some scenario but we've just
weathered a pretty significant storm in the mortgage and asset backed markets in a business that's a very large business for us
and important to us. And we have been able to, in my opinion, navigate through that reasonably well. I don't think it's realistic
to assume that you're not going to suffer some losses from a marketing positions and trying to move inventory. So, I think that
when you look at the month of June, June was certainly showing some improvement, though the environment was not
particularly easy in June. But June was showing improvement. July has been very, very difficult and hopefully August will be
better.
Glenn Schorr - UBS - Analyst
Amen to that. All right, thanks, Sam.
Operator
(OPERATOR INSTRUCTIONS) Meredith Whitney, CIBC World Markets.
Meredith Whitney - CIBC World Markets - Analyst
Hi Sam. Glenn stole one of my questions, of course. So I have two dumb questions left, which is on the credit lines you said you
-- a de minimis exposure to hedge funds with fixed income products on your prime brokerage business. But is there exposure
to hedge funds with fixed income instruments any where else in your corporate?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
I think the answer that I gave you, in the prime brokerage world we have virtually none of that exposure. In the fixed income
repo area, we have small margin lines out to a variety of different counterparties. Some are secured with CDO assets. We have
no exposures to report to you. All the loans are adequately margined and we feel comfortable with them. And again, the amounts
are not large.
Meredith Whitney - CIBC World Markets - Analyst
Okay. And then the next question is if there is no bid for a particular security, how does it work in terms of your marking it to
market? A lot of these securities have -- there hasn't been a market for weeks, right? So, how does that work in terms of your
analysis and --

Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
You know, there's always something trading. There's always something to look at. There's always some way to benchmark a
securities evaluation against things that you are seeing trading and that's basically the process.
Operator
Steve Breiter, Wells Fargo.
Steve Breiter - Wells Fargo - Analyst
Hi guys. Just real quick. Can you answer roughly how much of your trading is tied to mortgages and subprime? Now on the
back of that, can you also quantify roughly about what you are seeing and changes on your trading desk as to how much volume
is being done? Thanks.
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, I don't -- I'm not going to break out for you what's mortgages and what's asset backs out of the total fixed income revenue
pool. Clearly, these are important businesses in our Firm and they're important businesses in fixed income. I think over the last
several quarters and really over the last several years, we've been reporting to you that the credit businesses have become just
as large as the mortgage businesses of late. So you know they're important businesses were clearly well fixed income revenues
will certainly suffer from lower levels of activity. And revenues from each of those mortgages and asset backed sectors in the
short-term. Hopefully the other areas will make offsetting contributions. In terms of the volume of activity, certainly volumes
are down in the month of July. And starting the month of August they've been similarly difficult in those product areas.
Operator
[Steven Morton], JPMorgan.
Steven Morton - JPMorgan - Analyst
Just to follow up on Meredith's question. If I could ask, is there an issue with timing of your -- the hedges versus the underlying
assets? So for instance, if you're using like the ABX or the LCDX to hedge these various risks, whether it's leverage loans or other
mortgage positions on the balance sheet in various forms, do those hedges sometimes move faster than your ability to mark
the underlying resulting in periods where maybe they're not perfectly correlated?
Sam Molinaro - Bear, Stearns & Co. Inc. - CFO
Well, that's entirely possible, though we certainly try to avoid that. We try to -- I think if you're alluding to where the hedge is
potentially you've got bigger gains on the hedges and the losses in the inventory is not being reflected. I think we try to make
sure that those losses are being reflected. I think that -- does that answer your question? I guess we lost you. Okay.
Operator
Quote 0 0
Sam Molinaro, Bear, Stearns & Co. Inc. - CFO

"First, I should point out that generally our fixed income franchises, particularly our mortgage and securitization businesses, have long focused on the origination, transformation and redistribution of risk."
 
Well, Ladies & Gents, there you have it, in one nice, neat little nutshell.............
originate, transform and redistribute the risk right onto unsuspecting homeowners and duped investors !  Mr. Molinaro is so honest about it, now isn't that real nice of him ?   
Quote 0 0
F em
Roadkill good thought and name!
Quote 0 0
Nye Lavalle
Bear Stearns ready to oust heir apparent

By Jonathan Russell, Sunday Telegraph
Last Updated: 11:59pm BST 04/08/2007

The board of Bear Stearns, the US investment bank at the centre of the credit crisis gripping global markets, will meet tomorrow to discuss the future of one of its most senior directors.

Just weeks after the collapse of two of its hedge funds because of their exposure to the sub-prime loans market, there was speculation last night in the US that the management of Bear Stearns would use a Monday board meeting to discuss the departure of Warren Spector, the man behind the bank's capital markets strategy.

A report in The Wall Street Journal said Spector's future would be discussed there.

Spector, 49, had been widely tipped as next in line to take over as chief executive of Bear Sterns, one of the largest finance houses in the United States. According to Forbes he made $35m last year, with just $250,000 coming from his salary, a bonus of $16m and long-term incentive plan totaling $18.8m.

Markets in the US slumped on Friday, triggered by a downgrading of Bear Stearns' credit rating by Standard & Poor's and gloomy comments from the bank's chief financial officer Sam Molinaro.

Responding to the downgrading by S&P, Molinaro told analysts that the US credit market was as bad as he had seen it for 20 years. Almost immediately the Dow Jones Industrial Average fell 280 points to close the day at 13,182, leading market watchers to worry about a corresponding slump in London when the market reopens on Monday.

Speaking to investors on Friday Molinaro said: "I've been out here for 22 years and this is as bad as I've seen it in the fixed income markets."

This is the third time in as many months that Bear Stearns has triggered a slump in the markets. In June the markets took a tumble when it emerged that funds managed by the bank were struggling because of defaults in the home mortgage market.

Then in July share prices dropped again when the funds went into bankruptcy. Analysts said the bank is looking increasingly vulnerable, having lost about a third of its market capitalisation so far this year with another 6pc wiped off their value on Friday.

The Bear Stearns funds that failed were the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund. Both were invested in the subprime mortgage markets.

Bear Stearns is understood to have loaned $1.3bn to one of the funds after investors and lenders demanded their money back.

Standard & Poor's warned: "Profitability would be especially affected if there were an extended downturn in those (debt) markets." Bear Stearns was unavailable for comment last night.

Bear Stearns to Oust Bond Chief Spector, Journal Says (Update2)
By Michele Batchelor and Stuart Biggs

Aug. 4 (Bloomberg) -- Bear Stearns Cos., the manager of two hedge funds that collapsed last month, plans to oust Warren Spector, chief of bond and stock trading, the Wall Street Journal reported, citing an unidentified person familiar with the matter.

The company's board will meet on Aug. 6 to discuss the departure of Spector, one of its two presidents, who was widely viewed as a leading candidate to become chief executive officer, the Journal reported. A spokesman for the company declined to comment, the report said. Jessica Shepherd-Smith, a London-based spokeswoman for Bear Stearns, declined to comment today when contacted by Bloomberg. .

Spector, 49, has worked at Bear Stearns for his entire career, earning a seat on the board at the age of 30, the Journal said. In recent years, he has been responsible for the company's entire capital markets business, the report said.

Bear Stearns, the fifth-largest securities firm, triggered a decline in credit markets in June, when funds it managed faltered after defaults on home-loans to people with poor credit rose to a 10-year high. Then in July, two of its funds that invested in subprime mortgage-related securities filed for bankruptcy protection, two weeks after Bear Stearns told investors they would get little, if any, money back.

Yesterday the company had its credit-rating outlook cut to negative by Standard & Poor's on concern declining prices for mortgage-backed securities will reduce earnings.

Shares of Bear Stearns fell 6 percent yesterday, bringing this year's decline to more than 33 percent. The perceived risk of owning the New York-based company's bonds rose to the highest in at least six years yesterday.

Kerry Endorsement

Spector, who was paid $36.9 million last year, has also drawn headlines outside of his professional life.

In 2004, Bear Stearns Chief Executive Officer James E. Cayne, a Republican, chided Spector for endorsing Democratic candidate John Kerry in a way that could be ``viewed as being attributed to Bear Stearns as a whole,'' according to a memo he sent the employees at the time.

Spector had announced his support on a conference call with other executives arranged by Kerry's election campaign, breaking ranks with many Wall Street executives, including Cayne, who had raised at least $100,000 for his Republican rival, President George W. Bush.

Spector also organized a bone-marrow donor drive in 2002, fighting to save his sister's life after she was diagnosed with leukemia. The drive at the firm's headquarters yielded 1,200 potential donors in a day. A dinner appeal to Wall Street executives brought in 125; another effort in Israel registered 12,800 in two days. All told, more than 60,000 potential donors signed up in six months.

Theater Board

A lifelong theatergoer, Spector was nominated to be chairman of The Public Theater, a 50-year-old New York theater that originally presented ``Hair'' and ``A Chorus Line,'' in June 2005. He had joined the board in 2000.

Late payments on subprime home loans, those made to the riskiest borrowers with lower credit scores, rose in the first quarter to the highest level since 2002, according to the Mortgage Bankers Association. At least 70 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006, Bloomberg data show.

The U.S. subprime-market rout wiped out $2.1 trillion from global share values last week. The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers.

The Bear Stearns funds that failed, the High-Grade Structured Credit Strategies Fund and the High-Grade Structured Credit Strategies Enhanced Leverage Fund, invested in subprime mortgage-related securities. Bear Stearns loaned $1.3 billion to one of the funds after lenders demanded their money back.

Hedge Funds

Other hedge funds have also announced losses. Macquarie Bank Ltd., Australia's largest securities firm, said earlier this week that investors in two hedge funds may lose 25 percent of their money. Boston-based hedge fund manager Sowood Capital Management LP said it lost $1.5 billion in July after declines in the corporate debt markets.

Subprime loans make up less than 3 percent of Bear Stearns's revenue, according to the company. Still, the firm is more reliant than its rivals on the U.S. markets. In the second quarter, 80 percent of Bear Stearns's revenue came from the U.S., compared with less than half for Goldman Sachs Group Inc., the largest securities firm by market value.

Founded in 1923, Bear Stearns belongs to a select group of securities firms that survived as independents while more than 450 rivals were acquired or shut down. Still, it's the smallest of Wall Street's big five, with less than a third as much shareholders' equity as New York-based Goldman, the world's biggest securities firm by market value.

To contact the reporter on this story: Michele Batchelor in Singapore at mbatchelor@bloomberg.net Stuart Biggs in Tokyo at sbiggs3@bloomberg.net
Quote 0 0
Was watching McLaughlin group yesterday , participants stated on this political forum the sub-prime was the leading cause of recent Wall street woes and focused on Bear Stearns as a source of economic calamity.

As Nye and I have been trying to show for quite a while follow the money trail and you will find ms fraud has an effect on everyone and there is much more to it than just the act of posting fees as late for profit.
 It's a money laundering scam on a massive scale that involves foreclosure mills and the MBs securitizations serve as collateral for derivatives and other financial transactions.

Some of these scumbags even buy mortgage pools and foreclose on them to collect on the bet of them going down. What if you or I owned a football team and placed millions on a bet that our team would lose and told the coach to make the team lose well we should expect to lose our team license and probably go to jail. These criminals think nothing about fabricating a foreclosure and having the sheriff throw a family out in the street and leave them there to die for all they care in order to collect a bet on the homes foreclosing.  These crooks are jeopardizing the entire U.S. economy so our fight is every-ones fight. Those sitting on the sidelines as our homes are stolen will find they have empowered these criminals to loot their own assets as well as permitting a crime ring to destroy lives for fun and profit. Refusing to take a stand for right and wrong and protect the innocent as is every citizens duty will come back on them, not just the criminals and they will reap the seeds they have sown.
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O -

I think it would be better to keep all this kind of thing in ONE tread?

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srsd


I believe all of this mess was planned from the beginning but the people that planned all of this wasn`t as smart as they thought......They thought nobody would notice what was happening. The mortgage companies claim they don`t make money off from foreclosures...how do they not make money if they turn around and sell the property.  we live in a very small town and this ad is in our local paper all the time but it has different properties listed.  I guess in the bigger cities there are hundreds listed by the same company.
 
 

Large National Mortgage Co. has repo.'d homes for sale in your area. 3BR/2BA on 4 ac. at 951 Woods Rd. in Thach. 4BR/2BA on 1 ac. at 10631 Hwy. 5 in Nauvoo. 3BR/2BA on 2 city lots at 405 Reservoir St. in Cordova. Easy financing.Low down payment with approved credit. For more info. Call Shane Ward at 1-800-274-2321




People have paid money for years on their houses and the companies get that money plus the interest and late fees and then when they foreclose, they get a big chunk from the sell.  I think there is a lot of money laundering plus this reaches far and deep as to who may be involved. At first I thought this was just from the mortgage companies but now I can see different because of all the educational posting by everyone.
Please keep posting and educating me.


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All that and one more thing.

As soon as humanly possible these loans are bundled and put in the
secondary market.

There are insurance policies.  Who gets paid the insurance money when the
borrower defaults? 

I have a feeling there is some funny business going on with the insurance as that would  make sense.  Fraud every step of the loan process and repayment process for some borrowers.

Dee
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Dee, the only thing I'd add would be "Who gets paid the insurance money when the servicer claims the borrower defaults?"

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Way To Go

I would assume the Trust gets the proceeds from the insurance, BUT not until the servier peals 100% of their advances AND their fees off of the top.

 

Q: In what inning of the game can a claim be made?  I would think it would be the bottom of the 9th, after the sale of the REO.  But who knows. 

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Mike,

Yes, that too and in fact first and foremost around here.

I think you have to go to the pooling and servicing agreement.

I believe I read one posted here that said the servicer agrees to
make the payments to the noteholder even if the borrower defaults.

That is how the fee "corporate advance" manifests.  The servicer declares the borrower late and makes the monthly payment for the borrower.

Once your loan is bundled and sold into the secondary market, it appears
that insurance in case of default is secured.  It sounds like they insure the entire bundle.

If you have to have PMI (personal mortgage insurance) you are never told
this is insurance that you can shop around for and make your own arrangements and negotiate a price.

I found that out by reading PMI's web site where they offer policies directly to borrowers.

Does the company, PMI, insure borrowers for Fairbanks?  They can charge
anything they want to including a bonus for Fairbanks skimming from the top of premium amount. 

if that occurs, that sounds like conflict of interest to me.

I have yet to hear a borrower say that they knew who their PMI carrier
was.  They never receive a copy of the policy that they pay for.
They are never notified that a claim is be filed against the PMI carrier because the borrower has defaulted.

That doesn't sit well with me.  Although they are the beneficiary, you
as the insured should be able to get a copy of the policy.

What triggers the claim?  How should we know?  We've got no policy to look at.

Unless, there is no policy???

Are they hedging their bets by not actually paying for a PMI or Hazard
insurance policy and keeping the payments?

That would be outright fraud.

Think about it.  Do you get a copy of your auto insurance policy?  Of course.
Do you get a copy of your homeowner's insurance policy?  Of course.

You are buying and paying for an insurance policy to cover your losses.

This is the only insurance policy I have ever heard of that denies the person insured of a copy of the policy and even the name of the insurance company.

How are you ever to be certain that you have insurance without it?

Maybe we should be asking about insurance in the depositions and interrogatories.

At the very least, RESPA letters, demanding a copy of the policy and being refused.  It doesn't make any sense if there is nothing wrong with the policy itself.

Fairbanks has contracted with the trust or noteholder to make the payments as due.  They could keep making payments even if they have foreclosed.
They get to keep the profits for the fines and legal expenses and the sale of the house.

They don't even have to give a borrower an accounting of the money and
how much they collected or where the money came from.  What if they receive more money than they show owing and due.

Ever heard of a borrower getting a refund check after sale of their house?   

Maybe somebody else has some answers they can share with us.

Dee                                                                     









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