Barclays Hit by Bear Stearns Crisis

by Gill Montia

Story link: Barclays Hit by Bear Stearns Crisis

Barclays Capital, the investment banking division of Barclays Bank, is likely to sustain losses as a result of difficulties in the US mortgage market, having been a key lender in Bear Stearns, the hedge fund manager.

Barclays Capital has lent approximately $300 million to a fund which invested in bonds backed by the US sub-prime mortgage sector and as a result of falling mortgage bond valuations, the fund is currently on the verge of collapse.

Barclays is rumoured to be one of a number of lenders seeking to support Bear Stearns with additional finance. Other lenders, JPMorgan Chase and Deutsche Bank, are attempting to limit damage by extricating themselves.

They seized some of the bonds held by the hedge fund (worth approximately $700 million in total), with the intention of selling them.

However this plan has now been abandoned because of fears that an auction would push the price down. Merrill Lynch, another lender to Bear Stearns, is believed to have reduced exposure by putting around $850 million worth of the assets up for sale.

Blackstone, the US private equity firm, is advising Bear Stearns and is currently in talks with bankers in an attempt to put together a rescue package. Meanwhile, Bear Stearns is reported to be negotiating individual agreements with the hedge fund’s lenders.