Barclays Might Sue Bear Over Hedge Fund Losses -- WSJ

Barclays is considering several options, including arbitration, a negotiated settlement, or litigation to recover $400 million it invested in a now-worthless Bear Stearns hedge fund. Barclays had put the funds into the Bear Stearns Asset Management High-Grade Structured Credit Strategies Enhanced Leverage Fund, which bet heavily on the subprime mortgage market. Bear Stearns notified investors last week that that fund's value is now zero. The British bank had lent the fund $200 million and later offered another $250 million, an offer that was not extended. The $400 million it now wants to recover was a separate investment. "I would be astounded if there weren't lawsuits, given the magnitude and speed of the collapse," said securities lawyer Scott A. Meyers. "The fundamental issue will be what caused the collapse, a general market event, something specific to the way these funds were managed, or some combination of the two." In related news, Fed Chair Ben Bernanke told a Congressional hearing that losses connected to the subprime market will not derail the economy. "There's a chance investors have been overreacting," said Moody's chief economist John Lonsky. "...it is going to take more than a subprime meltdown to trigger a recession and send your broad equity markets 10-20% lower."

Sources: Wall Street Journal, Dow Jones, MarketWatch, Business Week, Bloomberg
Commentary: Bear Stearns Hedge Funds Nearly Worthless • Credit Suisse/Tremont Index Implodes On Bear Stearns Hedge Fund Meltdown • Bear Stearns' Slide Appears to Be Slowing
Stocks/ETFs to watch: Bear Stearns Companies Inc. (BSC), Barclays plc [ADR] (BCS). ETFs: iShares Dow Jones US Broker-Dealers (IAI), KBW Capital Markets ETF (KCE)

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