Despite Bear Stearns Cos. Chief Executive Officer James E. ‘Jimmy’ Cayne telling the New York Times that the failure of the firm’s hedge funds was a ‘body blow of massive proportion,’, share performance and other analysts suggest this may not be the case, Bloomberg reports.
The stock has outperformed its peers since Cayne’s remarks were published on June 29, even after Bear Stearns told investors in the High-Grade Structured Credit Strategies and High-Grade Structured Credit Strategies Enhanced Leverage funds that almost all of their money was wiped out.
Most analysts say the debacle is unlikely to have anything but a negligible impact on profit and book value.
“If the market is already putting a discount on your valuation because they fear the worst, you might as well set the expectations fairly low,” says Roger Freeman, an analyst at Lehman Brothers Holdings Inc., who has an “overweight” rating on Bear Stearns shares and raised his 2007 earnings estimate last month. “When the funds are unwound, there won’t be losses and they’ll have moved quickly to take care of the reputational issues.”
If anything, Cayne’s decision to provide the loan to the $925 million High-Grade Structured Credit Strategies Fund may have helped burnish the firm’s reputation and minimised the collateral damage. Because the funds were managed at arm’s length by a subsidiary, Bear Stearns had no obligation to lend the money. Cayne eventually committed $1.6 billion of capital, half as much as initially forecast.