Bear Stearns Funds on Brink of Collapse: WSJ

Wednesday, 20 Jun 2007 | 12:52 AM ET

Two big hedge funds at Bear Stearns moved toward the brink of collapse Tuesday night after Merrill Lynch rejected a bailout plan developed over several days in a drama that could have wide-ranging consequences for Wall Street and investors, the Wall Street Journal reported.

The newspaper said it reviewed documents revealing that Merrill Lynch , one of the hedge funds' lenders, would move to seize collateral -- much of it mortgage-backed debt -- from the two funds and sell it.

Banks Selling Bear Stearns Assets
Multiple investment banks are beginning to sell off assets from troubled Bear Stearns' hedge funds, according to CNBC's Charlie Gasparino. He discusses the issue with Herb Greenberg, MarketWatch sr. columnist; Ben White, Financial Times Wall Street correspondent; Susanne Craig, WSJ reporter; and CNBC's Bill Griffeth.

The funds' managers also worked with a handful of other key lenders, including Goldman Sachs Group and Bank of America to pay off the funds' $9 billion in loans, the paper said quoting person familiar with the matter.

By early evening, the funds had effectively paid down $2.25 billion of outstanding credit.

In a separate report, Bear Stearns has offered to infuse $1.5 billion of its own capital to help rescue the funds, people familiar with the situation said to Reuters.

The funds controlled more than $20 billion in a combination of investor and lender money, and had invested heavily in various securities backed by subprime loans.

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