Bear Stearns has seized control of most assets in a troubled hedge fund, after declines in the value of riskier, subprime home loans caused the fund's value to plummet.
In a statement on Thursday, Bear Stearns said it "assumed possession of the assets" securing a $1.3 billion credit facility provided to the High-Grade Structured Credit Strategies Fund after the fund was unable to meet a margin call.
The investment bank said it does not expect any "material change" in financial exposure as a result of its action. It said it will continue to pursue an "orderly liquidation" of assets, and will be in a position to establish appropriate hedges to protect against future price declines.
The High-Grade fund is the less risky of two Bear-managed hedge funds that invested heavily in securities, known as collateralized debt obligations, that were backed by subprime loans. Those CDOs sank in value amid mounting homeowner defaults and as investors grew more risk-averse.
The other hedge fund, known as the High-Grade Structured Credit Strategies Enhanced Leverage Fund, had its value effectively wiped out by the end of June, Bear told investors in a letter it sent last week.
Bear Stearns shares closed Thursday down $5.03, or 3.9%, at $124.25 on the New York Stock Exchange, after earlier touching an 18-month low of $119.55. The shares have fallen 24% this year, compared with a 4 percent decline in the Amex Securities Broker-Dealer Index.