A Bahamas-based British billionaire has amassed close to a seven per cent stake in Bear Stearns in a bet that the investment bank will bounce back from its 34 per cent fall in its share price this year.
Joseph Lewis, a currency trader and investor, is now the investment bank's single largest shareholder after a stake-building operation which began two months ago.
The disclosure of his stake comes after weeks of speculation that a big investor would take a stake in Bear to help shore up the bank's finances and slow the rapid decline in its shares - which plunged after bad mortgage bets caused two of its proprietary hedge funds to collapse this summer.
However, most of that speculation focused on large financial institutions, including perhaps a Chinese bank, rather than an individual investor.
Analysts on Monday said that while the investment represents a vote of confidence in Bear - and investment banking shares in general - it does not provide the kind of balance sheet support that Bear might need if is forced to record major losses on mortgage backed securities it continues to hold on its books. Bear reports third quarter earnings on September 20.
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Bear shares closed 2 per cent higher at $107.50 in New York trade on Monday, indicating that the investment by Mr Lewis did not dispel investor concerns about the bank's future. Bear shares are down 34 per cent this year. The bank suffered a major embarrassment over the summer as two of its mortgage-related hedge funds collapsed, costing investors over $1bn.
The collapse, driven by an increase in defaults among subprime mortgage borrowers, helped propel a wider crisis in the credit markets that has seen investors shun risky debt, especially securities backed by mortgage loans. Other investment banks have also seen their shares decline as leveraged buyout activity has stalled and securitisation revenues have declined.
Bear is viewed as especially vulnerable because it still derives close to half of its revenue from the fixed income markets and gets only about 20 per cent of revenue from outside the US. Some analysts suggest that if Bear shares continue to fall the banks could soon be a takeover for a larger, global institution.
Mr Lewis, who left the UK in 1979 to avoid higher tax rates and whose other investments include a controlling interest in Tottenham Hotspur, the English premier league soccer club, through his co-ownership of Enic, could not be immediately reached for comment on his investment in Bear Stearns. Bear had no comment on the stake.
In a filing with the Securities and Exchange Commission on Monday, Mr Lewis disclosed that he began accumulating his stake in August through five investment vehicles he controls.
The filing said Mr Lewis now owns 8,096,942 Bear shares, or 6.97 per cent of the outstanding float. Mr Lewis made his most recent purchase of 1.2m shares on September 7, paying $104.93 per share, according to the filing. The filing also said Mr Lewis has options that could give him additional long exposure to 791,500 Bear shares and short exposure to 706,500 shares.
Mr Lewis is now the largest Bear shareholder, vaulting past Putnam Investments, which owned 7m shares as of June. Jimmy Cayne, Bear chief executive, is the fourth-largest holder, with 5.7m shares.
Source : news.moneycentral.msn.com
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