Thursday, August 2, 2007

More troubled hedge funds

The two troubled Bear Stearns hedge funds, the High-Grade Structured Credit Strategies Master Fund and High-Grade Structured Credit Strategies Enhanced Leverage Master Fund, that suffered devastating losses from bad bets on subprime loans filed for bankruptcy protection earlier this week. Investors are taking legal action against Bear Stearns Cos., accusing the company of providing misleading information regarding exposure to mortgage-backed securities.

Another hedge fund firm, Sowood Capital Management LP, announced that it’s liquidating its Alpha funds after they lost more than 50% of their market value in July. Sowood lost more than $1 billion in a month, as its asset value plunged from $3 billion to approx. $1.5 billion. Fearing that it will not be able to meet its margin calls, Sowood sold most of its portfolio to Citadel Investment Group LLC.

In other signs of spreading contagion from the housing market, car manufacturers are posting double-digit declines in sales in July, and companies from chemical maker DuPont to insurers and transportation companies are blaming low revenue on the weak housing market. Speculation is mounting that homebuilder Beazer Homes USA may file for bankruptcy after its quarterly report showed loss of $123 million, sending shares down 18%.

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