Let the litigation begin!

Thus, It Begins:

I believe Barclays is now the first big plaintiff against the major Wall Street brokerage houses.

The United Kingdom bank was burned this summer when they lent $400 million to the firm’s funds, whose collapse wiped out $1.6 billion in capital.

Barclay’s is essentially claiming fraud, that Bear misled it about the
performance of the highly leveraged funds at the time they were collapsing, and Bear was out raising lines of credit and seeking loans to shore the funds up:

"As the High-Grade funds faltered, the Barclays
complaint alleges, their desperate state was concealed from bank
officials, whose calls and emails were dodged as they sought
performance information. "It is now clear that the BSAM defendants have
long known that the Enhanced Fund and its underlying assets were worth
far less than their stated values in the early months of 2007," asserts
the complaint, referring to Messrs. Cioffi and Tannin, "and were at
great risk for further losses."

The fund managers concealed their performance numbers
from Barclays and others, says the suit, actions that worsened losses
and contributed to the riskier fund’s collapse. They also made false
promises about savvy risk management and open communication to win loan
money from the bank, alleges the suit, treating Barclays as a naïve
player that was "an easy liquidity source," according to one email that
Mr. Cioffi sent to Mr. Tannin. Months later, at a dinner celebrating
Barclays’s loan to the newly formed enhanced-leverage fund, Mr. Tannin
told the British bank’s officials that the fund was performing "great,"
adds the suit."

Even if the allegations are true, the main question is whether the fraud was perpetrated by Bear itself, or by a separate, independent unit.

One other thing: the complaint was filed in U.S. District Court in
Manhattan. We will see if the August ploy of liquidating those two bankrupt hedge funds in the Cayman Islands will have any applicability to this claim.


And in totally-unrelated-completely-having-nothing-to-do-with-this-whatsoever news, Bear Stearns is expected to report its first ever quarterly loss today. Look for additional writedowns to its previously announced  $1.2 billion hit . . .

Barclays Sues Bear Over Failed Funds
WSJ, December 20, 2007; Page C3

Category: Credit, Derivatives, Trading

Holiday Book Shopping IV

Category: Books

Authors@Google: Paul Krugman

Category: Credit, Derivatives, Economy, Real Estate

High Cost of Living Extremely Well Index

Category: Consumer Spending, Economy, Inflation

Comment Problems: Typepad Goes Anti-Spam Crazy

Category: Weblogs

Read it here first: Incentives Distorting Home Prices

Category: Credit, Real Estate, Taxes and Policy

Fed to Curb Risky Lending (7 years too late)

Category: Credit, Federal Reserve, Real Estate

Blade Runner DVD NOT Released Today

Category: Digital Media, Film

Comedy Writers, VCs to Disintermediate TV Studios

Category: Digital Media, Television, Web/Tech

Real Interest Rates Are Negative

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation