Has Bear Stearns Run Out Of Money?

 

Bear Stearns today saw its price per share hits its lowest level since 1999. The stock hit $60.26 earlier today before re-bounding to $63.02 at 3:00 p.m. As quoted in Bloomberg.com, Michael Mainwald, head of equity trading at Lek Securities said, referring to Bear Stearns, “There’s an insolvency rumor and concerns on liquidity, that they just have no cash.”

Even though Bear Stearns denied such rumors, other firms such as Sanford Bernstein advised their clients against purchasing Bear Stearns. An analyst for Sanford Bernstein, Brad Hintz, said that Bear Stearns was likely to see its financial leveraging continue to unravel.

The price of credit-default swaps on Bear Stearns went from 246 basis points to 792, according to data from CMA Datavision for one-year contracts. An increase in this price indicates a weakening perception of Bear Stearns’ credit quality.

Another indicator of the weakness of Bear Stearns: the options market. Put-option volume on Bear Stearns stock increased by six times the 20-day average. Also, the implied volatility was at 98.40. This increase suggests that traders are expecting larger downward price movements in Bear Stearns’ stock price.

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