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From The Sunday Times

March 16, 2008

UK tycoon Joe Lewis loses $800m on Wall Street

Bear Stearns on brink of break-up

Dominic Rushe, Iain Dey and David Smith

JOE LEWIS, the secretive British billionaire, has lost an estimated $800m in the collapse of the American investment bank Bear Stearns.

The 71-year-old currency trading tycoon, who runs his empire from the Bahamas, holds almost 10% of the bank's shares. Bear’s shares fell 40% on Friday to $27, after it secured a 28-day credit lifeline to stave off collapse.

Lewis began building a stake in Bear last September, when the shares were changing hands for more than $100.

The huge paper losses could force Lewis to sell out of some of his other positions, according to traders, in order to meet margin calls from his lending banks.

Bear Stearns stands on the brink of collapse or break-up this weekend. The bank’s woes come as Wall Street braces itself for another week of pain.

Some of America’s biggest financial institutions are set to announce first-quarter figures showing fresh losses and write-downs of billions of dollars.

The disclosures come amid desperate attempts to bail out Bear Stearns, which secured a 28-day lifeline on Friday to stave off collapse. That would have caused a sale of Bear’s $42 billion (£21 billion) of loans and $176 billion of securities that could have triggered a meltdown in the financial markets.

On a Friday conference call, Bear’s chief executive Alan Schwartz said the bank was considering a full range of options - a statement many took to mean the bank is on the block. Lazards is advising Bear on its options.

JP Morgan Chase has stepped in alongside the Federal Reserve Bank of New York to provide emergency funding.

Jamie Dimon, JP Morgan chief executive, is interested in Bear’s prime brokerage business and parts of its mortgage operations, according to sources.

“Bear Stearns is over,” said one banker. “By the end of the month - if not this weekend - someone is going to come up with a plan to take it out or break it up.”

Wachovia, the giant American retail bank, is also said to be interested in parts of the business and so is JC Flowers, the private-equity group that attempted to buy Northern Rock.

A takeover is not expected to place a high value on Bear Stearns shares, which lost almost half their value on Friday.

Richard Bove, a banking analyst at the Punk Ziegel investment bank, said he thought a buyout was likely to fail, as it did with Britain’s Northern Rock. “I don’t think the Fed will approve a purchase,” he said. “Customers are leaving in droves, so what would they be buying?”

Bove said Bear was “a new Northern Rock” that would be propped up by the government as it dwindled away. He predicted the bank will limp on, losing clients, until it ends up being a regional broker.

Bear’s woes come as its blue-chip rivals prepare to announce first-quarter results. Analysts have cut their 2008 earnings outlook for Bear Stearns, Goldman Sachs, Lehman Brothers and Morgan Stanley. Bove said the results were less important than the strategy the banks were now following. “We have a totally mismanaged economy in America and that has been allowed to happen because the rest of the world accepted our debt.

“Well that’s over and now, like a banana republic, we are going to have to prove we are sorting out our act.”

The Bear Stearns crisis has reinforced the view that the Federal Reserve will cut interest rates this week by 0.75 percentage points, rather than 0.5, which would take the Fed Funds rate down to 2.25% – three points below last year’s peak.

Some analysts even think that the Federal Reserve may try to calm the markets by cutting rates by a full percentage point at its Tuesday meeting.

“We now expect the Fed to cut by 75 basis points on March 18, 50 in April, 50 in June and by a final 25 in early 2009, bringing the Funds rate back down to 1%,” said Ethan Harris, an economist with Lehman Brothers. “Who says history does not repeat itself?”

In Britain, nerves could be set on edge if the February inflation figures – also due out on Tuesday – show a decisive rise above 2.5%, from 2.2% in January.

While Mervyn King, the Bank of England governor, has primed the markets to expect a significant rise in inflation in the coming months, any sign that it was moving higher at an unacceptable pace would be seen as limiting the Bank’s room for manoeuvre on interest rates.

BANK LOSSES KEEP RISING

GOLDMAN SACHS is this week expected to reveal write-downs of more than $3 billion, as Wall Street begins another turbulent quarterly reporting season.

Huge loans for private-equity deals, coupled with a loss on its holding in the Chinese bank ICBC, are behind the write-downs. Goldman is also expected to unveil a 60% drop in earnings.

Lehman Brothers, which secured a new $2 billion credit line on Friday, is expected to reveal write-downs of more than $1 billion.

Morgan Stanley, meanwhile, is poised to reveal a further $500m in write-downs.

Bear Stearns will now publish its results tomorrow.

Why is this situation such a surprise. In every single industry in the world rises without checkpoints the end result in failure, in any business...Bear Stearns collapse isn't a surprise it was inevitable..If not them it would have been someone else. Go back to grade scholl people..Anything thing that rises ....falls..whether it be gvernments or business..especially a business sector that goes unchecked and mismanaged...Thinking they are invincible..No one or anything is invincible and guess we will just print out more money and devalue the dollar more..can hardly wait to move to Iceland

Wade, Scottsdale, az 85254, AZ

Bernake has a beard

Ger Lynam, singapore,

The time to buy the market is when there is blood in the streets, but I just don't see enough panic here.

I want to see hysterical calls for the full nationalisation of the entire economy, and melodramatic claims that we're all going to end up living on the streets. Then I might dabble a little.

This stuff about "greed" is a good start, as is the "end of the West" claptrap, but you guys have to work at the panic-mongering a bit more.

Make me afraid. Very afraid. Then I'll know it's time to invest.

jon livesey, Sunnyvale, CA/USA

I am sure that $ 800 million trickled down to the poorest folk , who really could work countless miracles with it.... at least thats what Ronnie Reagan told me would happen

jim Redman, worcester ma, Ma USA

Good article. Re: below. A social conscience is a desired but not necessary requirement for business. The comment about people dying because of it and multiculturalism as well is bizarre and unsettling.

Adam, Bristol,

The last ten years has witnessed some of the most irresponsible lending practices in financial history, not just in terms of sub prime mortgage lending but across the board. It may have looked good on paper and it most certainly served at the time to boost dividends and bonus payments for a few; but now the price has to be paid and for many - mostly ordinary people who didn't have a say in the matter - that is going to be a very painful experience.

Richard Crow, Warsaw, Poland

You win some you loose some. And when the worlds financial markets are run as gambling dens the fault is no ones but our own.

Farrukh, Woking, UK

Social consciousness? Big deal! How is that going to pay the debts. Take the socialist mantras and drown them. They have destroyed Europe and Neko you can watch your social consciousness as Spain goes down the tubes. The people who died on those trains in Madrid died because of social consciousness and multicuturalism.

Cassandra, Brighton, UK

Bartering sounds good right now!

Mom, San Francisco, California

Breaking News: Investor Loses Money.

Next.

Hassan Azam, Banbury , Oxfordshire, England

Free Trade is only free trade if 1) there are no currency pegs, 2) there is the same social net (unemployment benifits, health care, workers rights, etc)... I agree with free trade, but I dont see much going on.... and btw, what should SWFs be allowed to invest in? ... if there is no peg then i would say anything, if there is a peg then I would say nothing... not even overnight interest.... everyone blames america's lack of savings, but the problem is EMs merchantilistic practices that are at the source of the present imbalances...

Harvey, London, UK

Greediness, greediness!!!!! what did you expect ?Maybe Â¨ free trade Â¨ is not the solution. Social consciousness !!! We lack of social consciousness.

Neko, Madrid

neko Gomez , madrid, spain

You are very right Mr. Bove -'' that has been allowed to happen because the rest of the world accepted our deb''t!! Brilliant, blame yourself not the rest of the WORLD. Fortunately for the disgraced CEOs the NY Governor is out, otherwise it would be very interesting!!

yanko, St Gallen, CH

How do you become a millionaire fast? Start with a billion and buy Bear Stearn shares!

Edward Hoogstraten, Bern, Switzerland,

Henny Penny !Henny Penny!
The Skies are falling!
Sell Sky Now! comes the reply
The sub-prime ,or as it should be remembered:
"Homes for Hoboes"
has been the scabbiest 3 card trick ever perpetrated by so called Market Professionals, pass the parcel with the investors money, surely a Nigerian E-mail promising a cut of the dead guys ' will have had more sound finance behind it?
High finance? Obviously a variety of over paid advisers were just that.
As an old Chicago Futures trader used to cry when the market was running scared
" Don't get any on your shoes guys!" or more appropriately; "Sell while you can,not when you have to"

steven rainbow, southend on sea essex, Essex

Where did Alan Greenspan come into all this ? He was repeatedly warned during his watch that the sky rocketing sub prime was dangerous. As far as I can see he has been notably silent these days. This from a man whose casual remarks could cause tremors on Wall Street.

Paul, Charlottesville, Virginia

If Benanke is a student of the Great Depression, then he should know that the best cure is prevention. Instead, once the party got started he was right there with Greenspan cranking up the music and popping the corks.

"There is no bubble" they all cried. "The economy is strong".

I was half expecting him to comment that property has reached a 'permanently high plateau'.

It's pretty clear that with such sloppy monetary policy, gold is the only thing to hold these days. Benanke may be a financial alchemist (with just as bogus results), but gold is one thing he cannot magic out of nowhere.

Paul, Dubai, UAE

Roll on the bad news. This should create buying opportunities for the smart investor.

Nabeel Zaidi, Watford,

The outfow of capital in the us is huge. Usa imports 15 million barrels of oil a day. Walmart and others import goods from china. Now its finally catching up. usa debt is over 12 trillion and uk over 8 trillion. This is not good news but the main group of people who are affected are the very wealthy. In time though the average person will have to pay the bill for the mistakes of the very wealthy. Get ready everyone for high taxes and low income.

monty, glentworth , canada saskatchewan

I just don't think people in the Anglo Saxon world get this yet.

When are people going to wake up to the fact that the 'West' is insolvent and both morally and ethically bankcrupt.

The future in the West is of significantly lower standards of living and the realisation that it is now the servant of the East. Last one to leave please......

Plenty of heads have been in the sand for far too long. Reminds me of Rome in around 400 AD.

Richard Adams, Sydney, Australia

gold is the answer - the only answer...

jt, beverly hills, ca

Didn't China buy stake in Bear Stearns and was looking to buy more stock?
I wonder how the Chinese will view their loss - perhaps in the same way as they view the declining value of their dollar holdings? Or will this deter China and other foreign investors shoring up US financial institutions?

Damian, Eastbourne,

Bears has exposure to $176bn worth of mortgage backed securities. Sub-prime mortgage backed securities with AAA ratings are currently worth 53p to the dollar. the value of prime mortgage backed securities have also collapsed (it triggered the demise of a Carlyle hedge fund last week). If Bears markets its mortgage backed securities on a "mark to market" basis, its so dead in the water, the write downs will run into tens of billions.

tony hewitt, Los Angeles, USA

This is the George Bush legacy. Why is he not held accountable for anything? All of his buddies are now getting a bail out. This is worse than a banana republic. This is totally an abuse of power and theft. Sell dollars now before they are totally worthless.

Luca Ponti, Barcelona, Espana

Gosh, if you ride a cloud of greed, making and bundling home mortgage loans for people that have demonstrated that they probably won't pay them back. Then the Government will open a credit kine for you. Wow, What a concept.

Silverback, Naples,, FL.

Morgan Stanley may be next.

Yo, Miami, FL

Who'd want to be a billionaire?Obviously not Joe Lewis.How will cutting rates by a full 1% calm the markets?Its like giving a shaking alcoholic a full bottle of whisky.It will calm him down for a few hours,then what,another bottle.

stephen hulton, eure, france