CandleFocus

Bear Stearns

Candlefocus Editor

Bear Stearns was founded in 1923 in New York City and quickly became one of the most prominent global investment banks. It specialized in providing clearing, securities trading, and investment services. By the mid-2000s, it had become the fifth-largest investment bank in the world, with $18 billion in assets. Bear Stearns was particularly successful in its brokerage and capital markets divisions, particularly in underwriting and structuring of debt and equity securities.

Prior to the financial crisis, Bear Stearns operated two main hedge funds, the Bear Stearns Asset Management High Grade Structured Credit Strategies Fund and the Bear Stearns High Grade Structured Credit Strategies Enhanced Leverage Master Fund. Both funds were heavily exposed to investor-backed securities and other toxic assets, which had been purchased with a high degree of leverage. This exposure caused the funds to suffer large losses as the housing market collapsed, leading to their eventual collapse in July 2007.

The collapse of the two hedge funds caused a liquidity crisis for Bear Stearns. This forced the company to seek a buyer, and ultimately JPMorgon Chase bought the company for the incredibly low figure of $10 a share in March 2008. The purchase was quickly followed by a $29 billion bailout from the United States Federal Reserve Bank to prevent a wider collapse in the investment banking sector.

The collapse of Bear Stearns was a key event which precipitated a widespread collapse in the investment banking industry and caused major players such as Lehman Brothers to collapse. This event was widely seen as the starting point for the global financial crisis. Since then, the investment banking industry has had to face much tighter regulation, aimed at preventing a repeat of the 2008 crisis.

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