Tuesday, November 11, 2008

Bear Stearns $30 billion mortgages may fare well

Tue Nov 11, 2008 2:58pm EST

By Dan Wilchins

NEW YORK (Reuters) - A $30 billion Bear Stearns mortgage portfolio backed by the U.S. government is generating cash flow as expected, and could end up being worth more than its market value implies, the portfolio's manager BlackRock said on Tuesday.

Speaking at the Reuters Global Finance Summit, BlackRock President Robert Kapito said that "the cash flows are coming in very close to what we had anticipated from the very beginning."

If this portfolio performs better than expected, it may indicate that investors were wrong to lose faith in Bear Stearns in March.

New questions may also arise regarding mark-to-market accounting, which requires banks to record some assets on their books at their market value. This accounting method, which can trigger big losses and capital hits for banks when asset values decline, has grown controversial.

"That's become a very big issue in the market place, is that you have securities where the cash flow is coming in very close to predicted values, but the current mark to market, because of the illiquidity ... has been a big pressure on companies' capital," Kapito said.

As of the end of September, the market value of the portfolio was $26.8 billion, compared with its original face value of $30 billion, according to a government report on October 23.

"I would say that the cash flows on these securities predict a higher value than what is currently marked to market," Kapito said.

The Bear Stearns mortgage portfolio's risk ended up mainly in taxpayers' hands in June after JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) agreed in March to buy the faltering investment bank on condition the government guaranteed some of Bear's assets.

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.