Merrill Lynch & Co. is selling roughly $850 million of assets from two Bear Stearns Cos. hedge funds that have been battered by turmoil in the subprime mortgage market, a person familiar with the situation said on Wednesday.
Bear Stearns had hoped its rivals who invested in the funds -- including JPMorgan Chase & Co., Deutsche Bank, and dozens of other creditors -- would allow it to put together a rescue plan. So far, only JPMorgan and Goldman Sachs Group Inc. have agreed to unwind positions without selling the assets on the open market, a person familiar with the negotiations added.
Treasury Secretary Henry Paulson was asked about the Bear Stearns funds problems on Wednesday.Mr. Paulson said that he was not commenting on the Bear Stearns situation and added "I tried to make clear we will be dealing with the subprime issue for some time and that there will be losses along the way. It is a natural outgrowth of what we've seen in the housing market and certain lending practices."
"As mortgages continue to reset, this will take time to work its way through the system," he said "But I continue to believe that this risk is largely contained. It doesn't pose a significant risk to the economy overall."
JPMorgan was planning to sell about $300 million worth of assets that was planned for Wednesday afternoon, but then it canceled its intention. The attention was paid to Merrill Lynch, which has great interest from investors.
Jeffrey Gundlach, chief investment officer for Los Angeles-based TCW Group, said he is considering buying some of the assets during Merrill's auction. So far, he said the auction has seen relatively high interest from investors -- and that prices were not being undercut severely.
"Nothing has happened in this auction that would be a catalyst for a further decline, or more margin calls," Jeffrey Gundlach added. "There's no major surprises to the downside, but most of what is being traded is higher quality."
Gundlach also mentioned that given the number of creditors and size of the funds, it could take up to a year for all of the sales to be completed.
Merrill Lynch is selling its high-grade, collateral-backed debt obligations, which worth about $850 million.
The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund and the High Grade Structured Credit Strategies Fund went down this year. Borrowers, who had weaker credit failed to pay obligations on subprime loans, which brought instability in the market.
Spokesmen from Merrill Lynch, Bear Stearns and JPMorgan didn't comment on the situation.
HISTORY
Merrill Lynch is one of the world's leading wealth management, capital markets and advisory companies, with offices in 37 countries and territories and total client assets of approximately $1.6 trillion.
Merrill Lynch offers a broad range of services to private clients, small businesses, and institutions and corporations, organizing its activities into two interrelated business segments - Global Markets & Investment Banking Group and Global Wealth Management, which is comprised of Global Private Client and Global Investment Management.
As an investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide.
Merrill Lynch owns approximately half of BlackRock, one of the world's largest publicly traded investment management companies, with more than $1 trillion in assets under management.- Alla Harutyunyan for HULIQ.COM
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