Investment Banking
Investment Banking in 2008
Group Report
1. Failure Analysis:
Identify the major factors that contributed to Bear Stearns’s failure? Who stood to benefit from its implosion? How did Bear Stearns’s collapse differ from the ‘Long Term Capital Management’ failure a decade earlier? What could Bear Stearns have done differently to avoid this fate?
In the early 2000’s?
And during the summer of 2007?
And during the week of March 10, 2008?
(1) Identify the major factors that contributed to Bear Stearns’s failure? Bear’s somewhat cutthroat and renegade culture of maverick may have contributed a lot to their failure. This culture somehow made it killed by the credit crisis, while other investment banks survived. But the direct factors resulted in Bear’s implosion were the failure of Ralph Cioffi’s High-Grade Structured Credit Strategies Fund and Enhanced Leverage High-Grade Structured Credit Strategies Fund, which invested in sophisticated credit derivatives backed by mortgage securities. And these failures cost Bear more than 1.6 billion dollars to prop up two hedge funds. And the failures of two hedge funds led to a continuous questioning about Bear’s financial stability. At the same time, Bear concentrated its business on CDOs, which means it had high exposure to this item. Thus when credit crisis happened, it is significantly impacted.
And in early 2008, Moody’s downgraded 163 tranches of mortgage backed bonds issued by Bear. Almost everyone realized that Bear will face liquidity problem. But meanwhile, Bear highly relied on repo to finance itself. When lender lost confidence in Bear, it failed in finding another effective way to find cash. In sum, the reasons above contributed to the failure of Bear in 2008 crisis.
(2) Who stood to benefit from its implosion? JP Morgan is the beneficiary from Bear’s bankruptcy. It gained a company which had $172.61 worth less than 8 months ago with an
Group Report
1. Failure Analysis:
Identify the major factors that contributed to Bear Stearns’s failure? Who stood to benefit from its implosion? How did Bear Stearns’s collapse differ from the ‘Long Term Capital Management’ failure a decade earlier? What could Bear Stearns have done differently to avoid this fate?
In the early 2000’s?
And during the summer of 2007?
And during the week of March 10, 2008?
(1) Identify the major factors that contributed to Bear Stearns’s failure? Bear’s somewhat cutthroat and renegade culture of maverick may have contributed a lot to their failure. This culture somehow made it killed by the credit crisis, while other investment banks survived. But the direct factors resulted in Bear’s implosion were the failure of Ralph Cioffi’s High-Grade Structured Credit Strategies Fund and Enhanced Leverage High-Grade Structured Credit Strategies Fund, which invested in sophisticated credit derivatives backed by mortgage securities. And these failures cost Bear more than 1.6 billion dollars to prop up two hedge funds. And the failures of two hedge funds led to a continuous questioning about Bear’s financial stability. At the same time, Bear concentrated its business on CDOs, which means it had high exposure to this item. Thus when credit crisis happened, it is significantly impacted.
And in early 2008, Moody’s downgraded 163 tranches of mortgage backed bonds issued by Bear. Almost everyone realized that Bear will face liquidity problem. But meanwhile, Bear highly relied on repo to finance itself. When lender lost confidence in Bear, it failed in finding another effective way to find cash. In sum, the reasons above contributed to the failure of Bear in 2008 crisis.
(2) Who stood to benefit from its implosion? JP Morgan is the beneficiary from Bear’s bankruptcy. It gained a company which had $172.61 worth less than 8 months ago with an