There was a time, even quite recently, when it was fun to read a filing by yet another billionaire investor taking a stake in an underperforming company. The sabre-rattling about what actions needed to be taken, by whom and by when livened up the laundry list of numbers of shares acquired. Of course, the turmoil in the credit markets has sent activist investors running. So, what to make of the sparse details surrounding Monday’s surprise investment in Bear Stearns by wealthy financier Joseph Lewis?
Not much. The broker-dealer’s stock did end up on the day, but the move was hardly overwhelming as a vote of confidence. That makes sense. First, Mr Lewis is probably not the cheerleader other shareholders in Bear Stearns may have been dreaming of. A very large, well-capitalised international bank with no subprime worries of its own would have been more to their taste.
Second, and more important, investors are fixated on just how bad the markets have been and continue to be for a broker-dealer so heavily exposed to fixed income and US sources of revenues. With third quarter results round the corner, the anxiety is high, as analysts slash their forecasts. Bank of America research expects a 49 per cent fall in fixed income sales and trading revenues for the second half, far worse than for peers. Credit Suisse estimates a 43 per cent decline in fixed income for the third quarter.
On top of the seizing up of securitisation and mortgage markets, the broker-dealer has other, albeit smaller, headaches. The crisis in its two hedge funds will surely hit asset management. Meanwhile, deleveraging by hedge funds cannot be good for Bear Stearns as prime broker. True, the company has worked on improving its balance sheet. In these times, that is a necessary but not sufficient cause for relief. Stock buying by Mr Lewis certainly does not change that.