Even after Bear Stearns CEO appeared on CNBC to tell the world that Bear Stearns isn't having liquidity problems, the Wall Street Journal's Heard on the Street column notes that hedge funds and the firms rivals are proceeding with an abundance of caution in dealing with the firm....
Bear executives say that they are in no danger of a cash crunch and that the company's capital remains more than adequate. But in a sign of how skittish Wall Street has become in recent months, the New York investment bank is facing increasingly tough trading conditions.
Traders handling certain long-term transactions, such as credit-default swaps, said they are being extra cautious when Bear is the counterparty. In some cases, traders are seeking higher-ups' permission before acting.
In addition, some clients of rivals like Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group and Deutsche Bank AG have asked those firms to be counterparties to Bear in completed transactions. Such a move frees clients from exposure in the event a firm can't cover its obligations on a trade.
Some hedge funds that use Bear as a prime broker also have been shifting portions of their business to other firms in recent weeks, according to hedge-fund managers and consultants who help pension funds and wealthy people choose where to place their money. A similar shift occurred last summer, but Bear soon recovered much of the lost business.
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