Sub prime woes coming back to pinch Wall Street earnings

The Wall Street Journal and Bloomberg News both reported that Bear Stearns is scrambling to liquidate about $4.0 bln of high-grade mortgage-backed securities from its 10-month old High-Grade Structured Credit Strategies Enhanced Leverage Fund to raise cash. According to Hedge Fund Alert, the hedge fund had about $6.0 bln in assets and was down about 23% in value in the year through April and halted redemptions after investors sought to withdraw $300 mln by June 30. The losses in the fund are being attributed to subprime mortgage bonds.

Goldman Sachs CFO also cited problems in its mortgage business and warned that the subprime sector’s woes are not over. Net revenues in its fixed income, currency and commodities unit, which includes the firm’s mortgage business, fell 24% y/y.

Freddie Mac reported its third consecutive quarterly loss, with the big miss attributed to derivatives and a widening in credit spreads. It’s CEO said that “the full impact of the housing downturn has not been felt.”

Comment:  Wall Street has made billions in packaging this stuff over the past few years, it seems fitting they should bear at least some of the pain as things unwind.  More to come.

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