Funds Bit by Bear Stearns
Some prominent and respected managers are caught holding the bag.
J.P. Morgan (JPM) is buying beaten-up Bear Stearns (BSC) for $2 per share. That's bad news for Bear Stearns' shareholders, many of which are mutual funds and all of which paid significantly more than $2 per share. Bear Stearns' stock price closed at $57 last Thursday, which already was significantly below its 52-week high of $159. So, the $2-per-share price that J.P. Morgan is paying is almost as good as nothing for shareholders who bought in and owned it at much higher prices.
Vanguard Windsor II's (VWNFX) Jim Barrow began buying Bear Stearns last year after its share price dipped on news that a couple of its hedge funds tanked due to subprime loan wagers. Barrow thought Bear was actually less of risk-taker than the hedge fund imbroglio indicated and liked that Bear's chairman and CEO at the time, James Cayne, was the company's biggest shareholder. Even after Cayne stepped aside, Barrow bought more because the stock was trading below its book value, and he thought it would emerge from the crisis. Bear was one of the fund's top 25 holdings and took up nearly 1.4% of assets at the start of 2008. That position required nearly 8 million shares and amounted to 6.7% of the Bear Stearns' shares outstanding. Windsor II has other exposure to the bailout deal through its even bigger stake in J.P. Morgan.
Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.