Bear rumour speaks volumes

If you are wondering why Bear Stearns (BSC:NYSE) is down 13% this morning, even though other brokers, such as Goldman Sachs (-1%), Lehman Brothers (-4.7%) and Merrill (-4%) are not taking the same pounding, here’s the answer.

Trading desks across North America are passing along a rumour that Bear is going to file for Chapter 11 protection. With a US$7.5 billion market cap., and book value of US$11.7 billion as of November 30, 2007, that’s quite a rumour. Unfounded as it likely is. The fire behind the rumour is a Moodys downgrade to some “Alt-A” mortgages this morning.

The fact that it even gets passed along is either due 1) to the glee that those who are short the stock are taking in the rumour, or 2) the fact the no one actually believes that financial institutions are yet able to say, definitively, that they know where all of the bodies are buried on their own balance sheets.

Merrill Lynch’s CEO came out this morning and said to Le Figaro that “we do not need to raise more equity” and “the worst is behind us”.

No doubt that market players will be looking for a similar statement from Bear Stears management over the course of today.

MRM