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Bear Stearns shares jump on speculation

The firm reportedly may sell a large stake in itself. Bidders could include Warren Buffett.

September 27, 2007|From Bloomberg News

Shares of Bear Stearns Cos., the Wall Street firm hit hardest by the collapse of the sub-prime mortgage market, jumped Wednesday on speculation that the company would sell a big stake in itself, possibly to investor Warren Buffett.

Bank of America Corp., Wachovia Corp. and two Chinese financial companies, Citic Group and China Construction Bank Corp., also are among the potential bidders for a stake as large as 20%, the New York Times reported, citing unidentified sources. Executives at Bear Stearns, Bank of America and Wachovia declined to comment. A Buffett representative said nobody was available to comment. Officials at Citic and China Construction couldn't be reached.

"I don't think they need the cash infusion, but it could bolster the balance sheet and perception" of the firm, said Erin Archer, an analyst at Thrivent Financial for Lutherans in Minneapolis.

Shares of Bear Stearns, the second-biggest underwriter of U.S. mortgage bonds after Lehman Bros. Holdings Inc., rose $8.76, or 7.7%, to $123 on Wednesday. And the price of derivatives used to insure against the possibility of default on Bear Stearns bonds tumbled.

The stock is down more than 15% since mid-June, when two of the New York-based firm's hedge funds failed because of bets on mortgage-linked securities, damaging the firm's reputation for avoiding risk.

Billionaire Joseph Lewis, a British-born, Bahamas-based currency trader, this month paid $860.4 million for a 7% stake in Bear Stearns.

Speculation that Bear Stearns will sell a bigger stake than that owned by Lewis has persisted for more than a month. Richard Bove, a Punk Ziegel & Co. analyst in Lutz, Florida, said Aug. 16 that Bear Stearns might sell as much as 20% of the firm to an investor such as a Chinese bank.

"A deal will happen because it may be necessary for the future health of the firm," Bove wrote in a note to clients Wednesday. He raised his recommendation on Bear Stearns to "market perform" from "sell."

China Construction Bank is the Asian nation's second-largest lender by assets. Citic Group's Citic Securities Co. is the world's fastest-growing brokerage, with a stock market value of about $40.7 billion, more than either Bear Stearns or Lehman Bros.

Buffett, whose investment firm, Berkshire Hathaway Inc., is based in Omaha, invested $700 million in Salomon Inc. in 1987, helping the firm's management fend off a takeover attempt by investor Ronald Perelman. Buffett became interim chairman of Salomon in August 1991 after traders at the New York-based securities firm were caught rigging U.S. Treasury auctions. He led the company for nine months.

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