The state of California sought assurance from Bear Stearns on Friday that it would deliver $1.3 billion in cash the state raised this week in two bond sales managed by the firm.
Samuel Molinaro, Bear Stearns' chief financial officer, replied in a letter to the state that the emergency funding the firm received from the Fed gave it "sufficient liquidity to continue normal operations . . . and meet all obligations."
Nonetheless, the company's cash shortfall generated speculation that the firm might have to sell itself to a larger securities firm -- although some analysts doubted that anyone would be interested in a deal.
"Nobody's going to buy it," said Richard X. Bove, an analyst at Punk Ziegel & Co. "That you can forget."
Bear Stearns was the second ailing financial player to make headlines in recent days.
An overseas investment fund formed by Washington-based private equity behemoth Carlyle Group virtually collapsed this week, after the value of its holdings -- mostly high-quality mortgage-backed bonds -- declined and the firm couldn't raise the additional capital required by its lenders.
Other banks have taken steps to avoid a Bear Stearns-like funding squeeze. Lehman Bros. Holdings Inc. announced Friday that it had set up a $2-billion line of credit.
Many other banks and brokerages, including Citigroup Inc. and Merrill Lynch & Co., have suffered enormous sub-prime losses. The industry has collectively written off more than $150 billion in sub-prime-related investments.
But the credit squeeze caused a bigger hit for Bear Stearns largely because it is smaller and less diversified than its Wall Street brethren. Unlike close competitor Lehman, which has moved into new business lines and has branched out globally, Bear Stearns, which was founded in 1923, was far more reliant on creating and trading mortgage-backed securities.
In fact, Bear Stearns helped kick off the credit crunch in earnest last summer, when two investment funds it managed for large clients suffered enormous sub-prime losses and collapsed. In the fourth quarter of its 2007 fiscal year, which ended Nov. 30, the firm wrote down the value of its sub-prime holdings by $1.9 billion, leading to a net loss of $854 million.
In the fallout from those results, the firm's top four executives received no bonuses for the fiscal year. And James "Jimmy" Cayne, Schwartz's predecessor as CEO, stepped down from that post in January but stayed on as board chairman.
