UPDATE: Bear Stearns Seizes Assets Of Its High-Grade Hedge Fund
Dow Jones
July 26, 2007: 06:19 PM EST

SAN FRANCISCO (Dow Jones) -- Bear Stearns Cos. said late Thursday that it seized assets from its High-Grade Structured Credit Strategies Fund after the hedge fund suffered huge losses in mortgage-backed securities and structured- finance markets.

The bank lent $1.6 billion to the hedge fund earlier this month after the losses. On Thursday Bear said that $1.3 billion of the loan remained.

Bear took control of the assets because the fund couldn't meet its margin obligations as part of the loan agreement, the bank explained.

"We do not anticipate any material change in financial exposure to Bear Stearns as a result of this action," the company said in a statement.

Bear (BSC) will continue to liquidate the fund in an "orderly" way and will be able to set up hedges to protect against any further declines in the value of the portfolio, if appropriate, the bank added.

The High-Grade fund lost 91% of its value in the first half of 2007, while a smaller, more leveraged fund called the High-Grade Structured Credit Strategies Enhanced Leveraged Fund was totally wiped out, Bear told clients last week. The two funds had about $1.6 billion in assets at one time, but through leverage they controlled more than $10 billion in mortgage securities and credit-related securities.

The crisis has dented the reputation of Bear Stearns, which has been known for its expertise in the mortgage market. Other hedge funds have also blamed the two Bear funds for triggering broader losses and margin calls in other parts of the asset-backed securities market.