The never-ending credit crisis took another toll on Bear Stearns yesterday as jittery investors dumped shares of the Wall Street icon on unfounded rumors that the firm’s access to capital was running dry.
Bear, the second-biggest underwriter of mortgage-backed bonds, plunged as much as 14 percent yesterday – erasing more than $1.3 billion in market value – before the firm’s well-respected former chief, Alan “Ace” Greenberg, called the rumors “totally ridiculous.”
The 79-year-old Wall Street veteran did little to calm the market’s fears, however, as investors continued to believe that access to capital, the lifeblood of a Wall Street firm, is virtually shut off.
Bear’s stock ended down $7.78, or 11 percent, to $62.30 – a low not seen since 1998.
The sell-off was initially sparked after traders noticed large bearish bets being made in the options markets, where investors gamble on the future direction of Bear’s stock price.
The price of an April $55 “put” option, which gives the buyer the right to sell Bear’s shares at $55, more than doubled to $4.60.
For those wagers to pay off, the shares must drop another 15 percent in the next six weeks.
“Put” options activity in Bear’s shares rose nearly sixfold yesterday as increasingly nervous investors moved to hedge their positions in the stock.
The pervasive fear on Wall Street is that Bear or another firm could be forced to liquidate their positions at a discount as other banks also move to tighten their belts.
Research firm Sanford C. Bernstein & Co. also advised their clients yesterday against buying Bear and three rival firms until the credit market stabilizes.
More writedowns are likely for these companies as “financial leveraging that had benefited the group” since 2004 “continues to unravel,” Bernstein analyst Brad Hintz wrote in a report.
“If liquidity is the elixir of life for any Wall Street firm, the current market certainly has the potential to be lethal,” Kenneth Hackel, managing director of fixed-income strategy at RBS Greenwich Capital Markets wrote in a report yesterday.
Bear has led shares of Wall Street firms including Lehman Brothers and Merrill Lynch lower in the past six months as firms worldwide wrote down $188 billion of assets linked to the subprime mortgage market.
Lehman dropped 7.3 percent yesterday to close at $42.98 and Merrill lost 5.2 percent to close at new low of $42.84.
Bear’s fourth-quarter loss of $854 million was its first, and led to the resignation of long-time CEO Jimmy Cayne. zachery.kouwe@nypost.com