Bear Stearns and the Seeds of Its Demise Harvard Case Solution & Analysis

This case is suitable for courses in corporate finance in graduate or advanced undergraduate level, which in the banking, finance, security, construction, capital structure or the capital markets. The case covers the events that led to the collapse (Bear) of Bear Stearns hedge in July 2007, and monitors management response to the situation in January 2008. These activities include macroeconomic factors that fueled the housing boom, the growth of securitization, structured products and credit default swaps, as well as differences in the maturity of financial institutions funding strategy. The case provides a rich setting for students to understand the increasingly interconnected nature of banking activities, which creates large systemic risks in the financial sector. Two key questions are: "What are the factors responsible for the collapse of Bear hedge?" and "management response was appropriate in light of the Bear collapse and credit problems that followed?" John Corso is a hedge fund manager with large cash balances in prime brokerage accounts to bear. In January 2008, he receives a call from a senior executive Medvedev assured him that the company is in good hands after the shake-up of top management. Last summer, two Bear hedge funds collapsed as a result of its investments in collateralized debt obligations (CDO), which were supported by subprime mortgages. As a longtime customer bears, Corso should assess whether the steps taken by management would be enough to solve your credit problems, or it is time to withdraw funds from the company. "Hide
by Susan Chaplinsky Source: Darden School of Business 27 pages. Publication Date: 22 October 2008. Prod. #: UV1064-PDF-ENG

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