Bear Stearns may bail out fund

Bear Stearns’ investment bank may lend $1.5 billion to save one of the company's struggling hedge funds, according to a Wall Street Journal report. The Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund would also receive a $250 million equity investment from London-based Barclays PLC and another $250 million from New York-based Citigroup Inc., while allowing some lenders to reduce their exposure by 15%, according to the report. Until now, New York-based Bear and its individual executives had invested just $40 million in the fund, and extended it no credit, said unnamed sources cited in the report. The fund, which is run by Bear mortgage veteran Ralph Cioffi, lost 23% in the first four months of 2007 when big bets on the slumping subprime mortgage market went bad. Many investors then asked for their money back, according to the report. The fund sold roughly $4 billion of subprime mortgage-backed securities last week. Merrill Lynch & Co. Inc. seized $400 million of the fund's assets. Merrill had planned to auction them off yesterday, but the bank postponed the sales until Mr. Cioffi and the Blackstone Group, the fund's new adviser, could present the new plan to investors, according to the report.