Bear Stearns shares were up about 3% in afternoon trading amid suggestions that the troubled investment bank may have secured a cash infusion from an outside investor.
A analyst note issued Thursday by Richard Bove, analyst at Punk Ziegel, says the rally suggests that an agreement may have been reached to inject cash into the New York-based investment bank.
The analyst's report comments on a raft of rumors that have been floated about the possibility that a Chinese bank or other entity may be interested making an investment representing as much as a fifth of Bear's market value -- around $3 billion at recent prices.
"I assume that the company is seeking some type of convertible debt investment for what could be as much as 20% of the company," Bove says in the note.
According to the
and other news services, Bear was in talks about a joint venture with China Construction Bank. That deal is said to have fallen apart.
Since Bear's problems with a pair of highly-leveraged hedge funds have come to light, rumors have resurfaced about the possibility of CEO Jimmy Cayne seeking a buyout or cash infusion.
Many believe that such a scenario is unlikely, given Cayne's hardscrabble attitude and his view that Bear can weather this latest credit storm. The collapse of the market for subprime mortgage securities has besieged the entire array of financial firms, including
Bove readily admits that the note is based mostly on speculation but says that he is of the belief that Bear is in need of a cash infusion and worries that the bank's balance sheet might be in disrepair.
"There is a testing of the brokerage firms' balance sheets that is underway," Bove says. "The basis of my sell rating on the firms is that equity funding is needed."
Bear recently raised nearly $4 billion in debt and has said it believes that it does not need any additional capital.
Still, rumors suggest that Cayne is planning a trip to China in the next 10 days, and Jeff Lane, hired from Lehman Brothers to run the group's asset management unit, is said to be on a fundraising campaign in Europe.
"I could be a 1,000% wrong, I'm not saying that I'm not," says Bove, "but I'm just trying to understand what's going on at Bear."
Shares of Lehman, which have been particularly battered over the past few weeks, also were up 3% Thursday.