Bloomberg reports the Federal Reserve marked down the portfolio of assets of Bear Stearns that it accepted as part of the firm’s takeover by JPMorgan Chase & Co. The assets are now worth $28.9 billion, down from the $30 billion estimated in March. I just thought that was worth noting. Read the Bloomberg story HERE.

Financial news and housing Web sites are aggressively covering the arrest Thursday of Ralph Cioffi and Matthew Tannin. They ran two hedge funds for Bear Stearns that collapsed last year. (Many media reports characterized that collapse as precipitating the subprime meltdown and related credit contraction.)

They are both charged with fraud (misleading investors). Cioffi is also charged with insider trading — he allegedly took money out of one of the funds when he knew it was in trouble but before telling investors the extent of its liquidity issues.

The funds imploded in June 2007, costing investors $1.6 billion.

Did the collapse ignite the credit crisis, or was it Angelo Mozilo’s description of the housing market as the worst since the Great Depression? Or was it the bankruptcy of New Century Financial in Irvine, once the largest publicly traded subprime lender?

The Wall Street Journal online quoted Susan Brune, a lawyer for Tannin, as saying he is innocent and he looks forward “to the day they will be vindicated” in court.

Brune added, “He is being made a scapegoat for a widespread market crisis.”

The Journal also quoted Edward J.M. Little, Cioffi’s lawyer, as saying, “We are shocked and disappointed” the government decided to bring charges against the men. Little told the Journal their was a widespread credit collapse and that Bear’s funds lost money like many others. That “doesn’t mean (Cioffi) did anything wrong. Indeed, Mr. Cioffi had no motive to do anything wrong.”

National Mortgage News has an interesting item on the case (Hmm. Is that me in there?):

According to a new book, “Chain of Blame, How Wall Street Created the Mortgage and Credit Crisis,” Mr. Cioffi’s bets on subprime began to lose money in 2006. Mr. Cioffi launched the hedge funds with the blessing of Bear’s executive management team, including James Cayne and Warren Spector. The book reports that Mr. Cioffi personally invested in the hedge funds, as did other Bear executives. It says that, “In April 2006 Tannin shot off an e-mail to two Barclays executives, Ram Rao and Edward Ware, assuring them that things were well: ‘I don’t want to sound like a broken record but the value of this transaction lies in the transparency of credit information on high underlying credit quality assets’.” … [Editor’s note: “Chain of Blame” was written by Paul Muolo, an editor at National Mortgage News, and Mathew Padilla, a reporter for The Orange County Register.]

You can read the indictment here: bear-stearns-indictment.pdf

Related News:

• Charges at Bear Stearns linked to subprime debacle
• Bear Stearns halts lending in Irvine, cuts 150 jobs
• ECC Capital sues Bear Stearns for $20 million over loans

Accredited Home Lenders, a San Diego-based subprime lender, has laid off an undisclosed number of workers and closed its Orange office and a few other offices outside the county, according to National Mortgage News and the Implode-O-Meter Web site.

The news this week follows Friday’s reports by Housing Wire and Bloomberg that investor Lone Star Funds, which owns Accredited, bought certain mortgage operations and assets from ailing investment bank Bear Stearns, which itself was recently acquired by rival JP Morgan Chase & Co. It’s all part of the massive mortgage and banking shake up still well underway, as the housing market continues its decline.

Details of the Bear-Lone Star deal are a bit sketchy but it appears Lone Star picked up what was left of the Irvine-based subprime lender Encore Credit, which Bear acquired last year. Bear Stearns, or better to say JP Morgan, still owns Lewisville, Texas-based EMC Mortgage Corp., a servicer and before the credit crunch also an originator of subprime loans. EMC has an office in Irvine.

Housing Wire, which tracks the mortgage industry, reported last week that it received an internal Lone Star memo on the Bear deal and later confirmed the memo’s contents with a Lone Star spokesman.

It would appear Lone Star is scaling back Accredited, which it bought in October for around $296 million, and will rely more one the mortgage operations it picked up from Bear.

Related Links:

• Bear Stearns halts lending in Irvine, cuts 150 jobs
• Lehman Brothers and O.C.
• CA agency sees big foreclosure jump for O.C.
• SEC Chair on subprime investigations and global response to credit crunch
• Lehman lays off 850 more people, O.C. impact not known

A moment after Bear Stearns was “saved” by J.P. Morgan Chase and the Federal Reserve rumors shifted to Lehman Brothers Holdings, another Wall Street player in subprime with ties to Orange County.

Lehman’s stock slid 19% on Monday, closing at $31.75 and wiping out about $4 billion in market value. The bank is scheduled to report its first-quarter earnings Tuesday. Here’s a clip from the Associated Press:

Fears about Lehman were stoked by news reports that DBS Group Holdings Ltd., Southeast Asia’s largest bank, instructed traders in an e-mail early Monday not to do business with the bank. According to Dow Jones Newswires, DBS Group later told traders to disregard the earlier e-mail. Lehman denied there were any problems with DBS.

Lehman Chief Executive Richard Fuld denied Monday that the firm was facing similar liquidity issues to Bear Stearns and, in several research notes released Monday, analysts tended to agree with that assessment.

The Orange County connection: Lehman owned Irvine-based subprime lender BNC Mortgage, which it closed in August 2007 as investors stopped buying riskier mortgages.

Bear Stearns still has loan servicing in Irvine, under the name EMC Mortgage. It previously bought Irvine-based subprime lender Encore Credit, but later shuttered the unit.

The Wall Street Journal online reports that Bear Stearns agreed to be acquired by J.P. Morgan Chase & Co. for just $2 per share, or roughly $236 million.

That’s an incredible end to a leading Wall Street broker and a company that still has loan servicing operations in Irvine.

The Journal writes:

Bear Stearns had a stock-market value of about $3.5 billion as of Friday — and was worth $20 billion in January 2007. But the crisis of confidence that swept the firm and fueled a customer exodus in recent days left Bear Stearns with a horrible choice: sell the firm — at any price — to a big bank willing to assume its trading obligations or file for bankruptcy.

The Journal also reports the deal is being facilitated by the Federal Reserve which is providing as much as $30 billion in financing for Bear’s “less-liquid” assets, including mortgage-backed securities.

If you’re a paid subscriber to the Journal’s Web site, I strongly recommend the story, just CLICK HERE.

A falling stock market today is being blamed on Bear Stearns, which said that its cash position had “significantly deteriorated” in the past 24 hours and that the New York Federal Reserve and JPMorgan Chase & Co. are extending it a lifeline, according to numerous press reports including Bloomberg.

First let’s recall that Bear was a big player in subprime, including in Orange County. In December it said it stopped making subprime loans in Irvine but kept servicing loans there. That followed news that two of its hedge funds collapsed after borrowing money to invest in subprime-related bonds.

Here’s more from Bloomberg:

The New York Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today.

The regulator stepped in to prevent the collapse of the second-biggest underwriter of U.S. mortgage bonds and forestall a potential market panic as losses by banks and brokers reached $195 billion and stocks plunged for a third day this week. JPMorgan, which has suffered fewer losses than rivals during the credit crisis, may end up owning all or part of Bear Stearns, analysts speculated.

“I don’t think they can afford to let Bear go,” said Charles Geisst, the author of “100 Years on Wall Street,” referring to the New York Fed bailout. “At this particular moment in time, it would be a devastating blow to the markets.”

Bear’s stock is down 36% as I write this to about $36.50, but trading is highly volatile. The Dow is down 172 points, or 1.42%.

To read the full story CLICK HERE.

Bear Stearns, which back in December closed its loan origination operations in Irvine, has more than $1 billion in trades that profit if subprime loans and bonds lose value, reports Bloomberg. Here’s more…

The “short” positions on subprime mortgage securities increased from $600 million at the end of November, Chief Financial Officer Sam Molinaro said today at an investor conference in Naples, Florida. The company also reduced its holdings of so-called collateralized debt obligations and underlying bonds, Molinaro said.

The sinking value of assets tied to mortgages led to Bear Stearns’s fourth-quarter loss of $854 million, and Molinaro said today that one of the firm’s biggest mistakes was “not being conservative enough and bearish enough on the subprime market.” The firm has reversed “long” subprime trades that stood at $1 billion at the end of August, Molinaro said.

“There’s definitely a lot of short plays out there,” said Mark Adelson, a founding member of Adelson & Jacob Consulting in Long Island City, New York. Some subprime bonds “could easily be bad enough that they don’t pay off a penny,” said Adelson, a former Nomura Holdings Inc. mortgage analyst.

In an interview after Molinaro’s remarks, Bear Stearns spokesman Russell Sherman said the New York-based firm’s subprime trades are a “hedge” against potential losses on investments in higher-rated mortgages, he said.

To read the interesting article, CLICK HERE.

Bear Stearns, which recently halted loan making in Irvine, reported today a quarterly loss of $854 million, much bigger than analysts expected, reports Reuters. Here’s more…

It was the first loss in the company’s history, and the bank decided top executives would not receive bonuses.

Bear Stearns said it took a $1.9 billion write-down in the quarter ended November 30, reflecting the reduced value of subprime mortgage-related securities. That was bigger than the $1.2 billion the company estimated in early November.

Hit by the collapse of two hedge funds last summer and poor financial results, Bear Stearns said there would be no bonuses for those at the top. Chairman and Chief Executive Jimmy Cayne, the subject of unflattering articles about his time playing golf and bridge, called the results “unacceptable.”

To read the full story CLICK HERE.

And CLICK HERE for more on its 150 layoffs in Irvine, or just scroll down a few blog posts.

Bear Stearns is closing its loan making operations in Irvine, letting the remaining 150 workers go today, the company said.

Today’s layoffs are in addition to 650 nationwide job cuts announced at the end of November, the company said. Those cuts included an undisclosed number in Irvine. CLICK HERE to read more on that news.

However, Bear continues to expand operations of loan servicer EMC Mortgage in Irvine. The company opened an EMC office about nine months ago and has hired 300 workers. It continues to hire about 40 a month, mostly in loss mitigation, the company said.

It also will continue to make loans from its office in Scottsdale, Ariz.

And back in October, the company said it was merging Irvine-based Encore Credit with Bear Stearns Residential Mortgage, eliminating 310 jobs. Read more by CLICKING HERE.

Today’s news marks an end to local loan making by folks of Encore Credit, which was founded by Steven Holder and Shabi Asghar. Holder, who also co-founded New Century Financial, stayed with ECC, Encore’s parent, when Encore was sold to Bear in a complicated deal that had ECC paying more to Bear than it paid to ECC. Asghar joined Bear at the time of the sale. He was not immediately available for comment. ECC later sued Bear over the deal. Read more on the suit by CLICKING HERE.

Here’s a statement from Bear on today’s job cuts:

“As we indicated at the end of October, we are continuing to rationalize our business, monitor staffing needs and align our infrastructure with current market conditions. We are deploying resources in areas where growth opportunities are greatest and to reduce cost in areas that can no longer justify the current level of infrastructure. We continue to hire strategically across the firm, including areas such as loss mitigation to further grow our business both domestically and internationally.”

And to see a list of mortgage casualties CLICK HERE.

Bear Stearns declined to say how many folks in Irvine were laid off Thursday, but National Mortgage News said the total was 100 account executives, citing industry sources. Here’s more…

The layoffs affect employees of Encore Credit Corp., a nonprime wholesaler that Bear took over earlier this year and recently folded into its Wall Street-managed mortgage group. “They have about 50,000 square feet of office space in Irvine,” said one mortgage executive, “but they don’t have too many people left.” The AE job cuts were among 650 positions that Bear terminated the week of Nov. 25. A Bear spokeswoman declined to provide any breakdown on the job cuts.

That was the extent of it. I welcome comments from anyone who knows more details. Bear has been telling me they are expanding EMC Mortgage, its loan servicing unit which has operations in Irvine.

Bear Stearns, the nation’s fifth-largest investment bank, said today it will cut 4 percent of its staff, or 650 jobs, as the mortgage meltdown continues. Cuts are across the board.

The company is cutting mortgage jobs in Irvine, said Jon Prussel, an area sales manager let go today. He did not say how many jobs were eliminated.

Despite ongoing bad news about the credit correction, Prussel said the local cuts came as a surprise because the company’s acquisition of Irvine-based Encore Credit a while back was going smoothly and management said the worst was over.

“I thought we were gaining traction,” Prussel said. “We were beginning to roll out a more diversified product line and beginning to see moderate growth in a downsizing market. This announcement came as a total surprise.”

Still, Prussel said Bear Stearns is a great company to work for, and market conditions are driving cut backs.

Bear has eliminated jobs twice before in Irvine this year. Read more by CLICKING HERE.

And to read the Associated Press story on today’s layoffs CLICK HERE.

Bear Stearns said today it will merge Irvine-based Encore Credit with Bear Stearns Residential Mortgage, eliminating 310 jobs, to reflect current market conditions. It’s unclear how many of the cuts are in Irvine.

In August, the investment bank cut about 100 jobs at Encore, a subprime lender it bought from Irvine’s ECC Capital, and about 140 jobs at Bear Stearns Residential, dubbed Bear Res, in Scottsdale, Ariz.

Jeff Walton serves as chief executive of the combined units and Shabi Asghar, former head of Encore Credit, is president.

Tom Marano, global head of mortgages, rates and foreign exchange, said in a statement, “We have a powerful mortgage franchise and this combination will allow our account executives better access to the full suite of products Bear Res can now offer.”

Marano said Bear will focus on loans it can sell to Fannie Mae and Freddie Mac as well as FHA loans.

“These additions will increase our capabilities and further allow our brokers to select the products that best meet their customers’ needs,” he said.

To read the release CLICK HERE.