Bear puts bailout at $1.6 billion

Bear Stearns Cos. needs to invest only half of the $3.2 billion it initially pledged to rescue one of its ailing hedge funds, and does not expect to rescue a second troubled fund, the company said Tuesday.

The Wall Street investment bank said it will provide about $1.6 billion in secured financing to its Bear Stearns High-Grade Structured Credit Fund after the fund sold some assets to partially mollify lenders.

"By providing this secured financing facility we believe we have helped stabilize and reduce uncertainty in the marketplace," Bear Stearns CEO James Cayne said in a statement.

The fund, which invests in complicated securities underpinned by risky mortgage-backed bonds, ran into trouble when the value of its assets fell sharply amid an increase in defaults of subprime mortgages.

Investors began to pull funds and creditors started asking for more collateral to back their loans, causing a cash crunch at the fund. The financing from Bear buys time for the fund to boost earnings through trading to repay investors and lenders.

There was concern that if Bear did not rescue the fund, a fire sale of its assets would force the revaluation of other funds that invest in similar securities, setting off a chain reaction of collapses.

Cayne said the bailout is not expected to have "any material adverse effect" on Bear Stearns' business.

The company said its second, larger fund that invests in similar, but even riskier, securities _ the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund _ has $1.2 billion in repurchase agreements on its books, much less than the $7 billion estimated last week.

That makes it less likely that the fund will face a forced liquidation by creditors, although there is still a chance the fund could post major losses. The lower amount of repurchase agreements likely means the fund also sold assets. It is unclear what quality of securities remain in the fund.

Bear said it is not providing any financing to the second fund.

"We believe the repurchase agreements are adequately collateralized," Cayne said.

Most Wall Street banks agreed to give Bear Stearns more time to either increase collateral for their loans or unwind that fund without dumping its assets onto a market lacking buyers.

Merrill was one lender that already demanded its collateral _ reportedly $850 million in mortgage-backed securities _ after talks with Bear Stearns broke down early last week. Many of Wall Street's largest banks are believed to have lent money to the fund, though the full roster of creditors is unclear.

In electronic aftermarket trading, Bear Stearns shares added 54 cents to $139.89. The gain comes after the stock edged up 25 cents Tuesday, stanching a decline that shaved 7 percent off the price since June 15.