Tuesday, March 25, 2008

Blackrock to manage Fed's Bear Stearn portfolio

(Reuters) - Lawrence Fink is proving that he really is Wall Street's Mr. Fix-It.

BlackRock Inc, the small bond shop Fink grew into one of America's biggest asset managers, on Monday added another $30 billion to the $1.4 trillion it already manages.

But this wasn't just any mandate, investors and analysts agreed as New York-based BlackRock's share price notched a 9 percent gain, taking it to $224.53.

The Federal Reserve Bank of New York had selected BlackRock to help keep America's financial system running smoothly as investment bank Bear Stearns is being rescued from collapse by former rival JPMorgan Chase.

Now BlackRock Financial Management will manage Bear's $30 billion portfolio "under guidelines established by the New York Fed to minimize disruption to financial markets and maximize recovery value," the central bank said.

Monday's move by the Federal Reserve established once and for all that "these people really are the go-to guys in a crisis," said Jason McPharlin, a portfolio manager at Northstar Capital Management.

"Their stock price is climbing not because they got another $30 billion in assets but because of the huge vote of confidence the Fed has bestowed on them," McPharlin added.

For Lawrence Fink, whose knack for keeping top talent and speaking plainly about all types of topics has long delighted investors, this is only the latest high profile call for help his firm has received since the housing market meltdown began.

Last year, BlackRock was selected by Citigroup, JPMorgan Chase and Bank of America, with a nod from the U.S. Treasury Department, to manage the fund that was to have helped bail out troubled investment vehicles. The banks then pulled the plug because the fund wasn't needed. BlackRock was also called by a local government fund in Florida to help out amid recent problems.

Fink was one of the first on Wall Street to package mortgage obligations and helped popularize the new products, but he made sure BlackRock didn't suffer the kind of losses rivals like Citigroup and Merrill Lynch did. BlackRock shares lost only 5 percent this year through Friday, while Citi's shares were off 23.57 percent and Merrill's were down 12.7 percent through Friday as investors fretted about multibillion dollar write-downs.

The shift of course at BlackRock isn't lost on investors. "For so long the firm stayed above the subprime fray and now they are getting involved in it. It is a little ironic," said Gabriel Erdi, a portfolio manager at Fan Asset Management.

But it also proves that BlackRock managers are opportunistic. BlackRock already mounted its own fund to take advantage of investing in these distressed securities and on Monday it also joined forces with investment company Highfields Capital Management to back a new firm that will buy troubled mortgages and prevent foreclosures.

As the mortgage market crisis deepened, BlackRock's strong risk management systems were also credited with having kept the firm out of harm's way. "They have devoted a lot resources to this part of the business and it is one of their competitive advantages and the reasons they kept getting called for assignments like this," said Morningstar analyst Katherine Yang.

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