The intensifying credit crisis wreaked further havoc across the financial markets yesterday, with hedge funds and investment banks once more facing margin calls, liquidity issues and job cuts.
Carlyle Capital Corporation was forced to plead with lenders to hold off seeking repayment, as it tries to stave off bankruptcy after missing a series of margin calls. This came as the investment banking group Lehman Brothers prepares further cuts to its workforce, while the cost of borrowing among banks in Europe increased, and Bear Stearns was under scrutiny over liquidity rumours.
CCC, an investment fund owned by the private equity giant Carlyle, said yesterday that lenders had issued margin calls in excess of $400m (£199m), up from the $37m figure announced last week. It said at the time it could run out of money.
This is the latest alternative manager to face potential collapse in short succession after the London-based Peloton Partners was forced to close and the US group Sailfish Capital Partners decided to wind up its funds, earlier this month.
CCC revealed it had missed four out of seven margin calls last week, which saw the stock halve in value on Euronext, before it was suspended on Thursday. The group said yesterday some lenders may have liquidated collateral, securing about $5bn of debt.
Ominously for the fund, it remains in talks with the remaining lenders who hold about $16bn in securities "and if a mutually beneficial agreement is not reached, some of these lenders may also liquidate their securities".
It has moved to protect its assets, sending a "standstill agreement" to lenders, asking them not to foreclose and liquidate their collateral in the meantime. It is still awaiting responses.
Donald Fandatti, an analyst at Citigroup, said CCC's parent had supported the fund in the past, but, should Carlyle not provide further support, the fund "could be forced into significant asset sales into a weak market or could face bankruptcy".
Elsewhere, a source close to Lehman Brothers said the US bank is to cut 5 per cent of its 28,000 strong workforce. The source said the reduction, which follows cuts of about 4,000 in the past year, was "a small drop in the ocean compared with some competitors".
Since the start of the credit crunch, US investment banks have been forced to slash headcount and writedown billions of dollars. Last month, Citigroup announced it would cut 20,000 jobs, while Merrill Lynch, Bank of America and Morgan Stanley have been lowering headcount in the past year.
It was a bad day for the US investment banks, which were dragged lower in trading on the New York Stock Exchange by speculation surrounding Bear Stearns. The bank's share price shed 11.1 per cent on rumours it faced liquidity issues, despite strong denials from the management. This was compounded by a move by Moody's Investors Service to downgrade some tranches from deals issued by its Alt-A Trust. Alt-A is a slightly less risky category of mortgage than sub-prime.
Finally, the credit crunch effect was felt in the Euro Libor markets, as the cost of borrowing euro funds was driven further up. The cost of three-month euro funds rose by more than five basis points to 4.55 per cent.Reuse content