Bear Stearns president steps down

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A top executive at investment bank Bear Stearns has quit amid problems brought on by the US sub-prime lending market.

Co-president and co-chief operating officer Warren Spector is stepping down after the collapse in June of two mortgage funds in a unit he had headed.

The funds plummeted in value after it emerged that many high-risk borrowers had defaulted on their loans.

Bear Stearns bailed out the funds in June with $1.6bn (£784m), but later said they were worth "very little".

Co-president Alan Schwartz will continue in the role alone, while Sam Molinaro will become chief operating officer.

Broader issues?

The bank said that problems in the mortgage funds were one-off events and "by no means an indication of broader issues at Bear Stearns".

But their collapse was enough to send a ripple through the financial markets, pushing banking shares lower and prompting wider fears about a downturn in credit markets.

On Friday, Mr Molinaro said that credit markets were in the worst turmoil he had seen in 22 years.

His comments reinvigorated the market's fears that a credit squeeze will end an era of cheap funding for corporate takeovers.

The mortgage funds headed by Mr Spector had relied heavily on securities that were backed by sub-prime mortgages - which are effectively loans for those on low incomes or with a poor credit rating.

Defaults on these risky loans have risen in the wake of the weakening housing market, as higher interest rates have increased the burden of mortgage payments.

Last week, rating agency Standard & Poor's warned that the collapse of the Bear Stearns funds could dent the firm's outlook and profits longer term, and switched its rating to negative from stable.

Similarly, the collapse of the funds led rating agency Fitch to downgrade $46.4m of the bank's bonds.