By Britt Erica Tunick
There are many reasons convertible and credit specialist Waterstone Capital Management has made good money this past year, but Lehman Brothers is not one of them. Having avoided exposure to the troubled investment bank throughout most of 2008, Waterstone decided just days before Lehman’s September 15 bankruptcy to bet on the likelihood the firm would get bailed out. “Going into the weekend where it became apparent that Lehman was going to be resolved with the involvement of the Treasury and Federal Reserve Bank, we put a position on where if Lehman had been bailed out, purchased or merged with someone we would have made 5.5%, but if they went bankrupt we’d lose 3.5%,” says Shawn Bergerson, founder of $1.2 billion Waterstone.
That 3.5% loss was Waterstone’s biggest ever on a single position. Yet in 2008, thanks to a healthy number of...