NEW YORK (Reuters) — Bear Stearns Cos. Inc. may have to bail out a second troubled hedge fund that it manages, Merrill Lynch analyst Guy Moszkowski wrote yesterday.That fund could have a loan exposure of as much as $7 billion, Moszkowski wrote.

But at current valuations, Bear Stearns shares offer an excellent value, he added.

Bear Stearns' shares fell as much as 5.3 percent yesterday, after the note and a BusinessWeek report that the US Securities and Exchange Commission (SEC) was preliminarily probing a Bear Stearns hedge fund's performance restatement.

Bear's shares have fallen about 9 percent since the end of the second week of June, when talk of trouble at two Bear Stearns' managed hedge funds began to arise.

Bear Stearns said last Friday that it was providing up to $3.2 billion in secured financing to a fund it manages that was down about 5 percent through the four months ended April 30.

That move took the fund's anxious lenders out of the equation, which should allow Bear Stearns to wind down the fund in an orderly way, and minimise losses to itself and investors, Moszkowski wrote.

But the investment bank is still hoping to restructure a second hedge fund that took more risk through borrowing more. That fund, the High-Grade Structured Credit Enhanced Leverage Fund, was down about 23 percent through April 30.

It is possible that because the Enhanced Leverage fund was known to be riskier from the start, that lenders would be less likely to expect a bailout, Moszkowski wrote.

"But it's not yet clear that the firm won't ultimately feel the need to provide support here as well," he added.

Lenders have exposure of around $7 billion to the Enhanced Leverage fund, given the fact that the two funds had somewhere around $10 billion of combined repo borrowings, Moszkowski wrote.

Analysts at Deutsche Bank yesterday were also peppered on a conference call with questions about Bear Stearns and the state of the subprime market in general.

One questioner asked about the fact that Bear Stearns had $5.6 billion in retained interests from mortgage-backed and other asset backed securitisations as of November 30, 2006, though it is unclear how much of that exposure it still has. Of that total, $4.3 billion was investment grade, according to Bear's annual report.

"One would imagine that given today and given the deterioration in market sentiment, wider spreads and continuing deteriorating collateral, one would assume that the only direction that number could go is down," said Karen Weaver, Deutsche's global head of securitisation research.

Bear Stearns' shares fell as low as $136.13, before closing down $4.65 at $139.10 on the New York Stock Exchange.

The company's stock is cheap relative to its peers — Bear trades at about 1.6 times its book value, while most major US investment banks trade at more than two times their book value.

Given the company's current market value of about $22 billion, a bank might choose to buy it, either as a way to enter the US capital markets business or enhance a business, Moszkowski wrote.

BusinessWeek wrote yesterday that the SEC was looking into why the Enhanced Leverage fund restated its April performance.

A spokesman for the SEC declined to comment, while a spokesman for Bear was not immediately available for comment.