Bear Stearns' close ties with the hedge fund community, which were already fraying at the edges last July after the collapse of two internally managed funds, reached breaking point last week as the broker-dealer’s liquidity position became so life-threatening that it was forced to agree a $2 a share takeover offer from JP Morgan.

Despite JP Morgan’s reassurances that it would guarantee all its trading obligations, Bear Stearns’ prime brokerage clients last week moved quickly to appoint additional brokers.