Bear, Stearns & Co., one of the only top-tier investment banks that hasn't entered the syndicated lending business, is taking steps to change that.

The investment bank is exploring various ways to create a loan fund and is expected to begin actively seeking funds by the end of the first quarter, according to sources close to Bear. The establishment of such a fund is often a precursor to developing a loan origination and syndication effort.

Indeed, some sources said Bear has already started to search for an executive to head a loan operation.

Bear Stearns officials declined to comment about their plans for the lending market.

Bear would be the latest in a long line of investment banks to launch a lending capability, largely to defend its high-yield franchise. Last year, Morgan Stanley & Co., Salomon Brothers Inc., and Donaldson, Lufkin & Jenrette started their own syndicated lending operations, joining Merrill Lynch & Co. and Goldman, Sachs & Co., which had entered the business in 1994.

Bear is currently the only investment bank among the top five managers of public and private high-yield bonds not to offer syndicated loans. According to Securities Data Co., Bear Stearns lead-managed more than $5.2 billion of junk bond issues in 1996, giving it a 7.1% market share.

That position is not guaranteed, particularly as commercial banks like Bankers Trust New York Corp., Chase Manhattan Corp., J.P. Morgan & Co., and NationsBank Corp. tap their lending franchises to win lead mandates on high-yield bonds.

But the lending market may not be able to accommodate another entrant, some bankers said. "We are starting to wonder when this will stop," said a veteran syndicated lender.

Experts said Bear is probably putting together a fund similar to the one arranged by Salomon Brothers late last year. By approaching six foreign and five domestic banks, Salomon was able to line up $1.1 billion to create a fund for which it had sought $850 million.

"Bear Stearns doesn't want to use their own capital for this," said an investment banker.

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