Two Dollars/share, or an "Orderly Liquidation" ?
You call this a rescue?
Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.
The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.
This was not a bailout of any sort.
What the NY Fed did was allow for an orderly liquidation. The Fed is providing the liquidity for JPM's Bear unwind, guaranteeing a good chunk of the debt:
"The central bank also approved the financing of JPMorgan Chase & Co.'s purchase of Bear Stearns Cos., including support for as much as $30 billion of Bear's assets."
What does THAT mean? "Support for as much as $30 billion of Bear's assets." Who is buying this -- the Fed, or JPM ?
Truly, an amazing development.
~~~
This whole affair raises many more questions than it answers:
• What sort of due diligence did British billionaire Joseph Lewis do prior to picking up 6% of Bear?
• The Fed cut 25 bps at the Discount Window Sunday night -- what is THAT gonna do?
• Goldman Sachs Group will announce asset writedowns of about $3 billion this week -- what else is out there in terms of iBank write downs?
• Nikkei off 3.6% in early trading; Dow Futures off 240, S&P 500 down -32.70, NASDAQ down -38.25
• Of all the firms most similar to Bear Stearns, one name keeps coming: Lehman Bros (LEH)
What more will we learn tomorrow?
Sources:
U.S. Fed Cuts Discount Rate, Says Dealers May Borrow
Scott Lanman
Bloomberg, March 16 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=asg0H5x.VQ4g&
A Stake Through the Heart
Bear's Biggest Holders May Have Little Choice But to Cut Their Losses
CASSELL BRYAN-LOW and KATE KELLY
WSJ, March 17, 2008
http://online.wsj.com/article/SB120571021671940207.html
J.P. Morgan Rescues Bear Stearns
U.S. Pushed Deal To Avert Crisis; A Fire-Sale Price
WSJ March 17, 2008
http://online.wsj.com/article/SB120569598608739825.html
Goldman Sachs to reveal $3bn hit
By Mark Kleinman and Louise Armitstead
Telegraph, 12:07am GMT 16/03/2008
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/16/cngold116.xml
Sunday, March 16, 2008 | 09:01 PM | Permalink
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Absolutely stunning, current stock holders including a lot of BSC employees virtually wiped out... things at BSC must have been far worse than we imagined; but then that could be said about a lot of things the past 8 years.
Posted by: RW | Mar 16, 2008 9:07:17 PM
Any lottery jackpot pales in comparison to those who bought $75 march puts two or three weeks ago. Hell, even in comparison to those who bought $50 puts this very monday.
Posted by: bc123a | Mar 16, 2008 9:08:42 PM
It's no different than an old fashioned shut down of a failed S&L. The Gov comes in, shuts it down, finds somebody to take over. Gov eats the losses ($30 bn) in this case. Management and shareholders are effectively wiped out. Nothing to see here just move along
Posted by: JBA | Mar 16, 2008 9:08:47 PM
Well, this should be fun for the Lehman Preferreds I picked up a couple months ago... Why do I even try to catch falling knives?
Question: this should help the Bear Pfd's that I took a pass on, right? Even a guy as dumb as me looked at them and felt a tremor in the force... and passed.
Think Lehman's next for the wood block and axe treatment?
Posted by: The Mongbat | Mar 16, 2008 9:09:29 PM
Barry,
The fed gave JPM a $30b dollar non-recourse loan. They paid $260m for BCS. Yes. It look like a bailout.
files.shareholder.com/downloads/ONE/260969463x0x180609/8cbd90fb-0f16-4238-a908-e0a07a904682/JPM_Bear%20FINAL.pdf
Posted by: njdoc | Mar 16, 2008 9:09:31 PM
Overnight study material:
The Stock market Crash of 1929
Twelve hours to opening bell...
Posted by: theyieldcurve | Mar 16, 2008 9:10:33 PM
What are any of the IB's worth if BSC is worth $2/share? UBS $3? MER $4?, LEH $5?, MS $6?, GS $7?
What are margin calls going to be like tomorrow?
Do bond holders get mad whole? What is the status of CDS holder on BSC. They're screwed too. Your bearish bet against the company loses? And your bullish bet on the common loses?
Posted by: cpugh | Mar 16, 2008 9:13:15 PM
Just thank god none of us are this guy..
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_T/threadview?m=tm&bn=2670&tid=100317&mid=100317&tof=5&frt=2
Posted by: Eddie | Mar 16, 2008 9:16:49 PM
If their HQ building was worth $1.2B they were over $1B NW plus whatever they valued the Bear Trademark....truly remarkable!
Posted by: Phil | Mar 16, 2008 9:17:55 PM
Today's Fed actions led me to further think about the current state of our economic system. I have gone over in my mind numerous time about one fundamental question. Under what kind of system are we living? Is it Capitalism, Totalitarianism, Fascism, Communism or Socialism? Today's action provides the most direct evidence that our system has devolved back to FINANCIAL FEUDALISM, or FEDALISM as it could be more aptly called today. This remarkable act of bailing out one investment bank so that their derivatives wouldn't have to be marked to market proves the oligarchical nature of our society. The Lords of Wall Street are under the protectarate of the FEDal system. We the fifes must go about our daily lives and hand over increasingly large sums of our hard earned "money" to ensure the "stability of the markets". What bonus should Mr. Schwartz receive from the taxpayers largesse? As the new Sheriff of Nottingham, Ben Bernanke, and his sidekick, Hank Paulson, go about their daily adventures in destruction of our savings by debasing our currency, we the fifes can only look upon these actions with disbelief. This is a supposed to be a democracy, yet all these decision take place behind closed door under dubious circumstances and have unknown future consequences. This has gone far enough. We should demand the immediate resignation of Ben Bernanke and Hank Paulson, and start having some transparency in our markets. These ridiculous anti-Capitalism, anti-competitive, anti-free market, Save our Crony friends at any cost policies MUST STOP! Robin Hood, where are you?
Posted by: njdoc | Mar 16, 2008 9:19:05 PM
Im so pissed I sold almost all my SKF & EEV! Though I did put that $$$ into more gold.
Is this the beginning? The end? The beginning of the end OR the end of the beginning?
Hmmmmmmmmmmmmmm!
I agree with the margin call concern. What will the first big bank to go?
Posted by: UrbanDigs | Mar 16, 2008 9:20:09 PM
Cinefoz,
Dont worry, SP futs only down -27.25, as of this... ok, this is a bottom now, right?
Ok, I admit, I will be looking for a tradeable long within the next few days, not for LONG TERM, but a tradeable swing. Need to see capitulation first, you know blood in the streets selling, not that Cinefoz bottom calling crap. LOL
I love that guy, always good for a laugh!!
Posted by: B.B. | Mar 16, 2008 9:22:14 PM
hey, moubarak just give orders that army will help to reduce the queues for bread in Egypt. aftermexican fajitas crisis, egyptian bread crisis...
Posted by: mat | Mar 16, 2008 9:22:34 PM
My God, and Morgan didn't even pay cash!
Any SEC types looking into the put buying last week?
Up the limit? Down the limit? The market is supposed to fool the majority. Sometimes the majority are fools.
And a deserved hurrumph for a barry barry good boy.
Posted by: Ross | Mar 16, 2008 9:25:09 PM
Paying $2/sh for that overleveraged house of cards was a gift to current shareholders. Who knows what liabilities JP has just assumed?
Posted by: MarkC | Mar 16, 2008 9:26:02 PM
how appropriate is this commentary right now?
What the Price of Gold Is Telling Us
by Ron Paul
http://www.lewrockwell.com/paul/paul445.html
The financial press, and even the network news shows, have begun reporting the price of gold regularly. For twenty years, between 1980 and 2000, the price of gold was rarely mentioned. There was little interest, and the price was either falling or remaining steady.
Since 2001 however, interest in gold has soared along with its price. With the price now over $1000 an ounce, a lot more people are becoming interested in gold as an investment and an economic indicator. Much can be learned by understanding what the rising dollar price of gold means.
The rise in gold prices from $250 per ounce in 2001 to over $1000 today has drawn investors and speculators into the precious metals market. Though many already have made handsome profits, buying gold per se should not be touted as a good investment. After all, gold earns no interest and its quality never changes. It’s static, and does not grow as sound investments should.
>snip<
Posted by: Phil | Mar 16, 2008 9:29:33 PM
Jim Cayne is probably through his second bottle of Scotch about now....It's gotta be awful to watch most of your net worth evaporate over 3 days.
Posted by: Lyon | Mar 16, 2008 9:30:26 PM
I have to laugh at all the mentions of this being a fraction of the value of their HQ on Madison Ave. Because it will turn out that- no, like the paper entity of the firm itself, the building is simply not worth that much.
The crash in the residential real estate market will now hit Manhattan in full, and the commercial market will suffer along with it.
Posted by: Paul in NYC | Mar 16, 2008 9:31:06 PM
Re: Looking into put buying....
The one guy who would is stuck in his apartment dealing with this "client 9" situation. Hahah This is so amusing.
WIll the magic hand close us green tomorrow????
Posted by: Andrew755 | Mar 16, 2008 9:36:39 PM
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_T/threadview?m=tm&bn=2670&tid=103957&mid=103957&tof=2&rt=2&frt=2&off=1
barack... posts:
I BOUGHT 5K SHARES ON FRIDAY BUT LUCKY I PUT STOP IN AT 28....
SO WHEN OPENS I WILL HAVE MY SHARES SOLD AT 28
eom
Amazing!! putting $150,000 on a stock without even understanding how different order types get executed...just amazing
Posted by: Mich(^IXIC1881) | Mar 16, 2008 9:39:13 PM
A couple random thoughts:
1) Isn't the street supposed to go into a buying frenzy after M&A activity? (I kid... I kid...)
2) Wow Meredith Whitney was right again.
3) Is LEH next?
Posted by: Dave | Mar 16, 2008 9:39:53 PM
Gold
+32.30 as of this.
1032.10/OZ, now this is looking shortable?
Dont get me wrong, i dont jump in ahead of the train like Cinefoz. Only AFTER The topping action has formed. And once again, only for a tradeable SHORT swing! Full disclosure, I trade very small swing trades and very rarely. So take this with a grain of salt. I daytrade for a living.
Posted by: B.B. | Mar 16, 2008 9:40:09 PM
Hey Phil - get your own blog if you have so much to say - but then again, none of it is your own words - spare us please
Posted by: mo | Mar 16, 2008 9:40:10 PM
3) Is LEH next?
Posted by: Dave
Fuld is on his way back from India right now.
Posted by: Lyon | Mar 16, 2008 9:41:41 PM
What about some of the big players who came in within the last couple of months?
Do they take the Bear board out for a walk amongst the fishes? :)
As in, were they misled too?
The real beauty is that this event will make it harder for all the others to raise money and to garner credibility.
Posted by: Advsy | Mar 16, 2008 9:43:45 PM
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