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Monday, March 17, 2008

Personal Finance QuickTake: RIP Bear Sterns



According to a report from AP, Four Days after saying the company was OK, Bear Stearns will sell out to JPMorgan-Chase for the bargain price of $2 per share, or $236 Million.

This is a stunning reversal for Bear Stearns, that will at least save them from bankruptcy, as the Mortgage Liquidity crisis gets its first well-known victim.

The Fed jumped in already and not only approved the buyout, but also guaranteed $30 Billion of Bear's assets, essentially making the buyout risk free for JPMorgan. JPMorgan Chase & Co. said it will guarantee all business — such as trading and investment banking — until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter. The acquisition includes Bear Stearns' midtown Manhattan headquarters.

JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago. It marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29

No word on Bear Stearns 14,000 employees or if the brand that survived the Great Depression and World War II would continue. They were considered to be the most leveraged major bank out there and based on the last weeks news, basically went into a death spiral.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

This doesn't feel like the end of this. Maybe the beginning of the end, but not beginning.

3 Comments:

Fiscal Musings said...

It's amazing how quick Bear was wiped out. Only a matter days. It's a bit of a reminder of why I like real estate though.

Sharon said...

It's amazing that JP Morgan got such a deal, and how the Feds, and the "taxpayers" are paying for it. Not a good turn of events, for sure.

RacerX said...

@fiscal - Literally 7 business days before the stock was at $70! Now $2. Apparently a lot of Bear Stearns folk had a LOT of their wealth tied up in stock. Billions of shareholder value wiped out!

@Sharon - Exactly. The Building is worth 4x what they paid for the company en masse!

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