JPMorgan Chase Buys Bear Stearns for $240 Million:
March 16 (Bloomberg) — JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $240 million, less than a 10th of its value last week, after a run on the company ended 85 years of independence for Wall Street’s fifth-largest securities firm.
Shareholders of New York-based Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the two companies said in a statement today. The U.S. Federal Reserve will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns’s “less-liquid assets.”
I’m not really sure whether this is a good or bad thing. Bear Stearns stock was trading in the low 30s last Friday. Does this severe depreciation of value mean than things are worse than we could have even imagined? Well, judging by the index futures as of this posting, things are looking bad, but who knows what things will be like next by the end of next week.
Here’s a list of some other recent articles on this mess I’ve been reading.
Apparently the CPI has cooled down a little, remaining unchanged in February.
A second bit of news is that J.P. Morgan, in combination with the Federal Reserve Bank of New York, has agreed to provide secured financing to Bear Stearns. There’s more to this than meets the eye. Despite all the “positive” news, seemingly designed to combat further market slides, I feel that the downtrend will resume soon.
UPDATE
The headline of the day at Marketwatch is “Bear Stearns Bailout.” Bear Stearns screwed up royally. Their stock was over $170 over a year ago. Now its in the low 30s. This is all attributable to arrogance and an over-abundance of greed (don’t get me wrong, greed is good, but too much of anything is bad for you).
“Our liquidity position in the last 24 hours had significantly deteriorated,” Alan Schwartz, chief executive at Bear, said in a statement. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.
“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” he added. “We have tried to confront and dispel these rumors and parse fact from fiction.”
Despite those efforts, Schwartz said “market chatter” had undermined Bear’s liquidity.
So blame it on those awful market rumors. What an silly and stupid a-hole!
Karl Denninger of Market Ticker has written an extremely cogent letter that describes the financial crisis facing this nation. He describes how we got to where we are, the immediate problems this nation faces, and the steps the government should take to correct or ameliorate the situation. Here are just a couple changes that Karl says the government must implement:
- All securities and instruments traded and held for investment by regulated financial entities must have a CUSIP assigned and be traded on a public exchange or their value must be established by independent appraisal (in the case of a house or other real property.)
- Margin requirements must be enforced against all market participants.
- All off-balance sheet vehicles must be banned and existing ones immediately brought back onto the balance sheet of the firm involved and disclosed in full
- We must either get rid of the NRSRO label for ratings agencies, allowing free and open competition, or we must hold those certified agencies to their ratings.
(There is more to this list than these four items; plus, Karl goes into much more detail, so please read the letter in full.)
This might be hard medicine to swallow, but I fear that Karl may be correct when he says that the consequences of not taking his outlined steps will be much worse than causing some institutions to fail immediately.
I took this screen shot last night. It’s the front page of Bloomberg.com showing a large block of dour international economic news, which I highlighted in red.
A top bankruptcy lawyer predicts that the retailing, real estate, and auto parts industries will be the hardest hit by the credit crunch and the downturn of the economy.
As companies begin to pile up bankruptcy protection — Sharper Image, Lillian Vernon and Plastech, just to name a few recent filings — Investment Dealers’ Digest went to Harvey Miller of Weil Gotshal & Manges, one of the nation’s most prominent bankruptcy lawyers — to get his take on what’s in store.
Mr. Miller, who spent some time at investment banking boutique Greenhill & Company before returning to Weil Gotshal last year, told the Digest that a long-delayed round of restructurings may finally be at hand.
Easily available refinancing helped paper over a multitude of sins in the last few years, but the credit has dried up. That is likely to leave many companies with few options, Mr. Miller said.
He said retailing, real estate and auto parts are some of the industries that may be hit hardest. He also predicted some pain at well-known private equity firms — although he didn’t name names. “Portfolio companies of very respectable and reputable firms are going to have some level of problems,” Mr. Miller told The Digest.
Real estate and retailing have already been hit pretty damn hard. I see this as another sign people are preparing for the worst and that the worst has yet to come.
