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| JPMorgan bails out its rescue of Bear Stearns |
| 2008-03-25 |
| The CEO of JPMorgan, James Dimon, agreed to pay $10 a share in stock (up from $2 last week) and to purchase 95 million new shares of Bear Stearns, giving JPMorgan an immediate 39 percent stake in the collapsed brokerage firm and paving the way to a likely deal closing on April 8. He also agree to absorb the losses (if any) of the riskiest $1 billion of $30 billion of Bear Stearns riskiest assets, leaving the NY Fed at risk of loss (or profit) of the remaining $29 billion. Last week's deal put the entire risk on the NY Fed. Dimon was also concerned about a large number of Bear Stearns employees defecting to his competitors. This is like a falling out among pirates, but with better hygiene and grooming and less swordplay. |
| Posted by:Anguper Hupomosing9418 |
| #3 My take is Bear was all ready to bail at $2. Major stockholders in bear made the observation: "If Bear Sterns can crash the economy, then we can crash the economy by stopping this deal" That puts the stockholders in a negotiating position, as neither JPM nor the fed want to see Bear crater. That's why you see a $10 offer right now. The stockholders are doing exactly what they should do - extract every cent out of their investment. Now 10 cents on the dollar from the peak is $16 or so, and thats usually fire sale pricing. Bear stock holders probably won't settle for less than that (they would rather just loose the investment) |
| Posted by: flash91 2008-03-25 13:05 |
| #2 There is a possibility that nobody has talked about yet, that would seem to make sense. In an odd set of circumstances, close to, if not a majority of stock is held by people who may not want to sell. This being the case, and to insulate itself from liability if things really go into the dumper, JPM might consider a different approach: Keep Bear alive as a *subsidiary* to JPM. In that way, JPM could profit if Bear recovers, but not get horribly stuck if Bear fails. It keeps all the Bear employees doing their jobs, and if Bear is failing, it can take its time and cherry pick both the successful parts of Bear and its best employees. The bottom line is that JPM could make a LOT more money by keeping Bear alive than by cannibalizing it. |
| Posted by: Anonymoose 2008-03-25 10:01 |
| #1 Bear was a major counterparty to JPM (the worlds biggest holder of derivatives contracts). If Bear had gone bust, it would have taken JPM with it. The Fed GAVE (i.e. corporate socialism as this isn't a proper fed loan) JPM the money to bail ITSELF out. |
| Posted by: Bright Pebbles 2008-03-25 09:42 |