# Bear Sterns bought for $2.00 a share by JPMorgan Chase



## spartn (17 March 2008)

JPMorgan to buy Bear for $2 a share

By JOE BEL BRUNO and MADLEN READ

NEW YORK 



Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street that his company was not in trouble, he was forced on Sunday to sell the investment bank to competitor JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million.

The stunning last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system sparked by the collapse in the subprime mortgage market. Bear Stearns was the most exposed to risky bets on the loans; it is now the first major bank to be undone by that market's collapse.

The Federal Reserve and the U.S. government swiftly approved the all-stock buyout, showing the urgency of completing the deal before world markets opened. The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.

"This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

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 Chief Financial Officer Michael Cavanagh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the 85-year-old Bear Stearns name would live on after surviving the Great Depression, two World Wars and a slew of recessions. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds.

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.

"Having taking Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday," Cavanagh said.

Some analysts expected it to be a brutal day for global stocks, nevertheless. Shortly after the news broke, Japan's benchmark Nikkei stock index plunged more than 3 percent in morning trading.

A bankruptcy protection filing of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis -- more write-downs could come. Last week, a bond fund controlled by private equity firm Carlyle Group faltered near collapse because of investments linked to mortgage-backed securities.

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.

"The past week has been an incredibly difficult time for Bear Stearns," Schwartz said in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."

Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments banks -- it was a prop for the U.S. economy and the global financial system. An outright failure would cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.

This is not the first time Bear Stearns has earned a place in Wall Street history. A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed "too big to fail." On Friday, the tables had turned, with the now-struggling investment bank in need of the same kind of aid.

Bear Stearns was founded in 1923 and in recent years was best known for its aggressive investing in mortgage-backed securities -- and what was once a cash cow turned into the investment bank's undoing.

In June, two Bear-managed hedge funds worth billions of dollars collapsed. The funds were heavily invested in securities backed by subprime mortgages. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.

The funds' demise and subsequent problems in the credit markets called into question Bear Stearns' ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.

Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.

Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called "Memos from the Chairman."

Before Greenberg's ascendancy to CEO, Bear Stearns began to expand from its New York roots throughout the 1950s and 1960s, opening international offices and expanding its U.S. operations.

http://www.businessweek.com/ap/financialnews/D8VETCFO0.htm

how funny is it when four days ago he said that there was no liquidity problem at Bear Sterns, A class action should be put against the  board of directors.

I read somewhere around a week ago that one guy put $125,000 US on a put call for Bear Sterns to go under $10.00. Haha welldone.

Alan Schwartz you F**cking lier

Spartn

:viking:


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## spartn (17 March 2008)

*Re: BEAR STERNS brought for $2.00 a share by JPMorgan Chase*

Original Link

http://www.businessweek.com/ap/financialnews/D8VETCFO0.htm

Spartn

:viking:


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## sassa (17 March 2008)

spartn said:


> "Having taking Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday," Cavanagh said.
> "The past week has been an incredibly difficult time for Bear Stearns," Schwartz said in a statement.
> :viking:



Some other notable comments come to mind-
"Mission accomplished."
"Sub-prime is contained."
"There are no liquidity problems."
"We have no exposure to sub-prime."


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## Aussiejeff (17 March 2008)

sassa said:


> Some other notable comments come to mind-
> "Mission accomplished."
> "Sub-prime is contained."
> "There are no liquidity problems."
> "We have no exposure to sub-prime."




You forgot the most important one ....

"Game over, man ... _GAME OVERRR!_"


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## Kauri (17 March 2008)

Aussiejeff said:


> You forgot the most important one ....
> 
> "Game over, man ... _GAME OVERRR!_"




  another minor detail...
*Dec 28*_ *Mr Cayne..BS CEO sells $15.4 million of the bank’s stock*_


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## Aussiejeff (17 March 2008)

Kauri said:


> another minor detail...
> *Dec 28*_ *Mr Cayne..BS CEO sells $15.4 million of the bank’s stock*_




In poker parlance, I believe that's called _"cashing in yer chips"_ now ain't it?


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## Kauri (17 March 2008)

Aussiejeff said:


> In poker parlance, I believe that's called _"cashing in yer chips"_ now ain't it?




Kenny Rogers said it all...


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## korrupt_1 (17 March 2008)

Aussiejeff said:


> In poker parlance, I believe that's called _"cashing in yer chips"_ now ain't it?





... smells of insider trading...


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## vishalt (17 March 2008)

I hope Cayne "..... ....."_<mod edit: too harsh mate, tone it down>._

Plays gold when Bear's funds collapse. 

Plays Bridge when it gets a bailout. 

What a ********.

What transpired with Bear Stearns this week simply proves in the most crude manner that life is NOT FAIR. 

I certainly hope people with good/hard earned money in that bank didn't have the case of "eggs all in one basket."


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## sassa (17 March 2008)

And the pick of the analysts' comments on the takeover-

OPPENHEIMER, ANALYST MEREDITH WHITNEY, NEW YORK

"We believe that JPMorgan is acting as the stability agent for the Fed in this transaction and that the concern for the $2.5 trillion in notional counterparty exposure trumps the interest of the existing Bear Stearns shareholder.

A company is only as solvent as the perception of its solvency. When a company that is leveraged over 30-to-1 faces crisis of liquidity and confidence of creditworthiness, that company will be unable to leverage collateral and its leverage will be forced down to one-to-one. BSC's equity could become worthless. Forced sales create asset deflation, which could cause cannibalization of remaining capital."


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## prawn_86 (17 March 2008)

How many super funds here in Aus would have exposure to a stock like Bear Stearns?

It is a fairly high profile stock, so i would have thought most funds with international stock exposure might hold some.

Would this be right?


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## sam76 (17 March 2008)

Was BS really leveraged 30 - 1?

Is this sort of risk normal?


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## Kauri (17 March 2008)

How many would have exposure to Lehmon....  _hints that the Development Bank of Singapore has halted activity with Lehman Brothers_... that's how BS's big hassles started out methunks... one calls fire and they all scramble for the exits   
Cheers
...........Kauri


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## r m (17 March 2008)

To me, the purchase by JP Morgan appears to be a 'get out of jail free' card for Ben Bernanke (and Bush).

I wonder what the discussions and meetings were like that brought this purchase about.  I can't help but think of the West Wing, perhaps a behind-the-scenes Josh Lyman type character negotiating with people who know they don't like the proposal he is insisting on, but also knowing they have no choice and that this is the best deal they can hope for. 

What sort of a mess would Bernanke (and Bush) be facing if this purchase had not happened?


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## wayneL (17 March 2008)

sassa said:


> Some other notable comments come to mind-
> "Mission accomplished."
> "Sub-prime is contained."
> "There are no liquidity problems."
> "We have no exposure to sub-prime."



LOL

...and of course (if you'll excuse the allegorical image):


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## Dezza (17 March 2008)

haha...classic. Spent hours with photoshop there? Nice work.

Is he still alive?


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## dhukka (17 March 2008)

sam76 said:


> Was BS really leveraged 30 - 1?
> 
> Is this sort of risk normal?




Carlyle capital just went belly up because they were leveraged up 32 times and couldn't meet margin calls. 

The leverage yourself to infinity game is rapidly unwinding, more bodies to float to the surface in the coming weeks and months.


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## dhukka (17 March 2008)

It seems that the much admired Bearn Stearns building is actually worth more than the $240 million price tag that JP Morgan paid for the whole company. 



> *JPMorgan Agrees to Buy Bear Stearns for $240 Million *
> 
> ...JPMorgan Chief Executive Officer Jamie Dimon bought Bear Stearns, once the biggest underwriter of U.S. mortgage bonds, for less than the value of its real estate after clients, alarmed by speculation about a cash shortage, withdrew $17 billion in two days...




That means that Bear's business was actually worth less than zero. So that begs the question what is Lehman, Merrill or Goldman worth?


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## PhoenixXx (17 March 2008)

186million shares traded last Friday...Felt like catching a falling knife? But this time it's really hard. 
Anyway, Bear Stearns (BS) = (BULL ****)!!!


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## Kauri (17 March 2008)

Kauri said:


> How many would have exposure to Lehmon.... _hints that the Development Bank of Singapore has halted activity with Lehman Brothers_... that's how BS's big hassles started out methunks... one calls fire and they all scramble for the exits
> Cheers
> ...........Kauri




_Development Bank of Singapore _ may have denied the earlier reports that they had stopped dealing with Lehmon Brothers but the damage may have already been done. Lehman shares are down over 30% in pre-market trading following the rumours with other US financials also feeling the weight of the Bear Sterns news. ..._all scrambling for the exits_???....


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## happytown (17 March 2008)

r m said:


> To me, the purchase by JP Morgan appears to be a 'get out of jail free' card for Ben Bernanke (and Bush).
> 
> I wonder what the discussions and meetings were like that brought this purchase about.
> 
> ...




don't know about any discussions, but ...

1 veto
some water
a board

cheers


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## ithatheekret (17 March 2008)

I personally believe the Bear Sterns CEO should be charged with forge and utter and for giving false and misleading market information , conspiracy charges should also be laid as it was done for financial gain . Apart from a myriad of federal charges for relaying the information over a communciations network .

Given the variety of charges that can and more than likely will be laid , I also think he will be next in line for a Presidential pardon .

It certainly does wonders for building confidence back in the US markets , like fark it does . It just shows they are prepared to do whatever it takes to keep on skimming the masses .


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