JP is buying Bear @2$/share

RichardE

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Dec 31, 2005
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JP Morgan Chase says it is buying troubled Wall Street firm Bear Stearns for about $2 per share.


Thats all so far on CNN


JPMorgan acquires troubled Bear


NEW YORK (CNNMoney.com) -- JPMorgan Chase & Co. said Sunday that it would acquire troubled Wall Street firm Bear Stearns amid deepening fears that Bear's demise could have sent shockwaves across the already shaky financial markets.

JPMorgan is taking immediate responsibility for Bear's trading obligations and assuming "management oversight" of the firm's operations. The deal is subject to approval by shareholders but has already been approved by the Federal Reserve and other regulators, according to a statement released by JPMorgan.

The Fed is providing special emergency financing for up to $30 billion in Bear Stearns assets.

"JPMorgan stands behind Bear Stearns," said Jamie Dimon, chairman and chief executive of JPMorgan. "Bear Stearns clients and counterparties should feel secure that JPMorgan is guaranteeing ... risk," he continued.

The fast-track deal is expected to close by the end of June, the statement said.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan (JPM, Fortune 500) and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan.

With the global credit crisis worsening, the Fed - along with officials from the Treasury Department and other government agencies - took the dramatic action to prevent the investment bank from going under and igniting widespread panic through the financial markets.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

Bear Stearns (BSC, Fortune 500) shares closed at $30 on Friday, down 47%.

A deep, fast fall

The deal marks an inglorious chapter for 85-year-old Bear Stearns, a storied Wall Street firm whose unraveling has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz - who took over as CEO in early January from longtime chief Jimmy Cayne - appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last yea




from WSJ

J.P. Morgan Rescues Bear Stearns
U.S. Pushed Deal
To Avert Crisis;
A Fire-Sale Price
By DENNIS K. BERMAN, SUSANNE CRAIG and KATE KELLY
March 17, 2008

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.

Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn't subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter.

Government regulators, including the Federal Reserve and the Office of the Comptroller of the Currency, have given their blessing to the transaction

Many well-known investors, from billionaire Joe Lewis to Bruce Sherman, the head of Legg Mason Inc.'s Private Capital Management Inc. money-management firm, have seen the value of their stakes in Bear Stearns plummet. The pain could be most acute for Bear Stearns's employees, who are steeped in a culture of personal ownership -- and hold about a third of the firm's shares outstanding.

Through the weekend, Bear Stearns bankers were summoned to the company's headquarters on New York's Madison Avenue, where they were told to prepare lists of ongoing deals and business relationships. Representatives from prospective buyers circulated through conference rooms, with J.P. Morgan executives asking questions of Bear Stearns's senior management. A separate bidding group, including J.C. Flowers & Co. and Kohlberg Kravis Roberts & Co., also was in the mix, said a person familiar with the discussions.

Bear Stearns shares, which traded as high as $170 in January 2007, fell 47% on Friday after the firm was forced to seek emergency funding from the Federal Reserve and J.P. Morgan to stay afloat amid a severe cash crunch.

One stumbling point for a sale appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction. While J.P. Morgan was eager to snap up some of Bear Stearns assets -- such as its prime brokerage business that caters to hedge funds -- Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter. Spokesmen for Mr. Dimon couldn't be reached yesterday.

Despite the emergency funding from J.P. Morgan and the Federal Reserve that was announced Friday and gives Bear access to cash for an initial period of 28 days, the clock is ticking on the 85-year-old firm. Late Friday, credit-ratings firms downgraded Bear Stearns to two or three levels above junk status. The downgrades also had a big impact on Bear Stearns's viability, as they severely crimped the firm's number of potential trading partners.

Regulators, bankers and investors are concerned Bear Stearns's stock could plummet even further when the stock market opens today. A continued exodus by parties with which the investment bank trades could even cause it to collapse. Still, unwinding Bear Stearns could be a nightmare because of the plethora of Wall Street firms with which it has dealings.

Analysts and investors are bracing for more bad news as securities firms report earnings this week, though Bear Stearns's results are expected to surpass the average estimate from analysts surveyed by Thomson Financial, say people familiar with the matter. A Bear spokesman declined to comment.

Meanwhile, worries are deepening that other securities firms and commercial banks might be on shaky ground. Lehman Brothers Holdings Inc. Chief Executive Richard Fuld, concerned about the markets and possible fallout from Bear Stearns's troubles, cut short a trip to India and returned home Sunday, ahead of schedule, according to people familiar with the matter. The decision came after a series of calls Saturday to both senior executives at the firm and Treasury Secretary Henry Paulson, these people say.

Investors' concerns that the flight of worried Bear Stearns customers last week might spread to other firms is likely to make for a tense opening today on Wall Street. Yesterday, Mr. Paulson said in a TV interview that the government "would do what it takes" to protect the integrity of the financial system.

On several occasions over the weekend, Mr. Paulson spoke about the Bear Stearns negotiations with Federal Reserve Chairman Ben Bernanke and New York Federal Reserve Bank President Timothy Geithner, according to people familiar with the matter.

The takeover agreement signals an abrupt and crushing end for Bear Stearns, one of Wall Street's best-known firms. Though it had survived many previous market swoons, it was savaged by the crisis in the nation's mortgage market, which began last August.

Over the weekend, some Bear Stearns employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than in a domestic acquisition. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire the firm.

For J.P. Morgan, a Bear Stearns deal essentially would be one of convenience. The big New York bank hadn't planned on buying a Wall Street firm. It was focusing instead on the prospect of buying a large regional bank. But people familiar with the matter said that the Bear acquisition doesn't preclude J.P. Morgan from pursuing that strategy.

One of Bear's biggest attractions for J.P. Morgan is its prime brokerage business which caters to hedge fund clients. J.P. Morgan doesn't have such a business and executives there have long said that they would like to add those operations to the bank's portfolio. J.P. Morgan has been one of the banks eyeing the prime brokerage business of Bank of America Corp. That business reportedly is on the auction block.

J.P. Morgan executives, however, are far less interested in the rest of Bear's operations, including its investment-banking unit. J.P. Morgan already has a substantial investment-banking operation with ties to many high-profile clients. Indeed, executives have scoffed at the idea that J.P. Morgan would buy a large Wall Street firm despite repeated speculation that the bank would ultimately buy a rival such as Morgan Stanley.

"Fill-ins, piecemeals, joint ventures, small purchases, where they're filling gaps, [we are] absolutely, always open, always interested. But on doing something major that would create a dramatically different landscape, not in my lifetime," Steve Black, co-head of J.P. Morgan's investment bank, said last year.

Over time, Bear Stearns's misfortune could bear fruit for J.P. Morgan. Bear Stearns's investment-banking unit, which underwrites stocks and bonds and advises on mergers, and its fixed-income and capital-markets trading businesses have been badly bruised by the credit crunch but still have some value.

Likely even more valuable are Bear Stearns's clearing unit, which settles trades and also services and lends to hedge funds, and an investment-advisory business catering to wealthy customers. Both of those operations have suffered from withdrawals in recent days.

The probable sale of Bear Stearns is the latest in the cascading mortgage-related blows that began last summer and have resulted in staggering losses and write-downs on Wall Street, the ouster of several high-profile CEOs and an epidemic of worry that the financial system faces even more turmoil.

On Friday, Bear Stearns sought and received emergency funding backed by the federal government. Both the Fed and J.P Morgan stepped in to keep Bear afloat as investors moved to pull assets out of the firm. In stepping in, the Fed was trying to move aggressively to prevent the firm's from spreading to the broader economy. The lifeline gave Bear access to cash for an initial period of 28 days -- but it was widely believed Bear would be sold within days to keep it from going under.

The Fed's unusual intervention was motivated by a concern that a rapid and disorderly failure of Bear Stearns would wreak havoc on the markets in which the firm is an intermediary, particularly the huge and important securities-repurchase, or "repo" market.

Bear Stearns risked defaulting on extensive "repo" loans, on which firms pledge securities as collateral for overnight loans from money-market funds. If that happened, other securities dealers would find their access to repo loans restricted. The pledged securities behind those loans could be dumped in a fire sale, deepening the plunge in securities prices.

As a result, one of regulators' priorities in any deal for Bear Stearns or its parts is to minimize the risk to the financial system. That suggests that they want those counterparties furthest removed from Bear Stearns itself to know immediately where they stand in any deal, and for a buyer to have sufficient financial strength to reassure those counterparties.

Bankruptcy experts said filing for bankruptcy protection wouldn't have been an attractive option for Bear Stearns, partly due to recent changes in the federal Bankruptcy Code relating to financial instruments like derivatives and repurchasing trades. Unlike most parties in bankruptcy, lenders in such transactions aren't stayed or prevented from acting to seize or control the assets involved in those deals.

"They can send you a letter saying the value of the assets is falling, so either pay us back or we will liquidate the asset," said Holly Etlin, a managing director at AlixPartners, a turnaround and business advisory firm.

Financial regulators, which had been monitoring the situation at Bear on a daily basis leading up to Friday, beefed up their presence inside the firm over the weekend. Staff from the Securities and Exchange Commission's examinations group and trading and markets division, which monitors capital levels for soundness, worked with representatives from Wall Street's self-regulator, the Financial Industry Regulatory Authority, and Federal Reserve.

The SEC and Finra staff inspected Bear's books to ensure that if customers began pulling their accounts that there was a process to unwind the positions fairly, so as to prevent additional losses.

The regulators also had staff at other firms to monitor the brokerage firm's capital level amid speculation it could face liquidity problems. A person familiar with regulators said their presence wasn't to suggest that any particular firm was in trouble, rather it was to examine whether there was enough cash on hand to deal with potential problems.

--Robin Sidel, Michael M. Phillips, Greg Ip, Gregory Zuckerman, Kara Scannell, Heidi N. Moore, Jenny Strasburg and Jeffrey McCracken contributed to this article.
 

jpeyton

Moderator in SFF, Notebooks, Pre-Built/Barebones
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Aug 23, 2003
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Good thing they waited until the $20 billion corporate welfare check from taxpayer coffers cleared.
 

RichardE

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Dec 31, 2005
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Originally posted by: fallenangel99
lol $2/share. wow

fyi - www.wsj.com is better in terms for financial news than cnn (better overall, at least for me)

Thanks, totally forgot I still had a subscription with them heh.
 

zephyrprime

Diamond Member
Feb 18, 2001
7,512
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Originally posted by: Ferocious
$2 ???

:shocked: if true

Bear's real asset value may well have been negative so such a low price may still in fact be higher than it's book value. Of course, the value of the deal depends entirely on how much of a bailout the taxpayer will chip in to bears.
 

venkman

Diamond Member
Apr 19, 2007
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I can imagine with one of the bigger owners of funds selling for $2 a share, stockholders of other lenders would go into panic sell mode Monday morning.
 

Slew Foot

Lifer
Sep 22, 2005
12,379
96
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Monday morning now, or Wednesday morning next week? The writing is on the wall, short of a trillion $$$ being tossed at the banks, itll take a lot of lipstick to beautify this pig.

Wow, Im really kicking myself for putting this when it was 130, damn. 130-->2, I could have retired. BSC sold itself for less than 1 Billion, wow, unbelievable.

 

magomago

Lifer
Sep 28, 2002
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so exactly what does all this mean? someone int he other thread mentioned that this was apparantly important yet no one commented...perhaps its because we don't understand it?

Legendkiller - is there a site, or a book that can explain this entire industry? Sometimes i feel like a lot of terms and info is thrown around but no one really understands things down to the basics of hwo the system works, etc. I'd like to know - thanks.
 

LegendKiller

Lifer
Mar 5, 2001
18,256
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Originally posted by: magomago
so exactly what does all this mean? someone int he other thread mentioned that this was apparantly important yet no one commented...perhaps its because we don't understand it?

Legendkiller - is there a site, or a book that can explain this entire industry? Sometimes i feel like a lot of terms and info is thrown around but no one really understands things down to the basics of hwo the system works, etc. I'd like to know - thanks.

I don't think I have read one book that could teach all of this. A book that I've been reading that gives a decent history of the i-banking industry is House of Morgan. Otherwise, start reading books such as Irrational Exuberance and stuff like that.
 

mrCide

Diamond Member
Nov 27, 1999
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I'm doing my best to understand what's going on, but I don't, and I feel i'd need several economy/business classes in a university to really get a grasp at it.
 

rchiu

Diamond Member
Jun 8, 2002
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Jesus, how the heck they value the Bear Stern stock at $2? Either Bear Stearn was really that bad in risk management and pretty much bankrupted themselves with all the MBS related investment, or someone really want the sales to happen and brokered a super cheap price for JP Morgan to pick Bear Stern up. At $170 to $2 in a little over a year, this is like Enron all over.
 

OfficeLinebacker

Senior member
Mar 2, 2005
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I would check the Fed drops discount rate 25 basis points on a Sunday thread. Lots of knowledgeable people out there.

By the way, please read

http://en.wikipedia.org/wiki/Panic_of_1907

"To bring relief to the situation, United States Secretary of the Treasury George B. Cortelyou earmarked $35 million of Federal money to quell the storm. Complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. Morgan organized a team of bank and trust executives. The team redirected money between banks, secured further international lines of credit, and bought plummeting stocks of healthy corporations. Within a few weeks the panic passed, with only minimal effects on the country."

Now that there's a Federal Reserve, I guess the only part that is different is the "minimal effects on the country" part.

 

bctbct

Diamond Member
Dec 22, 2005
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Reports indicate some British investor bought 11% of BSC last year and probably lost a billion $$$$$ in this deal. OUCH
 

OfficeLinebacker

Senior member
Mar 2, 2005
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Originally posted by: bctbct
Reports indicate some British investor bought 11% of BSC last year and probably lost a billion $$$$$ in this deal. OUCH

OK, who is that investor? Who is that investor's prime broker? What are some of their other large positions (meaning, what is he going to have to liquidate in order to meet his obligations)?

That's the trail that needs to be followed in order to track the contagion of this event.

Can we do it quickly enough? Makes it tough that it spans national borders--the Fed can't bail out a British firm, no matter how much business it does in the US.
 

bctbct

Diamond Member
Dec 22, 2005
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Originally posted by: OfficeLinebacker
Originally posted by: bctbct
Reports indicate some British investor bought 11% of BSC last year and probably lost a billion $$$$$ in this deal. OUCH

OK, who is that investor? Who is that investor's prime broker? What are some of their other large positions (meaning, what is he going to have to liquidate in order to meet his obligations)?

That's the trail that needs to be followed in order to track the contagion of this event.

Can we do it quickly enough? Makes it tough that it spans national borders--the Fed can't bail out a British firm, no matter how much business it does in the US.



Joe Lewis

Text
 

GrGr

Diamond Member
Sep 25, 2003
3,204
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Last Friday BS claimed these shares were worth $30. Now they sell them for $2.

Someone should go to jail for fraud. And get their asses sued. The BS building is still worth a cool $1billion, which btw will be a lot less soon as the dollar is going to dive again on this news.

JP Morgan and the Fed are going to suck out the marrow of what remains of BS and kick the bones to the taxpayers.


 

tvarad

Golden Member
Jun 25, 2001
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I'm not surprised at what the scam-a-minute Wall Street criminals have conjured up this time but certainly am baffled at how it was allowed to develop into something this huge.

And these guys were handing out million dollar bonuses to each other just a year ago!