Two Dollars per Share, or an "Orderly Liquidation"?

You call this a rescue?

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.

This was not a bailout of any sort.

What the NY Fed did was allow for an orderly liquidation. The Fed is providing the liquidity for JPM's Bear unwind, guaranteeing a good chunk of the debt:

"The central bank also approved the financing of JPMorgan Chase & Co.'s purchase of Bear Stearns Cos., including support for as much as $30 billion of Bear's assets."

What does THAT mean? "Support for as much as $30 billion of Bear's assets." Who is buying this -- the Fed, or JPM ?

Truly, an amazing development.

~~~

This whole affair raises many more questions than it answers:

• What sort of due diligence did British billionaire Joseph Lewis do prior to picking up 6% of Bear?

• The Fed cut 25 bps Sunday night -- what is THAT gonna do?

• Goldman Sachs Group will announce asset writedowns of about $3 billion this week -- what else is out there in terms of iBank write downs?

• Nikkei off 3.6% in early trading; Dow Futures off 240, S&P 500 down -32.70, NASDAQ down -38.25

• Of all the firms most similar to Bear Stearns, one name keeps coming: Lehman Bros (LEH)

What more will we learn today?

Sources:
U.S. Fed Cuts Discount Rate, Says Dealers May Borrow
Scott Lanman
Bloomberg, March 16 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=asg0H5x.VQ4g&

A Stake Through the Heart
Bear's Biggest Holders May Have Little Choice But to Cut Their Losses
CASSELL BRYAN-LOW and KATE KELLY
WSJ, March 17, 2008
http://online.wsj.com/article/SB120571021671940207.html

J.P. Morgan Rescues Bear Stearns
U.S. Pushed Deal To Avert Crisis; A Fire-Sale Price
WSJ March 17, 2008
http://online.wsj.com/article/SB120569598608739825.html

Goldman Sachs to reveal $3bn hit
By Mark Kleinman and Louise Armitstead
Telegraph, 12:07am GMT 16/03/2008

Comments

[sammyg123:]

Lehman is going to scramble like mad to not be bought out for $1.99, the same cost, as it turns out, as the gland slam breakfast at Denny's. I'm not sure that the JPM's breakfast, BSC, is going to be digested all that well, but all's well that end's well. It's not a bad thing that these financial institutions are going to go under. It just means that the derivatives mess will be unwound. Counterparty obligations will be paid. Trust will be restored, somewhere down the road.

2008 Mar 17 08:52 AM

[sammyg123:]

And, I guess Joseph Lewis, the billionaire who bought 6% of BSC needed the tax write off.

2008 Mar 17 08:53 AM

[Tony Soprano:]

Heap it on and pile it on, doom and gloom, its time to start buying and stay long.

2008 Mar 17 09:07 AM

[sammyg123:]

If you must forecast, then forecast often. Eventually, Soprano, you will be right.

2008 Mar 17 09:11 AM

[Tony Soprano:]

I did not say to buy last August, last September, or even last October. Not even in January but I did start to nibble some then and I am doing just fine.

The sentiment now is so negative. Some are saying that the fix we are in is not fixable. To me that's really good news.

Other shorts are just piling on . . . well you can pile on only so much and the news like above, even though its very true, becomes redundant.

LEH may go next. But we know what will happen. The Fed will be there. The shorts are now going to have to compete with the government. By govt. I mean the Fed, the Treasury, and Congress and even other world economies.

2008 Mar 17 09:46 AM

[sammyg123:]

Bernanke & Co. are smart guys, but there are many forces in play that are outside of their control. Looking to the government for answers here, as if they can take public funds and just prop up the market, is not realistic. There is more bad news in the market place coming. 5 years from now, though, Soprano, you'll look like a genius.

2008 Mar 17 09:51 AM

[Tony Soprano:]

When you read history and each time our government intervened it worked. It did not work in a day or month but over time it worked.

Jimmy Rogers is very angry now because the Fed intervened. Why? He complains that the bosses at Bear will still get their bonuses. Well Okay. But what is he really mad about? Hmm, let me think, viola, our system works.

China does not have a system like ours. The dollar is falling and Americans will be buy less from China. Demand for commodities will decease. Inflation in China will and cannot continue and their government is managed to the maximum. The bubble will burst or deflate and Jim will lose a lot of money. Remember and he said this himself that he was going to move and live in China but decided not to because of pollution. American is the best place to live and invest. Jim can go to China if wants to.

2008 Mar 17 10:40 AM

[sammyg123:]

Plenty of bubbles to burst out there, that is for sure. However, now's our time. Bear markets last for years, and this one very well could as well. From 2000-2002, the Nasdaq lost 40%. The problems now are more serious than the dotcom era. We have more downside to go.

2008 Mar 17 11:02 AM

[ss01:]

Can anyone explain why has BS doubled from the $2 chuck take out price this morning?

2008 Mar 17 11:30 AM