Why $2?

Here’s a question I can’t help asking myself: How and why was $2 decided upon? I mean… jeez! That’s around $250 million, meaning there are probably some individuals who could have bought BSC outright.

I guess the easy answer is because that’s what Jamie Dimon said, and no one was in a position to argue with him. It’s really no different from it being given away. Interestingly, Bear Stearns doesn’t pay golden parachutes for top execs in the case of a takeover.

I’m not sure if that price can last. If I were a BSC shareholder, I’d be furious. At some point, lawyers will most certainly be involved. One investor somehow made it onto yesterday’s call and let it be known that he’ll vote against the deal. He ain’t alone. About one-third of BSC shares are owned by employees.

Also on the call, Bear insisted that its book value is around $80 a share. But the thing about Bear’s equity is that it only has value with in a context which, possibly, JP Morgan can provide.

Imagine if you have a Maserati. Sweet, right? Now imagine if you have it at the South Pole. Now it’s completely worthless. The car might as well be a big freakin' rock. It only has value where you can use it, or sell it. If Bear doesn’t have capital and access to capital, then everything it owns is of no value. To continue with my bad metaphor, the role of JPM is to transport the Maserati from the tundra to a nice highway.

If we were to consider the value of Bear’s sweet crib, then JPM is basically being paid to take on BSC. It’s not far from the government nationalizing the bank. The only difference is that they did it through the vehicle of JPM.

One more note: If I were in charge of the ECB (that’s a mighty big if), I’d be buying dollars like crazy.

Comments

[KPO'M:]

An FT columnist is saying that BSC would be worth more in Chapter 7. This will undoubtedly be challenged. Anyway, can you tell us more on the dollar? Has we finally reached the bottom?

2008 Mar 17 10:27 AM

[Sunil Suri:]

Bear fetches $2/sh, because they had no defensible franchise really. Over the years US I-Banks have seen their roles rapidly change. As they have no deposit funding sources, all they are is a franchise made up of human capital. Yes if you have few intelligent and many moron's then (as many at Bear are these days - real moron's and I have dealt with many of them as recently as last year and all the way up to the Top) the $2 is great value for nothing!

Next shoe to fall is Lehman.

Then Carlyle? Blackstone? and a host of others that run the next big nonsense business - 2% and 20% for them - on money they run from others - where is the risk in this for them? they make money while others that invest in them loose, is such abject nonsense.

Surprising that we allow such shenanigans play!

2008 Mar 17 10:33 AM

[lschlitz:]

"One more note: If I were in charge of the ECB (that’s a mighty big if), I’d be buying dollars like crazy. "
why buying dollars while dollar is continue to decline agaist almost every currency in the world and us is in the "R"?

2008 Mar 17 10:35 AM

[A US taxpayer:]

The big difference between a guy with $250mm and JPM is that the guy do not have source of funding as a new BSC owner, where JPM as a bank has flooding liquidity available at its disposal thanks to Fed.

So Guy with $250mm is a non-start to buy the firm. He's got no credit line.

And Fed can not have someone with no liquidity access have the deal - imagne BSC fail, and hedges and CDO's fail due to derivatives contract that is no longer valid since BSC is gone, (although they are supposed to be trading out of AAA bankruptcy repote) and fear of other brokers faiing prevail - this will be the mass destruction as we have not seen before. Citi is in trouble, BoA bought countrywide - only obvious buyer left is JPM.

2008 Mar 17 10:46 AM

[Bonez:]

In Chapter 7 stock holders will end up with nothing and bond holders will get a serious hair cut. Equity holders can vote No and spread the pain. + Morgan has the option to buy Bears HQ if the deal is voted down & will probably pull there liquidity.

2008 Mar 17 10:48 AM

[huangjin:]

Maybe someone is a big fan of "Better Off Dead"
www.youtube.com/watch?...

2008 Mar 17 12:49 PM