The Worst Trade Of All Time

Billionaire (um, Millionaire?) Joseph Lewis disclosed in a 13D filing Wednesday that he paid $1,260,913,899 for his 12,136,724 share stake in Bear Stearns (NYSE: BSC). If the currently proposed deal goes through, this investment is now worth only $28,157,200 - a dramatic loss of $1,232,756,699.

This will go down as one of the worst trades of all time.

In the filing, Lewis noted that his firm "will take whatever action that they deem necessary and appropriate to protect the value of their investment" following this weekend's sale to JPMorgan (NYSE: JPM).

The $2 bill taped to Bear's main entrance on Monday morning:

Comments

[venividivici:]

This guy apparently made his fortune trading in currencies. It just makes you wonder how much of it is luck rather than skill.

2008 Mar 20 07:49 AM

[Lawrence York:]

I think we will see a shareholder lawsuit against the Fed and JPM. This is likely going to go the the Supreme Court. Bear will argue that had the Fed opened the window a day earlier they could have survived and that the different banking vs brokerage regs created an unfair advantage such that this takeover was unprecedented and unfair.

2008 Mar 20 09:05 AM

[AJ, Washing...:]

Thats 10 percent of Bear Stearns. Lewis bought in at a heavy discount back then, paying and average $100 per share. BS had been trading as high as $160 or so, and he thought he was getting a bargain. He's known to make risky bets as a currency trader, and I would be surprised if he had not hedged his investment - still, I cant say that he is an astute investor - BS was $30 last Friday, and I'm surprised he had not dumped the shares before then. Perhaps he thought that unwinding a 10 percent position would drive the stock down further. Do very large investors not have a Stop Loss built in at 5% or 10%??? I commiserate with his losses, but it's hard to be sympathetic. Lewis is a speculator, and knows the risks.

2008 Mar 20 12:40 PM

[jhcmal:]

The Fed dusted off a Depression-era rule to let securities firms borrow directly from the Fed through its "discount window."
This decision was announced along with the Fed's promise to underwrite J.P. Morgan Chase & Co's (JPM) takeover of Bear Stearns for the rock-bottom price of $2 a share.

Excerpt from Reuters update - March 20, 2008 9:17 AM ET

The Fed’s first move to bail out BSC late last week was done through JPM as a duct to its discount window. Then, over the weekend, a drastic move was taken that BSC was sold at a fire sale price of $2 per share to JPM.

The Fed’s fear of domino effect (system risk) was obvious and understandable, nevertheless, the drastic move confused most people, particularly shareholders of BSC.

It seemed that the Fed could continue providing liquidity to BSC, if its intention to bail out BSC remained the same, while opened up its discount window directly to securities firms in the meantime. By doing do, the fate of BSC could be totally different. Unfortunately, we had the opposite outcome which could produce more disturbing litigation issues in the future.

However, JPM is apparently the winner of the deal in view of its share performance the days after. The question remains is that were there reasons so that BSC must be chopped away quickly while other securities firms were allowed to access to discount window directly?

2008 Mar 20 12:42 PM

[valueinvest...:]

Even after losing basically his whole investment in Bear, Joe Lewis is still a billionaire. So I would not worry to much about him.

2008 Mar 20 12:54 PM

[bruin532:]

I agree with serious bull this goes to the Supreme Court

2008 Mar 21 05:36 PM