Bloomberg even highlighted Jamie Dimon’s greenmail:
Dimon made the proposal to several hundred Bear Stearns senior managing directors at a meeting yesterday evening in the securities firm’s Manhattan headquarters, according to two people who attended. He said members of the group who are asked to stay after the acquisition is complete will get additional JPMorgan shares, according to the attendees, who asked not to be identified because the meeting was private.
Bear Stearns employees own about a third of its stock, with a large concentration in the hands of senior managing directors. Their support may help JPMorgan counter opposition from billionaire Joseph Lewis, who owns 8.4 percent of Bear Stearns and said yesterday he may seek an alternative to the bank’s proposed purchase.
“He’s basically bribing them for their votes,” said Richard Bove, an analyst at Punk Ziegel & Co., referring to Dimon’s presentation. “In this environment, there are no jobs on Wall Street, so he can bribe them by letting them keep their jobs and they’ll vote for him.”
Lots of people have opined on the merger terms and the possibilities for other bidders, and even some odd provisions that suggest no one knows the entire story yet. Everyone who reads my blog knows what I think on the obvious points. Here’s an interesting fact, too, that I haven’t seen elsewhere. From the Times Online:
A counter-offer for Bear Stearns would face a series of hurdles. Part of the JPMorgan Chase offer, which values Bear at $2 a share, includes the financial support of the Federal Reserve Bank of New York, which has underwritten $30 billion of the most toxic of Bear Stearns’s investments. The New York Fed also extended special financing to JPMorgan to cover the cost of Bear Stearns redundancies and impending litigation. Any new bidder would have to convince the central bank that it should transfer its underwriting to support a new offer.
(emphasis mine).
Wow. Talk about a sweet deal! I’m not sure what that sentence means, but I know I haven’t seen that anywhere else, so I remain skeptical, but it wouldn’t surprise me. So, with this heavy handed approach, here’s a question: Why does the Fed care so much about ensuring the specific deal they got JPM to ink goes through? In the above Deal Journal post, it’s made clear that the Fed wants this deal to go through. So, if there is another bidder out there, at a higher price, then why does it matter who gets Bear? Certainly the crisis they were talking about ha been avoided, no? Let’s examine the facts (from a myriad of sources):
- Bear Stearns had gotten a 28 day loan, via JPM, from the Fed.
- The Fed had decided toget Bear sold A.S.A.P., this left other bidders out, as reported by the media.
- The Fed decided to guarantee, essentially, $30 billion in assets on Bear’s balance sheet.
- The Fed has now decided to open up it’s discount window to securities firms, to avoid this situation in the future.
These actions seem inconsistent. Why would you force a securities firm to be bought, but then allow other to borrow at the discount window? Why would you make a 28 day loan, and then, with not much else changing, force another alternative? Why would you try to get JPM to accurately asses the value of Bear, and then, when they are unable to do so, both guarantee the most troublesome assets and allow JPM to lock in a very low bid price?
Now, I hate to be trite, but the taxpayers now own $30 billion dollars of stuff that is nearly impossible to value and, simultaneously, not going up in value (leaving only flat or down). JPM shareholders are getting roughly $1 billion in incremental earnings (I, obviously, would claim that when all is said and done that number will be lower, but that’s their number and we have no reason to believe that they don’t believe it to be accurate) for a fraction of the outlay in cash (and potentially not even the legal expenses, if indeed the above statement from The Times Online is true). And all the while, the Fed is standing guard over the gasping, bleeding body of Bear Stearns warding off further bidders? This isn’t the kind of intervention that I can honestly say sounds “above board.” To me, one either let’s Bear file for bankruptcy protection or they are bailed out–forcing a suitor onto them seems a bit weird.
Now begins the next chapter in this saga, exploring who profited from the demise of Bear and the source of the rumors that caused this whole mess.
This article has 10 comments:
eyes
_Money
Any outcome JPM is a big winner at the expense of US tax payers and JPM shareholders.
Furthermore, is it ethical to entice BSC employees with benefit to vote for JPM buyout?
Source
People are leaving in droves. Headhunters are calling all sorts of people - including in the middle and back office areas such as operations, accounting, execution, etc. Brokers are fleeing for the doors for better names who are still hiring revenue producers. I myself am having no less than three conversations with other names, and I am not on the revenue production side. Will I stay if JPM offers me a job? Don't know, but can't bet on it, so better to get set up and secure and eliminate the risk.
People have to realize that most of Bear was NOT involved in all the "toxic" stuff such as Alt-A or subprime MBS, but most were doing the normal trading of bonds, equities and the rest, like research, etc. that every other bank does. What about all those people who didn't do anything to lead up to this?
Get real people. Not every person in Bear was some 'cowboy trader'. You don't have 14,000 cowboy traders in a firm. More than 60% of those people are in support functions and didn't take a sliver of risk of anyone's money or capital. Many had small salaries and bonuses (in the world of the Street) of, say, 60k base, 20k bonus, some in shares - not every person was some MD with a multi-million-dollar package - so all the vitriol being spewed at the firm fails to take into consideration the "everyman" at the firm.
Bear's management screwed Bear's employees! They have a fiduciary duty so sue them! Is Bear worth more than $2? Call Warren Buffett or Wilber Ross or do a leveraged esop. Steal the company back!