Gerry Sullivan

FAS 157: Blackstone and Its Banker Buddies Have It Wrong

In January 1975 Merrill Lynch started the ML Ready Assets Trust, the first money market fund. That began the systemic change that eventually led to bank deposit rate deregulation.

Ironically, Merrill Lynch now makes it difficult for investors to access money market funds, preferring that customer balances go into their bank deposit program which pays much less.

The current rates on the Ready Assets Trust is 2.21%, an account
holder at Merrill with less than $250,000 gets a 0.20% rate in the Bank Deposit Program.

Another Flawed Bear Stearns Autopsy

The Vanity Fair narrative is much like the 3 part, in depth, article that ran in the Wall Street Journal. The WSJ article more clearly described the near death situation at Bear early in the week of March 9.

The main difference in the two articles is that the WSJ reports and VF speculates. Conspiracy theories are most always make good copy.

It is the Vanity Fair conspiracy theory that is unproven.

Risk Management Lessons from Bear Stearns

In the story of the 3 Little Pigs, the first house was built of straw (Countrywide), the second of sticks (Bear Stearns) and the third of bricks (JP Morgan Chase). The third pig was smarter. The wolf ate the first 2 pigs.

Investment Bank Regulation: Beware the Dawn of This New Era

Very good analysis. Leverage in financial institutions caused the problem and will not be allowed at these levels again in our lifetimes.

Very high margin (money borrowed from brokers as a % of account equity in the 1920s) led to the 1929 stock market crash. 75 years later, we still have regulation of margin accounts by the Federal Reserve and a 50% margin requirement.

The Fed did get $30 billion of BSC assets (quality unknown) and JPM is paying the Fed 2.5% on the entire $30 billion. Time will tell how that works out.

The Fed: On the Cusp of Moral Hazard

This deal isn't going to happen. With the JPM/Fed safety net, Bear Stearns will survive as an independent company, 40% owned by JPM.

JPMorgan Boosts Bear Bid to $10 - NY Times

There was no way this deal was going to happen at $2. The shareholders had the JPM/Fed backing and 12 months to wait for
financial markets to improve. The sharehoders had the control and,
with an offer of $2, little to risk.

The final deal, if there is one, will take place in a range of $15 to $20.

Why's Bear Trading at Nearly 3x JPMorgan's Buyout Price?

Best analysis I've seen so far.

BSC traded over 400 million shares, more than 3X the total number of shares outstanding and more than 20X the last reported short position. I have to believe that much of the short position has been covered.

When BSC leaves the S&P 500 index that will certainly increase the float.

Employee restricted shares will be converted to JPM stock if the merger goes through. Otherwise, they can only be sold when vested. BSC may allow early vesting.

There is real buying by speculators who expect a higher price on the JPM deal, or think another buyer will appear. I think the BSC stock is a good speculation on the possibility that over the next 11 months the company will once again be solvent and worth much more. Without owning the building, of course.

We have yet to see all the legal action that will certainly come. Injunctions, class actions, restraining orders, etc.

I think that BSC moves higher.

Bear Stearns Share Price - It's Not Speculators

The speculators are betting that the deal never gets approved by the shareholders. They are betting that BSC (with the JPM/Fed safety net) will heal itself in the next 12 months, enough so that it will be worth much more than $5/share. Then, when the safety net is gone (along with the building) the company will be more valuable.

Fed Will Do What It Takes To Push Bear Deal Through

The deal will go through in the mid teens, not $2. The shareholders will not approve the current deal. Why should they? With the JPM and Fed safety net, BSC may be worth a lot more 12 months from now.

Only way to force the shareholders is through a bankrupcy court.

Jamie and JPM know that they will end up paying around $15.

The traders who bought the stock under $4 are getting what amounts to a very cheap call option on a solution to the US banking crisis.

Why Is Bear Stearns Trading at $5?

Bear Stearns shareholders have to approve the deal. The terms of the deal give them a year to do so. In that time frame the financial situation may well improve. For 12 months JPM and the Fed are providing a safety net.

Jamie Diamond never expected to get this deal done for $2. At 3 PM on Sunday the deal was looking around $20. A bit later it was looking $15.

There will be lawsuits, injunctions and restraining orders.
The deal will eventually get done, but at a price in the low teens.

That is why BSC is trading at 5 now and never traded near the $2.