ss01

Bear Stearns Shareholder Math

The biggest BS shareholders are the directors and officers. No doubt they will rely on the existing D&O policy to protect them against legal costs.

Why Is Bear Stearns Stock Rallying?

The bondholders get made whole doesn't seem to me like an orderly liquidation. That's a bail out and moral hazard rolled up. Let's call a spade a spade please. It sets a terrible precedent for who and how losses should be absorbed in these situations and creates fodder for years of legal action.

That's not to say it was the wrong solution at the time. I don't think anyone outside of a few people at BS and JPM know what the real consequences would have been. Obviously, as Paul Volker says, the Fed took a judgment that the consequences as they understood them weren't worth the risk. It does set a terrible precedent with respect to debt holders though.

Explaining Bear Stearns' Current $7 Price

Other possible explanations:

Yes Voters:
1. JPM could buy the shares themselves up to some price to insure the deal.

No Voters:
1. CDS owners would certainly buy to prevent a default.
2. BS shareholders on sentiment that it's a raw deal.
3. Other potential acquirers -- although I agree this is a low probability event unless the valuation is way off.


Indifferent:
1. Momentum traders knowing this could climb on board accentuating the move.
2. Option MM's hedging the above.

Explaining the Bear Stearns Share Price

Another possible explanation:

It's worth it to JPM to buy equity in over $2 as the actual value of BS assets is somewhere north of that. They have to buy in enough stock to make the approval happen and there is a price up to which they will do so -- either in value or securing enough votes. .

Why Is Bear Stearns Trading Above Deal Price?

Interesting idea....

The Bondholders do indeed need this deal to appear to be going through for long enough to liquidate at the least. They are the one's at whom yelling "moral hazard" would seem appropriate. Is there a liquid market in BS bonds right now? I know the ones I saw gained back $.35 on the dollar after the announcement -- bringing them mighty close to par at any rate. In any event, it "might" be a hedge if BS shareholders don't end up cratering the company if they refuse the deal. Remember JPM gets the building if they want it and can buy 20% of the company for $2/share if that happens. It's going to be hard to find an alternative -- other than the FED of course.

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

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