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JPMorgan to buy Bear Stearns for 236 million
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by mtippett | March 16, 2008 at 06:11 pm
681 views | 17 Recommendations | 6 comments
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NEW YORK - Just four days after Bear Stearns Chief Executive Alan Schwartz assured Wall Street that his company was not in trouble, he was forced on Sunday to sell the investment bank to competitor JPMorgan Chase for a bargain-basement price of $2 a share, or $236.2 million.
The stunning last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system sparked by the collapse in the subprime mortgage market. Bear Stearns was the most exposed to risky bets on the loans; it is now the first major bank to be undone by that market's collapse.
The Federal Reserve and the U.S. government swiftly approved the all-stock buyout, showing the urgency of completing the deal before world markets opened. The Fed also essentially made the takeover risk-free by saying it would guarantee up to $30 billion of the troubled mortgage and other assets that got the nation's fifth-largest investment bank into trouble.
Most RecentMost Recommended Comments (6)
at 18:19 on March 16th, 2008
mtippett, I like this story. It's good stuff.
at 18:59 on March 16th, 2008
From 20B to 250M in a month, sad.
Just read that
employees owned 30% of the company.
at 22:25 on March 16th, 2008
If they would have waited just another couple of weeks I could have bought them out.
Their problem was that they were the poster boys of subprime debt. Some of you might recall how last June two of their hedge funds failed. Well, when one of your biggest investments are in securities backed by subprime debt you are basically asking for it.
Unfortunately, not all of the blame should be thrown on the investment bank. This whole subprime situation was goaded on by "well meaning" (read: power craving) politicians who wanted to see more people owning homes. They pushed for laws against lending agencies who didn't want to lend to sub-par applicants and the politicians largely got what they wanted.
Capitalism is messy and cold hearted. Government intervention (call it socialism, communism, statism, or whatever else you want) is deadly.
at 09:04 on March 17th, 2008
When historians look back on this in a few decades my guess is that the blame will shift from the ARMs to the leverage that was used by the banks to make the money available. This isn't my bag so I need to do more research before I can write about this in detail. That being said: it seems that the banks devised financial instruments that allowed them to lend at 30x their available capital instead of the usual 10x. That's why they're so severely broke all of sudden - *any* margin call, when you are that stretched, wipes out your working capital.
In a normal business environment a failure of 2-3% of your contracts would not put you in the toilet. In fact, the vast majority of businesses in general, if they could do business with the level of success that the banks enjoy, would be jumping up and down for joy.
(As I write this I am listening to a pundit explaining why the fed didn't just let Bear Stearns fail: The domino effect would have brought down too many other banks. Again the pundit is talking about being so highly leveraged and again I'm hearing 30:1.)
Hopefully somebody will do the necessary research and produce an article based on hard numbers.
One thing for sure: The problem is not the fault of all those nasty poor people who borrowed far too much money from all those fun-loving party-going bankers who were standing on street corners giving it away to strangers in a love-fest gone wrong.
(Another pundit on the radio just explained that the banks are all over-leveraged. If I understood this business better I'd go looking for the data. Any explanations would be appreciated.)
at 02:46 on March 17th, 2008
What? They couldn't have auctioned it, or put it out to tender? And what the about the geld the Fed put in? It's not capitalism; it's a club.
at 04:29 on March 17th, 2008
So, any woird yet whatChief Executive Alan Schwartz is getting as a kiss off payment for his fine service to the bank? If there is a Loki in Valhalla my guess is it will be ove $236M. but hey, I'm just a cynic.