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Just to give you an idea of how ridiculous this is: - BSC traded at $30 a share Friday, and well north of $100 a year ago - Their building is supposedly worth
by ctkrohn 19y ago
Just to give you an idea of how ridiculous this is:
- BSC traded at $30 a share Friday, and well north of $100 a year ago
- Their building is supposedly worth $1.2bn alone.
- They have a solid asset management business, and a world-leading prime brokerage business, and STILL sold for pennies.
- They were the 5th biggest investment bank in the US
My take: KKR and Flowers (two private equity firms) were apparently interested in the bidding. Why didn't they pay up, and at least get the building for cheap and fire all the employees? Probably because Treasury/the Fed wouldn't let the transaction go through unless the buyer agreed to guarantee all of BSC's trades. Who is big enough to guarantee BSC's trades? Out of the pure investment banks, Goldman is the only one with any sort of financial strength, but they probably don't have the balance sheet to assume all of the trading and litigation risk that comes with taking down Bear. Citi and UBS are crippled, BofA is certainly big enough but is scaling down its investment banking and just bought Countrywide anyway. On Thursday and Friday people were talking about Wachovia being a potential purchaser and a good strategic fit, but who knows if they ever had any real interest. That leaves JPM as the only bidder, and since it was the only bidder, it paid basically nothing.
This crisis is so much bigger than Long Term Capital in 1998. LTCM almost destroyed Lehman. This crisis has destroyed Bear, and Lehman has one foot in the grave again too. Many more losses are yet to come.
- aswanson 19y agoWhat are your predictions for the credit/financial markets for the next 5-10? Can sovereign wealth and globalization ease this some until the bad debt is flushed out?
- Frocer 19y agoAgreed it's a ridiculous deal when I first heard it. But as outsiders, we don't have info on how much debt BSC has. JPM could very well inherited billions dollar worth of debt from the buy-out.
- mynameishere 19y agoI'm not sure it was that bad: Bear Stearns was simultaneously preparing a bankruptcy filing in the event the deal had fallen through Better 2/share than zero. What's strange...really strange...was just how wildly wrong the market was on Friday. 30/share on a company putting bankruptcy paperwork together. That's scary.
- wallflower 19y agoFrom DealBreaker.com's liveblog of tonight's 8PM JPMC conference call (http://tinyurl.com/2jlhjy http://tinyurl.com/2jlhjy) "8:24. Good question about how to reconcile the alleged $80 per share book value and todays $2 per share price. JP Morgan doesn't say it directly, but Bear's liabilities must be severe." "8:35. Bear Stearns does own it's building, which means JP Morgan is getting a huge piece of midtown real-estate as part of the deal. By our math (which is shaky even when we haven't been drinking all day), that means either the building or the business is worth something like negative $400 million."
- ctkrohn 19y agoThe litigation risk is a huge component. There are going to be massive shareholder lawsuits (against both Bear and JPM) coming out of this. And who knows what kind of shady dealings at Bear might come to light during the acquisition? Dimon & Co. had only a weekend to put this deal together -- not nearly enough time to fully inspect Bear's books and to figure out all the risks of the trade. They had to set a price low enough to protect themselves.
- whacked_new 19y agoIs all this stuff common knowledge amongst big firm traders, or Wall Street folks, or the financial sector at large? Are you just someone who follows the relevant -- and perhaps access non-layman -- information, or are you required to be sharp to know all this?
- nickb 19y agoSo much for the efficient market hypothesis... http://en.wikipedia.org/wiki/Efficient_market_hypothesis http://en.wikipedia.org/wiki/Efficient_market_hypothesis
- tom_rath 19y agoIt still holds, but it takes time for information to be priced in. Remember the insanity with pets.com, koop.com and the like not so long ago? We're seeing another "Emperor's New Clothes" situation today. The market will price things appropriately in time but, as the saying goes, the market can stay irrational far longer than you can stay solvent.
- whacked_new 19y agoHey, good to read your posts again, informative as before; thanks!!
- cstejerean 19y agoIt's bad alright. JPMorgan bought BSC for half the price MySpace was sold for, and this included a billion dollar building (and only after the Federal Reserve agreed to protect them against certain liabilities).