Bear Stearns Racing Toward Selling Itself to JPMorgan ( Fed driving the deal before Asia Mkt opens)

New York Times ^ | March 16, 2008 | ANDREW ROSS SORKIN and LANDON THOMAS Jr.

[Ernest_at_the_Beach]

Where are you getting that price...? Bloomberg still said 20 per share....Hmmm!

Bear Stearns, JPMorgan Strive for Sale, People Say (Update2)

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Last Updated: March 16, 2008 18:00 EDT

[Vince Ferrer]

Does this mean Joe taxpayer is taking a chance on the buyout? - tom

Here's your answer:

In addition to the financing the Federal Reserve ordinarily provides through its Discount Window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets.

JPMorgan Chase To Acquire Bear Stearns

[spyone]

Just announced, the fed cut the discount rate by .25% and extended their lending facility from 28 days to 90 days...before the 28 day facility even came into effect.

[GovernmentShrinker]

Raalistically, JPM will be acquiring the profitable prime brokerage business, which will be a boost to its bottom line, and the Bear headquarters which is worth quite a lot in the long run. Pretty much all the other businesses will be quietly shut down (a few might get sold, but probably to unwise buyers who will end up quietly shutting them down).

[spyone]

The bloomberg article is from early today...the $2 is coming across all the wires and CNBC...at first I though someone left out a zero...so did the tv guys....but it’s no mistake...$2

[KarlInOhio]

Business wire had this:

The transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of JPMorgan Chase common stock per one share of Bear Stearns stock. Based on the closing price of March 15, 2008, the transaction would have a value of approximately $2 per share.

Chase was 36.54 at Friday's close, so that comes to $2. Essentially Chase is saying that other than the HQ building, the rest of Bear Stearns has about a negative billion dollar value.

[Sleeping Freeper]

Treasury Secretary Paulson was on FoxNews earlier today and when asked about the strength of the dollar internationally, he said the dollar was strong and would continue to be.... He got an odd look on his face that said to me..”this is the least of our problems right now”...

[GovernmentShrinker]

This blows my mind — I’ve never seen anything like it. These thinks usually take months.

You have a short memory. The LTCM bailout and the cross-border ING purchase of Barings both happened virtually overnight. The latter was probably more impressive, as it required direct involvement by the financial regulatory authorities of two countries. Both were ultimately a good thing for stabilizing panicked markets, and ultimately pretty much a wash for the acquiring/financing institutions.

[GovernmentShrinker]

There are pieces of Bear that Morgan can use. Don’t know if they’re worth $2 billion, tho.

The Bear headquarters alone is probably worth at least half of that, once the real estate markets normalize again. Prime brokerage might be worth the other BN.

[GovernmentShrinker]

Wow, a SUNDAY rate cut! They are really really scared about the Asian markets setting off a domino run.

There will be a further rate cut on Tuesday, if not Monday.

[Ernest_at_the_Beach]

OK,...Marketwatch has it now:

J.P. Morgan Chase to buy Bear Stearns for $2 a share

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By Anne Stanley
Last update: 7:16 p.m. EDT March 16, 2008

J.P. Morgan Chase buys....

The Journal report quotes Treasury Deptartment spokeswoman Michele Davis as saying, "None of these things is done until they're done. But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

[ReleaseTheHounds]

CEO Schwartz (I believe) is probably looking at jail time (whether deserved or not) for having made statements earlier last week that B.S. had no liquidity problems. In the era of SARBOX, you just can’t make statements like that and not face the consequences of criminal liability.

Lot’s of Schadenfreude circulating on Wall Street.

[spyone]

There are 118 million Bear Stearns shares outstanding...so the company is being valued at $236 million.

[Dog Gone]

$2 billion isn’t squat.

The company I worked for eight years ago was purchased for $6 billion and it barely made the news.

Of course, we didn’t have a Wall Street address.

[REDWOOD99]

Oh boy! This NOT good. Any nominations for the next domino?

[spyone]

$2 per share....not $2billion.

[palmer]

Both were ultimately a good thing for stabilizing panicked markets, and ultimately pretty much a wash for the acquiring/financing institutions.

Not good in the long run. LTCM was also accompanied by loose credit and not coincidentally, the first subprime mortgages were written. The Nasdaq bubble got juiced on the 0.75 cut which exacerbated the ultimate pop. These credit-driven bailouts always lead to new problems and will ultimately lead to monetization. Mises was right.

[DuncanWaring]

...millions of FDIC-insured account-holders will get their $100,000 from the taxpayer.

I don't believe that's true; FDIC payouts come from insurance premiums paid by the banks hosting the insured accounts.

Also, it's more common (last time I talked to a Bank guy) for the FDIC to lean on another, more solvent bank to buy the insolvent bank and cover the losses itself.

Which is just as well because the FDIC reserves are a very small percentage of the accounts they insure.

[Dog Gone]

Bear Stearns, facing collapse because of the mortgage crisis, agreed Sunday evening to be bought by JPMorgan Chase for a bargain-basement price of less than $250 million, the two companies announced.

You're right. That's not even a pittance.

[Ernest_at_the_Beach]

NY Times now has this story up:

Rescue Me: A Fed Bailout Crosses a Line

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WHAT are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms for the past year?

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If Bear Stearns failed, for example, it would result in a wholesale dumping of mortgage securities and other assets onto a market that is frozen and where buyers are in hiding. This fire sale would force surviving institutions carrying the same types of securities on their books to mark down their positions, generating more margin calls and creating more failures.

As of last Nov. 30, Bear Stearns had on its books approximately $46 billion of mortgages, mortgage-backed and asset-backed securities. Jettisoning such a portfolio onto a mortgage market that is not operative would, it is plain to see, be a disaster.

But, who knows what those mortgages are really worth? According to Bear Stearns’s annual report, $29 billion of them were valued using computer models “derived from” or “supported by” some kind of observable market data. The value of the remaining $17 billion is an estimate based on “internally developed models or methodologies utilizing significant inputs that are generally less readily observable.”