JPMorgan to Buy Bear Stearns for $2 a Share

[dshumake]

http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html

JPMorgan/Chase is buying Bear Stearns for $2/share or $236.2 million. Bear Stearns closed on Friday at $30/share. Fed is taking/guaranteeing $30 Billion in dept in mortgages from Bear Stearns. The office building where Bear is located has an appraised value of $1.2 Billion.

It doesn't look like tomorrow will be very good to Wall street.

dshumake

[xortam]

Dow down 224.00 and NASDAQ down 43.75 currently in pre-market. HANG SENG down 4.01%. NIKKEI 225 down 3.66%. I'm going to sleep in ... as usual.

[Umfriend]

There is this saying "If you owe the bank $1,000 the bank owns you. If you owe the bank $100 million, you own the bank". This appears true with respect to banks on the one hand and central banks (and governments) on the other. I can see how the FED is interested in preventing the financial system to collapse. My concern is that ultimately, shareholders (be they Bear Stearns' or JPM/Cs) are the ones profiting: they can reap high profits as long as the bets go their way and will be saved when the bets go awry.

No party, not anyone, would be willing to take that $30bln. That move subsidides some people. IMO, the FED or the government should demand a stake just for the guarantee.

[rylan]

Damnit, I knew I should've shorted the crap out of Bear Stearns on Fri. Would've made $28/share.
I have a feeling there will be a class action lawsuit coming though for all of the people who held/hold their stock and just watched it go from $55/share a few days ago to almost worthless.

[Umfriend]

So which is the first next bank, if any, to go you think?

[Dr Mordrid]

Damnit, I knew I should've shorted the crap out of Bear Stearns on Fri. Would've made $28/share.
I have a feeling there will be a class action lawsuit coming though for all of the people who held/hold their stock and just watched it go from $55/share a few days ago to almost worthless.

Beat you to it

Yeah, a class action might be in order....which makes you wonder how they got Morgan to assume the risk.

Serves them right for treating mortgages like commodities. This is gonna get uglier before it all shakes out, and a lot of it'll hit middle eastern & other foreign investors as they bought a lot of those 'mortgage shares'.

IMO Citi is prime for a fall, along with BoA. We just got a promo from Citi saying they'd give a $100 "gift" to new depositors in certain types of accounts. Better than a toaster, and IMO a sign of desperation.

[Umfriend]

Isn't the rimnibi sort of pegged to the USD?

[cjolley]

Isn't the rimnibi sort of pegged to the USD?

Dug themselves a hole haven't they?
Sink with the dollar or shoot up like a helium balloon.


PS renminbi

[Umfriend]

LOL, yeah.

I guess it could cause their exports to Europe to rise way faster now but inflation in China is likely to go up significantly, far more than in the US, while Europe will not have the US to export to anymore. At least we have a trade surplus to date and relatively sound fiscal budgets at present. Moving capital inflow from the US to Europe may keep us afloat for some time but it has to be said, with inflexible labour markets in many of the larger countries we may be up for a very painfull recession in two years time.

Edit: It appears the Renminbi is no longer pegged to the USD but to a basket of currencies of which, I'd expect, the USD still makes up the larger part (>> 50%). I think the above still holds however.

[ND66]

Whatever Feds do, they'll just delay the outcome. No matter what they do, they’ll not be able to stop it or change the course of the economy this time.

And the takeover of Bear Sterns is a modern Highway Robbery if you ask me.


Who's next???

And that has market players asking: Who may be next?

Some figure Lehman Brothers (LEH) may be vulnerable to a liquidity seize-up. Shares of Lehman took a beating Mar. 17 because of the similarity of its business model to that of Bear Stearns. Lehman shares lost as much as 48.4% of their value before bouncing back to finish 19% lower, at $31.75.

Other big names got caught up in the selling as well. Morgan Stanley (MS) shares fell 8%, to close at $36.38. Citigroup (C) shed 5.9%, to end at $18.62, and Merrill Lynch (MER) lost 5.4%, to trade at $41.18.

The pounding Lehman shares took was understandable given concerns that its relatively heavy exposure to the subprime mortgage market puts its capital balance at risk.

"At Lehman, fixed income is very big. They were leaders in securitization of mortgages. Bear was No. 2," says Christopher Whalen, managing director at Torrance (Calif.)-based Institutional Risk Analytics, which builds customized risk-management tools for audit firms and others. "That's why everybody is looking at Lehman now."

And though Lehman has a stronger investment banking business than Bear did, its merger-and-acquisition advisory services are effectively worthless in view of the credit freeze, making Lehman next on the target list for a liquidity crisis, Whalen says.

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[ND66]

....Win-win situation for China? Maybe...

Maybe not. Where else they can sell so much product? They can manufacture all they want, who's going to buy it?

The Short View: Chinese bubble

By John Authers, Investment Editor

Published: March 12 2008 17:47 | Last updated: March 12 2008 17:47

As the year turned, the world’s fears were invested in the US. All its hopes were turned to China. That has changed.

Anxiety about China has suddenly spiked. This is partly because the bubble in its domestic equity market has burst. The Shanghai Composite is down 31.6 per cent from its October peak – more than the Nasdaq Composite had dropped at the same stage after the tech bubble burst. Hong Kong-quoted H-shares and New York-quoted ADRs are down a bit less, but still by more than 20 per cent.

PetroChina, the biggest Chinese company, has fallen by half since its November peak.

These falls demonstrate that the Chinese market is not as insulated from the rest of the world as had been hoped. More to the point, investors are also responding to evidence that its economy is prone to international pressures.

Inflation, at 8.7 per cent, is its highest in more than a decade. To an overheating economy have been added the effects of high global agricultural prices and the effects of China’s bad winter. With food accounting for about a third of consumer expenditure, it is a problem that cannot be ignored.

Then there are August’s Beijing Olympics. Until the last few weeks, they were regarded as a guarantor that China’s economy would not be allowed to slow down. Now, there are concerns that closing factories, in a bid to improve air quality, will depress industrial production.

The events of the past few weeks have not much changed the long-term case for China. But, in combination with the bursting of the Shanghai bubble, they have been enough to turn perception around. Suddenly, China is viewed through the prism of what could go wrong. Its growth is no longer a given.

As the Olympics approach, that adds another source of uncertainty for global markets. As if they did not have enough to worry about.

[Umfriend]

And the takeover of Bear Sterns is a modern Highway Robbery if you ask me.

Who got robbed then?

[ND66]

Who got robbed then?

All the shareholders.

Do you invest a little? If you had their shares that were worth $84~$85 on Tuesday and then it took a dive to $30/share on Friday, you would be in such a disbelieve, you wouldn’t know how to react. The first thing that pops in your mind is: it’s going to bounce back some (normally it does) and then I’ll see if I sell it or keep it.

But Monday you wake up to the news that after hours when you couldn’t do anything, they sold it for $2/share making you the sour looser of over $80/share. Wouldn’t you start looking for the shut gun?

So, the Feds saved (?) Bear Sterns from humiliation and their CEO that was making millions and millions of $$$ for what????

They (the Feds) did accomplish one thing for sure; all the investors will put their money in a safer place, even stuff the mattress they sleep on, still it’s a safter place then US Bank or the US Stock Market.

And this will send US economy for a ride of a lifetime down the Niagara Falls….


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[Umfriend]

I think you are mistaken. Had the Fed not intervened then the shares of BS would have been worthless.
Shareholders of BS made money because of the risks BS could take because of the reliance on the FED. Management ****ed-up but the shareholders were the beneficiaries. To bad but that is what you get when you invest. Can't have your cake and eat it too.
If anyone got robbed than it is the public since the Fed extended a valuable guarantee without actually getting anything for it in return.

[ND66]

I think you are mistaken. Had the Fed not intervened then the shares of BS would have been worthless.

I hope I'm mistaken.

As an investor, I’d rather loose it all then wonder why someone behind the desk decided my share is worth $2 and not let the stock market take its course.

But probably those were the same people as those who classified those subprime mortgage investments in the “AAA” Class group…. .


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