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

[randomness]

For reference, it closed on Friday at $30.

Bloomberg reports:

"[T]he price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion".

Marketoracle.co.uk says:

"Said another way, Bear's headquarters building, which was included in the sale, is worth four times what JP Morgan paid for the entire firm. That means Bear, as an ongoing entity, was a liability as of Sunday. This is not surprising considering the rush for the exits by customers in the last few weeks and the loss-ridden portfolio of securities on Bear's books. Add the possibility of lawsuits against Bear's actions, and JP Morgan in effect said Bear is a liability in its present form, we will not buy it, but we will take it for $2 per share to help shore up confidence since the Fed has asked us nicely."

"Unfortunately, Bear Stearns is not the only firm to hold large quantities of leveraged securities backed by mortgages."

"If Bear Sterns [sic] went from having a $169 stock in January of 2007 to being virtually worthless today, it makes you wonder what other firms may follow a similar path to insolvency."

Comments

[contrariety.livejournal.com]

Yay trainwrecks!

I suddenly feel so happy that I'm in a graduate program for the next four years. I think these are going to be a good four years to not be on the job market.

[r-ness.livejournal.com]

Funny you should use the word trainwreck.

Yves Smith, at Naked Capitalism used it too (as two words):

We are at least a year, perhaps as many as three, away from the bottom of the housing market. We don't yet know how bad the damage to the financial system or the economy will be. A crisis was averted because a strong player stepped forward. Will JPM be willing or able to do this again? I doubt that a purchase by Chris Flowers would have the same potential to calm the marekts [sic]. After JPM, HSBC, and perhaps Buffett (although I can't imagine him eating this much risk, it's just not his style), there are not a lot of deep pockets around.

We can take at most one more near train wreck like this. Let's hope that somehow we manage to avert that fate.

[digitalemur.livejournal.com]

This is the first time since I started paying attention to financial news a few years ago, that I got to follow an actual run on a bank. How often does it actually occur anymore? (I have these marvelous visions of the run on the bank in Mary Poppins whenever I use the phrase.)

[cerebralpaladin.livejournal.com]

That's the $64K question, really. In normal times in industrialized countries, bank runs are very rare. That's why, for example, we have the FDIC-- essentially to prevent bank runs by telling people like you and me, "even if your bank fails, you'll get your deposits back, so no need to pull it out and hold it as cash." So the real question is whether this and Northern Rock in the UK are bizarre outliers, or are the harbingers of more to come. If Lehman follows Bear Stearns, and then somebody else follows Lehman, and then real banks start getting hit too... Then we'll see a lot more of these along with lots of damage to the real economy (as opposed to the mostly paper damage and the very beginning (probably) of a recession) that we're seeing now.

Cross your fingers and hope that we don't get the entertainment of more bank runs, especially bank runs that don't involve rendering tea unsuitable for drinking, even by Americans.

[stolen-tea.livejournal.com]

There go the markets.

Again.

For the moment.

[digitalemur.livejournal.com]

Makes me glad I'm a) saving money like crazy (at HSBC, no less) and b) living in a real estate market that didn't bubble much and will have lots of foreclosures for me to bid on this fall and winter. I'm not happy about the foreclosure rate but if I can get a starter home for a little cheaper I'll be a lot happier.

[silk-roses.livejournal.com]

This is kind of creepy. About a week ago, the director of my department predicted that this would happen. Granted, he probably actually genuinely knew that something was up, given his contacts in the financial world, but still...damn.

"I'm sure they'll know better now."

[frotz.livejournal.com]

On the one hand, this makes me want to say "well, so long as nobody is circling the toilet right now, we'll have time to back off from some of these completely outrageous positions and nobody (else) will get hurt."

On the other hand, I've been wanting to say things like that since Long Term Capital Management folded up, and I bet it happened every few years before I was tracking financial news. People seem short on the learning, though. I also think there are too many MIT people on Wall St. coming up with rules-based systems with insufficient analysis of the underlying assumptions.

"Past performance is no guarantee of future results."

[nafe.livejournal.com]

I get the sense that this is but the first domino to go. There are apparently bond rating downgrades looming in the not-to-distant future.

Oh hey, do you want to swing by my place at some point and bury some lock-boxes filled with foreign currency in my backyard? I've got coconut rum!

[r-ness.livejournal.com]

I'd love to swing by sometime soon. It's been way too long.

But I wouldn't tip my hand as to where those lock-boxes are going, however. :)

[nafe.livejournal.com]

Crap crap crap!

[cerebralpaladin.livejournal.com]

Yeah, it's a pretty precipitous fall. 14 months to go to 1.18 cents on the dollar? Even worse in change/unit of time, 1 week to go from $70 to $2? That's a drop of 97%. Wowza.

The interesting thing is that almost all of the discounting is about risk. If the carnage in the mortgage securities market is mostly over (i.e. securities are correctly pricing in the future default rates and default rates don't get massively worse), JP Morgan will make out like bandits. But they're only paying a tiny amount, because the downside risk is huge-- they could end up losing billions on this deal (at least depending on how much the Fed protects them).

We live in interesting financial times. So far, it mostly sucks if you were a big Bear Stearns shareholder or one of the relatively small number of financial employees who have lost their jobs. The big question is whether it's going to rapidly go to sucking for everyone. Who can guess?