Yer DONE on 136 Million Shares BSC at 2 Flat!
JP Morgan Chase Buys Themselves a Broker-Dealer
By blackhedd Posted in Bear Stearns | Economy — Comments (83) / Email this page » / Leave a comment »
News hits the wires at 7pm EDT, just before Monday morning trading opens in Asia.
JP Morgan Chase has acquired the Bear Stearns Companies at $2 a share.
This stock was worth $57 a share on Thursday night, and $170 a share one year ago.
I'll update this as events warrant, in particular how the Asian markets react.
Update: 7:25pm EDT: The Federal Reserve announces a one-quarter point cut in its discount rate, effective tomorrow morning. Remember, their regular FOMC meeting is Tuesday, and we'll probably get a full percentage point cut in the Fed funds rate.
Update: 8:05pm EDT: The US dollar is trading sharply higher at this hour against the euro and the yen. The stock market just opened in Tokyo, down only about 1%. So far, so good.
Update: 8:40pm EDT: The dollar has reversed and is now below 98 yen, a 13-year low. Tokyo stocks down more than 3%. It's gonna be a long night.
Update: 3:30am EDT: With an hour left to trade in Tokyo, stocks are down about 4%, with the most actives concentrated in heavy industry. Hong Kong also down about 4%. Singapore is up 1%.
Europe has opened not so bad. London is down about 1%, Paris and Frankfurt down less than 1% percent.
The dollar is off its worst levels, now trading above 97 yen. Oil and gold are at record highs. US Treasuries are sharply higher across the yield curve.
I stand by my interpretation that the toll in Asian stock markets is because of the falling dollar, which is going to wreak havoc in Japan. They're probably excreting bricks over there right now.
As of this moment, it looks like the world wobbled, but is still on its feet.
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Yer DONE on 136 Million Shares BSC at 2 Flat! 83 Comments (0 topical, 83 editorial, 0 hidden) Post a comment »
my buddy called me right before he bought in friday. i talked him out of it. he owes me a few beers now and maybe a 30' cruiser for the lake this summer.
Ask not what I can do for my country, ask what my country can do for me. Washington Elected Elite
chance to buy at 27 early friday and sell at 35. Someone got left holding the bag.
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Molon Labe!
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
took me a moment to figure out what it was...
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looks like a bear trap to me. I think a bull trap might be more apposite.
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Molon Labe!
there HAS to be another pun in there somewhere
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Molon Labe!
Crafty fellow, that Joliphant!
a slow speed LA car chase :)
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Molon Labe!
that they could spare out of their busy broadcast schedule.
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Molon Labe!
The chase was on the National Fox channel but not on the local Fox or any other local channel.
I'd bet that local LE folks have leaned on local stations to stop broadcasting this form of entertainment to keep the copy-cat effect at a minimum.
The dude arrested looked to be ether an elderly person or someone in poor health.
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Proud member of the Barry Goldwater wing of the party !
if you could get EVERYONE in LA to drive 30 mph you'd never have another traffic fatality in the city!
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Keep the CHP off of 15 for those high speed runs to Sin City...
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Proud member of the Barry Goldwater wing of the party !
Its been going on for at least six months now. We have a whole bunch of players and we still have no idea who is going to make it to the finish line.
If that isn't more interesting than some moron in a stolen car I don't know what is.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
going 20 feet behind a guy going 20mph?
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Molon Labe!
The vehicle. Cars being Faraday cages you cant just fry the electronics, but you should be able to just drop caltrops in front of them.
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
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Proud member of the Barry Goldwater wing of the party !
i bet that would work, of course you would need a crapload of em.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
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Molon Labe!
you need something much more viscous and sticky. Like hot oatmeal.
"Nothing works like freedom, Nothing succeeds like liberty"
Kyle
I read this outloud to my spouse right off the RedState ticker, and a few minutes later, Fox News announces it. Blackhedd is better than an AP ticker...
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Quickly reading the announcement from the Federal Reserve, one big change jumps out at me.
They have extended the maximum term of loans from their Discount window to banks from 28 days to 90 days.
It's been a long-standing policy of the Fed to avoid distorting private money markets by lending for terms longer than a month.
This is a very big deal. It shows that the Fed is very concerned about keeping the financial markets from going de-stable.
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Molon Labe!
...on Friday morning. It was about $30 billion, a little bit more than I was guessing.
Ladies and gentlemen, if you want to know what rape and pillage looks like:
Morgan just spent $270 million to buy a company that's been in business for 85 years and has 14,000 employees.
For that money, they got a building in Manhattan that's worth about $1.2 billion, right now.
And they got the third-largest prime-brokerage business on Wall Street. A week ago, they probably would have been thrilled to get that business for two or three billion dollars.
Words fail me.
And another thing: I don't want to hear anyone say that the Fed bailed out Bear Stearns. They got b-o-o-o-o-o-ned in the backside.
Blackie,
Could you clarify one more thing for us?
I was rummaging around and the only extra detail I could find that I was looking for was (of all places) over at the Telegraph (UK) - which says that this is an "all-stock" transaction.
Since JPM closed on Friday at 36.54, that implies something like BSC shareholders will get c. 1 share of JPM for each 18 shares of BSC.
If it's "all-stock" this might be even "better" if you're JPM. Will they just have the JPM treasury print up the c. 6.5M shares required to do this, and just figure that the dilution of JPM is too small to worry about? With 3.37B shares outstanding, that would be only about a 0.02% increase in the number of JPM shares outstanding. If JPM is doing the acquisition by printing up a bunch of share certificates, it amounts to almost a free lunch (or about as close as you can get)....
God, would I like to get a deal like this! The swap rate is 0.05473. Your arithmetic is just about right.
So they're just going to print up a bunch of new shares from the JPM treasury, dilute JPM in toto by 0.02%, and basically do this acquisition materially for the cost of just the ink? Is this a great country or what! (Snicker. Just FYI for anyone who thinks I got in the sauce early tonight, this is actually what happens in most IPOs - it's the valuation circus right before the IPO is set that causes pain, but that's another story).
Hey, if you think 18:1 is sweet, check out below what AF/KLM is doing with Alitalia - it makes Inca Cola seem sour....
I hope this isn't a stupid question, but the little I've heard about this deal is that Bear-Stearns's troubles revolved around excessive debt. Doesn't JPM-C also acquire that debt as part of this deal? And doesn't that significantly change the arithmetic?
It may still be a steal, but maybe not quite such a steal? And if it is such a steal, why weren't there other bidders?
Or did the government help do something about that debt burden? What exactly did the Government do to help B-S, if anything? (Briefly is fine.)
"An unarmed man can only flee from evil, and evil is not overcome by fleeing from it.“--Jeff Cooper. From Bill Coffey's collection of military quotations
OK. I found the answer to one of my questions in one of your earlier columns.
"Bottom line, I think the long-term liabilities of the company wipe out the equity. (Which as of Friday's close is only worth about $4 billion and change.)"
But that still leaves the others, and it leaves me with the impression that you changed your mind somewhat between articles.
Help, anybody?
"An unarmed man can only flee from evil, and evil is not overcome by fleeing from it.“--Jeff Cooper. From Bill Coffey's collection of military quotations
But what seems to have been the killer was that people were so scared that Bear would fall, they stopped doing business with them. Bear has a ton of leverage for its trades, when people will not take the other side of those trades, well, the party is over.
From what I hear, the Bear Sterns building in New York could be worth more than the price JPM is paying. What JPM is doing is guaranteeing the Bear, so others will take the other side of there trades.
anyone else want to chime in particularly if I am all wet?
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Molon Labe!
Wouldn't your abode always be a Holliday Inn?
Fighting for conservatism one day at a time.
" Got to love the Lord for making things like that."
Morally Compromised
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Molon Labe!
That was a soft toss waiting to be hit out of the park. I just beat the rest of the posters to the easy joke.
Fighting for conservatism one day at a time.
" Got to love the Lord for making things like that."
Morally Compromised
have taken home personal compensation of more than $236 million during the good times? I'm guessing ten or more; that's what all the owners of Bear Stearns are getting for the whole shebang.
Hedgies do, of course. And traders, if they're good.
I'm glad that this, at least, will not be the direct cause of the world financial markets pancaking into rubble.
If I read the news reports right, JP Morgan also gets protection from the fed for up to $30 billion of Bear Stearn's assets, just in case the balance sheet is more toxic than expected.
It seems to me the moral hazard issue has been adequately dealt with. There will also be plenty of civil suits (and you know it's going to kill Bill Lerach to be watching these from prison), and a not trivial chance that top folks at Bear Sterns could face criminal prosecution. It has become pretty standard for the top guys in spectacular corporate melt downs to face prosecution on whatever grounds seem plausible, and it could happen here. Certainly, Jimmy Cayne putting playing in bridge tournaments - not on one occasion, but on two separate occasions - ahead of focusing full time on major firm crises has set himself up for being portrayed as Nero fiddling while Rome burned.
We are still far from done with the financial market crisis. The extra actions taken by the fed reflect just how deeply concerned they are that this could spiral out of control if they let it. I'm just hoping that the remedies they are trying are up to the task, because if not, it will only make things worse. They certainly are projecting that there is reason for deep concern, if not panic; if their response is judged inadequate, panic becomes just that much more likely.
This is a government function I can live with.
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"If we want to take this party back, and I think we can someday, let’s get to work." – Barry Goldwater
...Air France has offered to buy the Italian flag carrier Alitalia for less than 150 million euros. That's about one-fifth the market value of Alitalia's stock as of Friday's market close.
Alitalia's board gratefully bent over accepted the offer, as their alternative was bankruptcy.
Wow.
Ah, I'll miss Alitalia. I've never flown them, but when I'm having my groggy morning vegetative sessions at the Red Carpet Club in Frankfurt, an Alitalia flight always rolls up to the gate right below the club windows. Very distinctive, those Alitalia planes; hair under the wings. :-)
Anyway, AirFrance/KLM seems to be getting this one under similar circumstances:
According to the proposal, Air France-KLM would exchange one of its share for every 160 Alitalia's shares. The share exchange offer was valued at ?0.10 per share, representing an 81% discount to current share prices. Through this exchange rate Air Force-KLM would acquire 100% of Alitalia's stock by exchanging 8.7 million of its shares.
I'm assuming that the "?0.10" means euro0.10.
Well, let's reallocate all the distressed assets out there as quickly as possible, shoot a bunch of financial clowns, and get on with things....
And I have family connections to them too. Just as an example of what I'll miss most about them:
I asked for espresso on a recent flight back to New York, but all they had left was "caffe' lungo" (American coffee). The flight attendant said: "Pero', signore, ci si abitua!" (You'll get used to it, sir.)
In other words, Alitalia's people are refreshingly honest about their disdain for the passengers. Every other airline fakes it.
And then there was the security line at JFK on a flight to Rome. The two older women standing ahead of me in line had some wonderfully choice things to say about the the fact that they would need to take their elegant Italian shoes off.
Of course they had no clue that I speak Italian and understood every word. I had to work so hard to keep my laughter up my sleeve that I was practically in tears.
I'll miss Alitalia, that's for sure.
Apr 20 puts (current price is just under $40). Someone thinks it's going down.
Too many negative rumors to process - from insurance companies to retail banks..
I smell fear.
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"Enlightened statesmen will not always be at the helm." -- James Madison
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Molon Labe!
one. :>) Standard industry joke.
It's remarkable that Alitalia held on so long. Nationalism and subsidies kept it independent.
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Molon Labe!
Commodities/Broadway plays/Movies/Software/Web Sites/TV
Have I missed any ?
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
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Molon Labe!
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"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
___________________________________________________________
Molon Labe!
Well, what with the JPM/BSC and AF-KLM/Alitalia deals going down today, we'll have to refer to this as The St. Urho's Day Massacre.... :-)
She said she was thinking the same thing. And she's a much better trader than I am.
(And no, I'm not advising anyone to buy or sell. It's going to be volatile no matter what happens.)
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Molon Labe!
I hope you're right, though at the moment Hong Kong is down 4% and US markets are poised to open between 1% and 2% lower.
As you said before, will likely be a long night.
I bet the shorts on BSC are having a heyday...
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And statesmen at her council met
Who knew the seasons when to take
Occasion by the hand, and make
The bounds of freedom wider yet
- Tennyson, _To the Queen_
in the banking and brokerage sector? It was on the rise well before this debacle.
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Molon Labe!
Concentration of what in the banking and brokerage sectors?
Consolidation is probably the word he was looking for.
-exits
As they get bigger and bigger and bigger, can there be a combination of management hubris and bad luck that is just uncontainable?
Concentration and divestiture go in cycles, of course. And commercial banking, investment banking, brokerage, and prop trading are all different businesses with different cycles.
I think there are natural limits that people run into all the time. Sandy Weill was unable to turn Citigroup into a unified and vertically-integrated shop. The theory made sense, but the pieces just didn't fit together.
And this deal is part of the evolution too. Morgan has been in the market to buy a prime-brokerage business for quite some time, because they need one to compete with their peers. And lo and behold, one just drops right into their lap.
The clearing business is also probably of interest to Morgan. But they don't need the investment bank, and it might just get shut down. They sure as hell don't want the mortgage-securitization business.
Pretty much all of the sell-side converted from partnerships to public ownership in recent years. Bear was among the first to go out (back in the 1980's, if I recall), and Goldman was the last, back in 1999 or so. And they had to, in order to compete globally. But I do believe that the transition to public ownership has been deleterious to proper risk management. Because now those guys are playing with your money instead of their own.
And keep in mind that Wall Street is just a small part of the global financial industry. These firms are tightly meshed with a raft of peers in many different countries, which have different rules, and some of the companies are actually sovereign.
And keep in mind that perhaps half of Wall St's profits these days come from proprietary trading. Make a few big mistakes, and you're history.
The money business is so fungible that (with some exceptions like municipal finance and the custodial business) these businesses move around and acquire each other and divest all the time. I don't see a big danger from consolidation (except in Asia where the rules don't allow for failure).
Everywhere else in the world, failure is what drives changes of ownership. As you saw in dramatic fashion tonight.
n/t
Well, what I hope is happening with this "St. Urho's Day Massacre" (of BSC and Alitalia) is that it's a sign that it's time to take out the trash, get all the distressed assets dispositioned and out of the way, and get on with productive work.
Things lately have had the sense of owning a vehicle which is just falling apart - and every other week you have to take it to the shop to get something fixed or patched. At some point, you just say, "Enough of this nonsense! I'm getting a new vehicle and getting on with my life!"
I hope that's what today's international drama means....
I'm opening a new bottle of red wine to celebrate....
They are set to announce another round of layoffs today. They just built this brand new/state of the art building in the St. Louis area a couple of years ago. Ever since, they have been figuring out ways to empty it out. That's one way to solve the parking problems.
Fighting for conservatism one day at a time.
Just curious, but is it possible that BS's board controlled 50% of the voting stock or could contact in 3 days enough big investors to get there? I'm just amazed something like this could happen so quickly.
The deal is expected to close in the next 90 days, and is subject only to shareholder approval, which both banks expect to happen.
Deals of this sort are always subject to "shareholder approval" - but it's rare for that to be an issue.
could aggrieved shareholders rebel? There are some big investors among those who lost the $4 billion since Friday's close.
You don't go from 90 billion to squat in a few months without the directors being invited to lots of depositions. The gravamen of the suits will not be the decision to accept the bailout; it will be the lapses of oversight and judgment to lead to that situation.
The shareholders are free to do whatever they want.
Unless there's something unusual about this, what should happen is that BSC shareholders will get a mailing (sort of a proxy special election) with an explanation and a recommendation from management and the board that they vote to approve the transaction - and to return the proxy by a certain date for it to count.
If enough rebel, they could derail the deal.
But that would be unusual in general, and in this case probably would amount to trying to take nothing instead of a little.
The message to BSC shareholders will probably be much like what Lee said to his troops after surrendering his army to Grant at Appomattox: "Boys, I did the best I could for you."
This just in:
"The past week has been an incredibly difficult time," said a statement from Bear Stearns CEO Alan Schwartz. "This transaction represents the best outcome for all of our constituencies based upon the current circumstances."
For translation of the bold-faced part, see above comment....
of course there must be shareholder approval. But this is not like a hostile take over for a gain. This company, Bear, is doing this to avoid bankruptcy. Morgan will be footing the bill from now on. I don't think any shareholder who refuses to sell will have a leg to stand on.
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Molon Labe!
It will be a two-step process.... unless something has changed since my last go-round with this sort of thing (late last summer).
The BSC shareholders will get the materials to vote; once that is approved, you move to the second phase of executing the transaction. If you don't personally hold the paper certificates, the change will just happen in your brokerage account on a specified day. If you have the certificates, you'll be sent a mailing asking you to send them in for exchange.
At that point, if you're a shareholder who voted "NO" it no longer matters. You can either turn the certificates in.... or hold on to them and have them at some point become non-negotiable wallpaper....
Bearstearns investors could get nothing on their investment or a minscule return and chose the later.
McCain '08
this does not neccessarily fortell how we open, and certainly not how we close, but I guess it is worth noting for now.
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Molon Labe!
...Asian stock markets. The dollar is nearly down to 96 yen, which has to be scaring the bloody hell out of anyone who owns stock in any company that exports heavily to North America.
It's not good for the US if the dollar goes into freefall. It also puts the Fed in a box as it looks at cutting rates - every time they do, the dollar is just going to fall further.
when the story was new, was that the size of the Chinese economy had been overestimated by about 40%. Searching for links, I found this guy whose thesis had predicted this 2 years ago.
I've been wondering, how much of the outstanding debt and bad credit has been based so many trillions of dollars that aren't there?
that tried to buy a $30 lottery ticket on Friday.
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Molon Labe!