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Thread: Bear Sterns bought for $2 a share

  1. #1
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    Bear Sterns bought for $2 a share

    Wow! What a debacle. This company was traded for $80 a share not to long ago.

    I really hope all the big wigs at these companies lose every friggen penny..

    [url]http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html?printer=1[/url]

    [QUOTE]JPMorgan to Buy Bear for $2 a Share
    Sunday March 16, 9:01 pm ET
    By Joe Bel Bruno and Madlen Read, AP Business Writers
    JPMorgan Says It Will Buy Ailing Bear Stearns for $2 a Share, or $236.2 Million

    NEW YORK (AP) -- JPMorgan Chase said Sunday it will acquire rival Bear Stearns for a bargain-basement $236.2 million -- or $2 a share -- a stunning collapse for one of the world's largest and most storied investment banks.

    The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

    The Federal Reserve and the U.S. government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened. Early indications, though, pointed to continued fear about the stability of the U.S. market, as the dollar hit fresh record lows against the euro, gold broke through $1,015 an ounce and Asian stocks sank.

    "This is going to go down in very historic terms," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "This is about credit being overextended, and how bad it is for major financial institutions and for individuals. This is why we're probably heading into a recession."

    The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Meanwhile, JPMorgan said it will guarantee all business -- such as trading and investment banking -- until Bear Stearns' shareholders approve the deal, which is expected to be completed during the second quarter.

    JPMorgan Chase Chief Financial Officer Michael Cavanaugh did not say what would happen to Bear Stearns' 14,000 employees worldwide or whether the Bear Stearns name would survive. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns' prime brokerage business, which completes trades for big investors such as hedge funds.

    Risky bets on securities tied to subprime mortgages -- loans given to customers with poor credit history -- crippled Bear Stearns, the nations' fifth-largest investment bank. So far, global banks have written down some $200 billion worth of securities slammed amid the credit crisis.

    At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

    "Having taking Bear Stearns out of the problem category, and the strong action by the Federal Reserve, we would anticipate the market will behave quite differently on Monday than it was Thursday or Friday," JPMorgan Chase Chief Financial Officer Michael Cavanaugh told analysts during a conference call.

    Some analysts expected it to be a brutal day for global stocks, nevertheless. Japan's benchmark Nikkei stock index has plunged more than 3 percent in morning trading.The Nikkei 225 stock index fell 407.81 points, or 3.33 percent, to 11,833.79 on the Tokyo Stock Exchange shortly after the market opened Monday.

    A collapse of Bear Stearns could have heightened anxiety in world financial markets amid a deepening credit crunch. JPMorgan's acquisition of Bear Stearns represents roughly 1 percent of what the investment bank was worth just 16 days ago.

    The deal marked a 93.3 percent discount to Bear Stearns' market capitalization as of Friday, and roughly a 98.8 percent discount to its book value as of Feb. 29. The company is set to report its first-quarter results after the closing bell on Monday.

    Bear Stearns shares closed Friday at $30 a share. At their peak, the shares traded at $159.36.

    "The past week has been an incredibly difficult time for Bear Stearns," said Bear Stearns Chief Executive Alan Schwartz in a statement. "This represents the best outcome for all of our constituencies based upon the current circumstances."

    Wall Street analysts say the bid to rescue Bear Stearns was more than just saving one of the world's largest investments bank -- it was a prop for the U.S. economy and the global financial system. An outright collapse could cause huge losses for banks, hedge funds and other investors to which Bear Stearns is connected.

    The government, led by the Treasury Department and the Fed, was reported to have closely monitored the talks between JPMorgan and Bear Stearns. Treasury Secretary Henry Paulson, former chief executive of Goldman Sachs Group Inc., "has been in nearly continuous consultations all weekend," said Brookly McLaughlin, a Treasury Department spokeswoman.

    After days of denials that it had liquidity problems, Bear was forced into a JPMorgan-led, government-backed bailout on Friday. The arrangement, the first of its kind since the 1930s, resulted in Bear getting a 28-day loan from JPMorgan with the government's guarantee that JPMorgan would not suffer any losses on the deal.

    This is not the first time Bear Stearns has earned a place in Wall Street history. A decade ago, Bear Stearns refused to help bail out a hedge fund that was deemed "too big to fail." On Friday, the tables had turned, with the now-struggling investment bank in need of the same kind of aid.

    Bear Stearns was founded in 1923 and in recent years was best known for its aggressive investing in mortgage-backed securities -- and what was once a cash cow turned into the investment bank's undoing.

    In June, two Bear-managed hedge funds worth billions of dollars collapsed. The funds were heavily invested in securities backed by subprime mortgages. Until that point, subprime mortgage-backed securities were immensely popular with investors because of their profitability.

    The funds' collapse and subsequent problems in the credit markets called into question Bear Stearns' ability to manage its own risk and the leadership ability of then-Chief Executive James Cayne. Critics of the company said Cayne spent too much time away from the office last year playing golf and bridge as the problems unfolded.

    Cayne is the same executive who refused to let Bear Stearns provide support as part of a Federal Reserve-led plan to rescue Long-Term Capital Management in 1998. His reticence was said to deeply anger some of his fellow Wall Street CEOs, and the episode came up every time Bear was reported to be in trouble in recent months.

    Cayne took over from the legendary Alan "Ace" Greenberg in 1993. Greenberg joined Bear Stearns as a clerk, working his way up through the ranks to eventually take over as CEO in 1978. Greenberg was known for his irreverent style, and his regular memos to employees were turned into a book called "Memos from the Chairman."

    Before Greenberg's ascendancy to CEO, Bear Stearns began to expand from its New York roots throughout the 1950s and 1960s, opening international offices and expanding its U.S. operations.

    The company was opened in 1923 as an equity trading shop. Today, it has subsidiaries providing a wide array of financial services products for individuals, corporations, institutions and governments. Generally, it provides capital markets, wealth management and global clearing services to its customers.

    AP Business Writers Jeannine Aversa in Washington and Stephen Bernard contributed to this story.

    [/QUOTE]
    Last edited by CTM; 03-16-2008 at 09:47 PM.

  2. #2
    [QUOTE=CTM;2436125]Wow! What a debacle. This company was traded for $80 a share not to long ago.

    I really hope all the big wigs at these companies lose every friggen penny..

    [url]http://biz.yahoo.com/ap/080316/jpmorgan_bear_stearns.html?printer=1[/url][/QUOTE]

    Citigroup was trading at $54 last year, it's now at 18 I think.

  3. #3
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    The market is taking a dump over this.

  4. #4
    [QUOTE=sourceworx;2436589]The market is taking a dump over this.[/QUOTE]

    Russell 300 Index lost money over the past 12 months-- the ten year average is like 3.9%. Factor in inflation and you made zilch. If you had your money in a money market fund you did better.

  5. #5
    Sold for $236 million. One of the biggest investment banks in the world sold for less than A-Rod'slast contract. Sheesh.

  6. #6
    [QUOTE=nuu faaola;2436609]Sold for $236 million. One of the biggest investment banks in the world sold for less than A-Rod'slast contract. Sheesh.[/QUOTE]

    That is crazy.

  7. #7
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    [QUOTE=Company_Man;2436608]Russell 300 Index lost money over the past 12 months-- the ten year average is like 3.9%. Factor in inflation and you made zilch. If you had your money in a money market fund you did better.[/QUOTE]

    That's insane.

  8. #8
    somehow Bill Clinton is to blame for this

  9. #9
    from the WSJ editorial page:

    The Buck Stops Where?
    March 17, 2008
    In the credit market panic that began in August, we have now reached the point of maximum danger: A global run on the dollar that could become a rout. As the Federal Reserve's Open Market Committee prepares to meet tomorrow, this should be its major concern.

    Yet the conventional wisdom -- on Wall Street and in Washington -- continues to be precisely the opposite. In this view, the Fed is "behind the curve" and needs to cut interest rates even faster and further than it has. Never mind that this is precisely the path the Fed has followed since August, yet the crisis has grown worse and now bids to tank the larger economy. Does it make sense to do more of what isn't working?

    * * *
    The Fed's main achievement so far has been to stir a global lack of confidence in the greenback. By every available indicator, investors are fleeing the dollar for other currencies and such traditional safe havens as gold and commodities. Oil has surged to $110 a barrel, up from under $70 as recently as September. Gold is above $1,000 an ounce, up from $700 in September, and food prices are soaring across the board. The euro has hit record heights against the buck, and for the first time the dollar has fallen below the level of the Swiss franc.

    Speculators are adding to this commodity boom, betting that the Fed has thrown price stability to the wind in order to ease U.S. housing and credit woes. The problem is that dollar weakness is making both of these problems worse. The flight from the dollar has made U.S.-based investments less attractive, at a time when the U.S. financial system urgently needs to raise capital. And the commodity boom is translating into higher food and energy prices that are robbing American consumers of discretionary income. In the name of avoiding a recession, reckless monetary policy has made one more likely.

    Meanwhile, and disconcertingly, we keep hearing new explanations for the virtues of dollar weakness. One of the most popular is that the increase in commodity prices has nothing to do with the dollar but is merely a change in "relative prices" -- commodities compared to other goods -- caused by surging global demand.

    No doubt strong world growth explains part of the commodity price rise this decade. But the dollar price of oil has surged by some 60% since September, even as U.S. growth has slowed sharply. If the dollar had merely retained its value against the euro, oil would be in the neighborhood of $70 a barrel. Dollar weakness explains a large part of the oil price surge.

    We are also told that the U.S. is merely importing inflation from the rest of the world, such as China. Import prices have surged nearly 14% in the last year, but that is mainly recycling the inflation that the Federal Reserve has inspired. Like other countries that have linked their monetary policies to the U.S., China has been importing inflation due to dollar weakness. Its official price level has tripled in a year, and it is now letting the yuan rise more rapidly against the dollar to slow that domestic inflation.

    Kuwait has already dropped its dollar peg to stem its inflation, and other Persian Gulf countries may follow suit. These are all signs that the world is losing confidence in the Fed's commitment to price stability.

    Another excuse is that a weak dollar is useful because it helps to boost exports, and thus reduces the U.S. trade deficit. Exports have certainly been strong, but exports in goods are being more than offset by the rising cost of oil imports. In January, the U.S. trade gap actually widened thanks to oil imports. In any case, rising exports won't comfort Americans whose standard of living falls due to rising import prices.

    Then there is the "just deserts" school, which claims that dollar weakness is the inevitable result of America living beyond its means for so long. This road-to-perdition view is especially popular in Europe and the U.S. media. To believe it, however, you have to conclude that the world was willing to ignore the U.S. trade deficit for decades only to awaken in horror now.

    The truth is that, as ever, the fate of the dollar is in our own hands. Inflation is always a monetary phenomenon, determined by the supply and demand for a currency. The supply of dollars is controlled by a monopoly known as the Federal Reserve, and at any moment the Fed can produce more or fewer dollars. The Fed can also influence the demand for dollars by maintaining a commitment to price stability, or it can reduce that global demand by squandering its anti-inflation credibility the way it is now. Once squandered, it is difficult to regain -- as we learned the hard way in the 1970s and 1980s.

    The Bush Administration is also not helping confidence in the dollar. While President Bush is doing well to fight protectionism and higher taxes, his Administration continues to give the impression that it quietly favors a weak dollar. Yes, the official Treasury mantra is that it prefers a "strong dollar." But that mantra was the same when the dollar was strong and oil was $20 a barrel in the 1990s as it is now when oil is $110 and the dollar is weaker than at any time since the 1970s.

    Last week Mr. Bush dared to wander from this script and told the Nightly Business Report that a strong dollar "helps deal with inflation" and rued its weakness against the euro. He was quickly reeled in by his advisers, and in his Friday speech at the New York Economic Club Mr. Bush reverted to the boilerplate language that investors now interpret as favoring a weak currency.

    * * *
    Which brings us to tomorrow's Fed meeting. The markets are expecting another cut of 50-75 points in the benchmark fed funds rate, and if recent history is a guide will immediately price into futures another 50-point cut down the road. The stock market may rally, until it once again decides that easier money can't remedy what is fundamentally a problem of bank solvency. That problem can only be resolved by financial institutions and regulators coming to grips with the losses, raising more capital to cushion the blow, and closing or selling those banks that can never recover. That will require a more aggressive, and pre-emptive, regulatory role for the Fed -- and that we would applaud.

    What the U.S. and world economy don't need is a Fed that continues to insist that inflation expectations are "well-anchored" when everyone else knows they aren't. The Fed needs to restore its monetary credibility, or today's panic could become tomorrow's crash.

    See all of today's editorials and op-eds, plus video commentary, on Opinion Journal.

    And add your comments to the Opinion Journal forum.

  10. #10
    [QUOTE=Company_Man;2436656]from the WSJ editorial page:

    The Buck Stops Where?

    The Bush Administration is also not helping confidence in the dollar. While President Bush is doing well to fight protectionism and higher taxes, his Administration continues to give the impression that it quietly favors a weak dollar. Yes, the official Treasury mantra is that it prefers a "strong dollar." But that mantra was the same when the dollar was strong and oil was $20 a barrel in the 1990s as it is now when oil is $110 and the dollar is weaker than at any time since the 1970s.

    Last week Mr. Bush dared to wander from this script and told the Nightly Business Report that a strong dollar "helps deal with inflation" and rued its weakness against the euro. He was quickly reeled in by his advisers, and in his Friday speech at the New York Economic Club Mr. Bush reverted to the boilerplate language that investors now interpret as favoring a weak currency.

    * * *[/QUOTE]


    there are many things this president will be remembered for... among the worst - George W Bush killed the US Dollar.

  11. #11
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    [QUOTE=bitonti;2436671]there are many things this president will be remembered for... among the worst - George W Bush killed the US Dollar.[/QUOTE]

    Blame greenspan 100x more the bush. If this gets really bad and history is retold correctly, Greenspan will be the villian imo..

    Bernake is just continuing to make it worse in the long run..
    Last edited by CTM; 03-17-2008 at 12:53 PM.

  12. #12
    The Federal Reserve System is to blame for this. It's tool: fractional reserve banking AKA fraud

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