Bear Stearns Closes in on Deal To Sell Itself to J.P. Morgan

J.P. Morgan nerving itself up to take a leap into the dark. Dennis Berman, Susanne Craig, and Kate Kelly of the WSJ:

Bear Stearns Closes in on Deal To Sell Itself to J.P. Morgan: Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.

People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.

Terms of the deal were still being hammered out Sunday afternoon. Reflecting the dire situation at Bear, the company is likely to fetch considerably less on a per-share basis than its stock price of $30... Friday at 4 p.m. Last year, the shares hit $170.

One stumbling point appeared to be the amount of risk that J.P. Morgan would absorb in any type of transaction.... J.P. Morgan... Chief Executive Officer James Dimon was reluctant to pursue the deal without certain assurances that would protect his firm's exposure, said people familiar with the matter....

Terms likely will factor in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That could make Bear's banking franchise worth roughly $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade....

Bear also has been preparing for the possibility of a bankruptcy filing, with that as the likeliest scenario if an acquisition by J.P. Morgan falls apart, according to a person familiar with the situation. Such a filing might even occur before financial markets in Asia open for Monday trading....

Any deal would all but wipe out Bear Stearns shareholders, whose shares have not traded below $20 since 1995. The pain would be most acute for Bear's own employees, who were seeped in a culture of firm ownership -- and own about a third of the outstanding shares...

And it was just nine days ago that I first heard somebody say, "at current spreads Bear Stearns can't last six months"...

Comments

[christofay]

Not a single mention of the bubble in over-leveraged overly complicated and highly interconnected financial "instruments."

Let's cut to the chase, will the Fed take any hit?

[Bernard Yomtov]

Two dollars a share.

"http://money.cnn.com/2008/03/16/news/companies/jpmorgan_bear_stearns/index.htm?postversion=2008031619"

[christofay]

From record breaking bonuses to poof in less than 1 quarter.

So we've demonstrated we govern our nation's fiances as conservatively as we go to war in Iraq.

[christofay]

Gretchen in the NYTimes

"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?"

Isn't the answer clear over the last 9 months, yes, more inflation.

[christofay]

A worthy quote from the Gretchen article:

“Why not set an example of Bear Stearns, the guys who have this record of dog-eat-dog, we’re brass knuckles, we’re tough?” asked William A. Fleckenstein, president of Fleckenstein Capital in Issaquah, Wash., and co-author with Fred Sheehan of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.” “This is the perfect time to set an example, but they are not interested in setting an example. We are Bailout Nation.”

[Stewart Schoder]

Chapter 10 of Roger Lowenstein's "When Genius Failed" recounts Bear Stearns's role during the bailout of Long-Term Capital Management. As a footnote, the $2/share bailout occurs on Palm Sunday, when some of us are reminded that "all those who take the sword will perish by the sword."

[Neal]

What nerve does it take to absorb a competitor at the behest of the Fed that guarantees that JPM will outlast all of the other that are to fall?

Will the Fed ever let JPM fall after this? Highly unlikely!!

[bigTom]

I wonder how much those assurances are going to cost the taxpayers. Our financial system is Wile Coyote who has run off the cliff. Whenever it appears that Wile is about to discover his predicament Helicopter Ben distracts him by throwing bundles of billion dollar bills his way. It seems that the interval between such distraction events is growing shorter, and the size of the cash bundles larger. It doesn't take much of a mathematician to see that this time series will soon diverge. How much longer can Ben keep Wile Coyote from having his moment?