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J.P. Morgan Chase agreed to buy Bear Stearns for $2 a share in a stock-swap transaction, people familiar with the matter say. J.P. Morgan will exchange 0.05473 shares of its common stock per one share of Bear Stearns stock. Both boards have approved the transaction.
Seems like they got a bit too "creative" for their own good
stock chart [finance.yahoo.com...]
"Bear Stearns Cos., the fifth-largest U.S. securities firm, is hawking the riskiest portions of collateralized debt obligations to public pension funds."...At a recent presentation to pension managers, a Bear Stearns shill described the bottom rung of the CDO ladder as follows: "It has a very high cash yield to it. . . . I think a lot of people are confused about what this product is and how it works.''
I'm sure that's the case, but not in the way the Bear Stearns marketer meant it.
At the presentation, she likened CDOs to financial institutions in terms of having strict oversight: "The outside agencies that oversee these structures are the rating agencies,'' she said.
However, her comment drew the following from Gloria Aviotti, managing director of global structured finance for rating service Fitch: "It's not accurate. We don't provide any oversight.'' That view was echoed by Yuri Yoshizawa, group managing director of structured finance at another rating service, Moody's Investors Service: "It's a common misperception," he said. "All we're providing is a credit assessment and comments.''
Both companies' boards have approved the transaction, which values Bear Stearns at just $236 million based on the number of shares outstanding as of Feb. 16. At Friday's close, Bear Stearns's stock-market value was about $3.54 billion. It finished at $30 a share in 4 p.m. New York Stock Exchange composite trading Friday.
very interesting reading:
Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see market speculation engaged in by banks during the 1920s as a cause of the crash.
In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors.
The new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC), insuring bank deposits, and strengthens the Federal Reserve's control over credit.
It's amazing how many of the safeguards put in place to prevent this type of thing were lobbied away and the type of sitatuation they were enaced to prevent is exactly what is happening now.
Time for some big changes in the US.
We now live in an economy where if a large company announces it will be making 30,000 people redundant their stock price goes up. People (apart from the 30,000 and their families etc) rejoice.
Wasn't it Ford that decided to pay workers that little extra so they could all hopefully buy the products they were making and have better job satisfaction which in turn leads to better service and product?
Of course it has always been like that to some extent but it is happening with a lot more frequency.
I realise this is not directly related to Bear Sterns, but it is as it has everything to do with questionable economic practices.
[edited by: Visit_Thailand at 9:54 am (utc) on Mar. 17, 2008]
They say it's the worst since 1920's, and with BSC worth $2, investors got to wonder, what their broker /investment house is worth. BSC reportedly fell in 24 hours so who's next. Some other "good" stocks are going down as banks sell collateral indiscriminately.
What explains the current $3.70 trading price? Are investors expecting a counter-offer?
Yeah, investors coming in hoping that another offer will come in and many existing owners hoping the same so they didn't sell. Reality check in order though, I seriously doubt they will get more, it's $2 from JP, take it and forget about it. Want to sue in court...class action? Good luck with that, retail investors are at the very end of the line and there will not be anything left by the time their number comes up.
Why is Bear Stearns (BSC) up nearly 70% Tuesday, to a price about $6 a share above its $2-a-share buyout agreement with JPMorgan Chase (JPM)? Two groups are piling into the company’s stock so they can vote in favor of the deal, a trading source tells Fortune’s Roddy Boyd.
The first group is the hedge funds that were selling so-called credit default swaps that protect the purchaser against a possible bankruptcy at Bear Stearns. Spreads on Bear Stearns CDS soared to 1,000 basis points Friday - meaning it cost $1 million to insure against a default of $10 million face value of bonds. Those spreads have since narrowed to around 350 basis points, or $350,000 per $10 million in insurance, in light of the prospect that JPMorgan Chase will take over Bear’s obligations. So a seller of a Bear Stearns credit default swap on Friday, having taken in $1 million in premium, can now turn around and protect himself against a default in Bear Stearns for $350,000. That translates into a $650,000 gain -and the potential profit stands to get bigger as the close of the transaction approaches and Bear spreads move more in line with JPMorgan’s, which are around 115. Those dynamics give hedge funds a big incentive to make sure the deal goes through.
Beyond the credit default swap trade, there’s another group interested in making sure JPMorgan winds up owning Bear Stearns. Holders of Bear Stearns debt want the deal to go through so they won’t end up fighting with other creditors in bankruptcy court over the remains of the firm - the likely outcome if Bear shareholders turn the deal down. And Bear Stearns bonds that recently traded as low as 80 cents on the dollar could soon be worth 100 cents if JPMorgan goes through with its purchase.
Retail investors be aware. Many things we do not understand.