Ding dong the Bear is dead
Well this is hardly unexpected, but the price is eye-popping and the precedents continue to fall as the WSJ reports . . .
Bear Stearns had a stock-market value of about $3.5 billion as of Friday — and was worth $20 billion in January 2007. But the crisis of confidence that swept the firm and fueled a customer exodus in recent days left Bear Stearns with a horrible choice: sell the firm — at any price — to a big bank willing to assume its trading obligations or file for bankruptcy.
$2 a share? Obviously people are more than afraid . . .
Perhaps as eye-popping is the news that securities firms will now be able to salve their liquidity woes at the public infirmary.
Simultaneously with the announcement of Bear Stearns’s sale, the Fed took the extraordinary measure of allowing securities firms to borrow from the central bank under terms normally reserved for regulated banks. People close to Bear Stearns were bitter about the move, saying that had the Fed acted earlier, the firm could potentially have survived by borrowing directly from the Fed and using its troubled securities as collateral.
Predictably, Bear shareholders are pissed beyond belief, wondering why $2 is better and a bankruptcy proceeding, but it’s not hard to guess what really happened here.
The deal already is prompting howls of protest from Bear Stearns shareholders, since the New York company last week indicated that its book value was still close to its reported level of about $84 share at the end of the fiscal year. “Why is this better for shareholders of Bear Stearns than a Chapter 11 filing?” one Bear shareholder asked J.P. Morgan executives in a conference call last night.
The Bear board wasn’t given a choice. This is the price for years of misbehavior, and shareholders who went along for the ride, were taken for one.
Tags: BearStearns, JPMorgan Chase, Federal Reserve, Robert Rubin, Decision Making, Decision Quality