Deal of the century?
I can’t believe JPMorgan just bought Bear Stearns for $2/share. The stock was closed at $30/share on Friday! Apparently, Bear Stearns’s skyscraper alone is worth $1 billion, and JPMorgan just scooped the company up for $250 million, or 2.5% of book value.
Now granted, it’s possible that Bear’s non-skyscraper assets are worth less than zero to JPMorgan once you allow Bear’s creditors to reach into JPMorgan’s pockets (rather than being stopped by Bear declaring bankruptcy). Nonetheless, I think there’s a very good chance that JPMorgan is going to make an absolute killing on this deal.
I also see this deal as a win for Bernanke. First, he prevented Bear from collapsing. Second, he basically wiped out Bear’s shareholders, thus mitigating the moral hazard concern. Bear’s creditors got bailed out, but the equityholders still bore almost the full consequences of the risk their firm took.
Finally, how much can it suck right now to be a Bear employee? A lot of Bear employees must have had most of their net worth tied up in Bear stock, since they owned like a third of the company collectively. On March 3, their stock was worth $80. Today, it’s worth $2. The lesson, as always: don’t hold your own company’s stock unless you’re a top executive who has to in order to align incentives.
Absolutely incredible what is happening. Didn’t JPMorgan also get the Fed to carry a lot of the risk too? I wonder if this deal can actually get approved. Shareholders will be really pissed:
From the WSJ:
‘Late yesterday, some Bear Stearns employees and shareholders were grumbling about the deal. If the feeling is widespread it could emerge as a potential obstacle to the completion of the deal because Bear Stearns employees own about a third of the company’s shares.
“I’ve got to think we can get more in a liquidation, I’m not selling my shares, this price is dramatically less than the book value Alan Schwartz told us the company is worth,” said a midlevel Bear Stearns executive. “The building is worth $8 a share.”‘