Market insanity continues. Bear Stearns to sell to JP Morgan. If they can.

(Breaking!!! – promoted by ek hornbeck)

This is so important for all of us to digest right now.

A major financial player in the United States, whom about one week ago trotted their CEO out to tell everyone that their business was solid, only to have the bottom drop out on their stock prices due to the reality of their financial problems coming to the forefront last Wednesday.

From the Wall Street Journal, today:

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 in New York Stock Exchange composite trading 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. While J.P. Morgan is eager to snap up some of Bear Stearns assets — such as its prime brokerage business that caters to hedge funds — 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.

Please note that J.P. Morgan wants “pieces” of the company, but not all of the positions that Bear Stearns is involved in is attractive to them.  

That is corporate talk for “We might buy them if the US government makes the deal sweet enough for us.  If not, oh well.  The stockholders of Bear will lose their asses, but our stockholders will get a boost.  Hurray, BushCo!”

A price substantially below Friday’s close could value Bear at just a tiny fraction of the market cap reached at its all-time peak in early 2007. 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.

Yep.  Exactly.

In an interview with George Stephanopoulos on ABC’s “This Week,” Treasury Secretary Henry Paulson said he has been following the negotiations closely but couldn’t predict if Bear Stearns would find a buyer. “I’ve been on the phone for a couple of days straight, throughout the weekend,” he said. “But people are going to need to look and see what — and I’m not going to project right now what that outcome of that situation is.”

On several occasions over the weekend, Mr. Paulson spoke about the Bear negotiations with Federal Reserve Board Chairman Ben Bernanke and New York Fed Bank President Timothy Geithner.

Bottom line here?  The meltdown that the administration has been trying their damnedest to keep from the US population has just announced itself.  

On a lighter note, tomorrow is St. Patricks day.  Enjoy the green, and move any green you have out of stocks and into government insured bonds or the commodities of your choice.  

Just my $0.02.  Because I care.


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  1. This is big.

    None of the cable networks has it yet.

    Kudos for your scoop!

  2. Bottom line here?  The meltdown that the administration has been trying their damnedest to keep from the US population has just announced itself.

    Shrubbo was hoping the economy wouldn’t implode until 2/2009, IMHO.  Oops!

  3. (1) I have gone from shock to anger that censorship is preventing this story from being on cable news and have written to all the majors saying so. I suggest more do the same.

    (2) I read your essay so forgive me if I missed it, but one big piece is that Paulson is desperately trying to get Saudi Arabia and China in the deal. The implications of that blow my mind.

    (3) The leading candiddates must start talking about this now. No one in this country = save us few – is prepared for what is coming and hence will not be prepared and that is pure evil.

    I have read anough to know that we are looking at a market crash. Not as severe as 1929 – but worse than the ensuing others combined. That is fact. Also fact = it will be this year.

    • nocatz on March 17, 2008 at 12:57 am

    buddies at Goldman-Sachs buy it up?   I remember this mishima had in Nov.   (I only notice these things because Paulson was C. of the B. of a non-profit I used to work for)

  4. Have you seen the “Is it Black Monday” graphic in my Apocalyptic Horses are Frisky post.

  5.  March 16 (Bloomberg) — Goldman Sachs Group Inc. will announce asset writedowns of about $3 billion this week, partly based on the declining value of its stake in Industrial & Commercial Bank of China Ltd., the Sunday Telegraph said, without citing anyone.

    The investment bank may report a decline in first-quarter earnings of about 50 percent, the newspaper said.

    Goldman will write down about $1.6 billion from its leveraged loans business and a further $1.1 billion from assets owned by the bank’s private equity arm, the Sunday Telegraph said.

    I see 3 plus 1.6 plus 1.1 equals 5.7 – billion

    that is a shitload

  6. The deal values Bear Stearns at $236 million, or just $2 a share – shares had closed at $30 on Friday, down 47% that day.

    imagine going from 30 to 2 dollars in 48 hours. that’s what a crash looks like

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