Items of interest:
Wall Street Journal:
Bear Sells for $2 a Share; Fed Cuts Discount Rate -- Bear Stearns Cos. reached an agreement to sell itself to J.P. Morgan Chase & Co., as worries grew that failing to find a buyer for the beleaguered investment bank could cause the crisis of confidence gripping Wall Street to worsen.
The deal calls for J.P. Morgan to pay $2 a share in a stock-swap transaction, with J.P. Morgan Chase exchanging 0.05473 share of its common stock for each Bear Stearns share. 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.
Effective immediately, J.P. Morgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. The deal isn't subject to any conditions, except shareholder approval. It is expected to close before the end of the second quarter. [...]
JPMorgan steals Bear for $2 a share, 99% below its year-ago high -- BusinessWire reports that JPMorgan Chase & Co. (NYSE: JPM) has closed a deal to acquire The Bear Stearns Companies (NYSE: BSC) for $2 a share -- 99% below its all-time high of $167 a share in February. On the face of it, this sounds like a low price -- $236 million. But the Fed is kicking in $30 billion to fund Bear's "less liquid assets." Taking into account the $1 billion value of its headquarters, this deal values Bear at negative $764 million. [...]
Note: The Yankees pay more for A-Rod ($275M) than JP Morgan paid for Bear Stearns ($236M).
Paul Kedrosky / Infectious Greed:
Bear Stearns: $270M. What an Ending. -- Slice the $270m JPMorgan just agreed to pay for Bear Stearns any way you want to and still it's a horrible end for a storied brokerage firm. To end up paying $0.25 on the dollar for the company's $1 in headquarters real estate, in effect, and to do it in equity, no less, is an embarrassment beyond embarrassment for people collectively incapable, at least until now, of being embarrassed. [...]
- JPMorgan to Buy Bear Stearns for $240 Million, a Tenth of Value Last Week - Bloomberg
- Rescue Me: A Fed Bailout Crosses a Line - NYT
- JPMorgan Chase to get $1 billion in additional profit from Bear steal - Blogging Stocks
- Federal Reserve Acts To Avert A Panic - 24/7 Wall Street
- JP Morgan Agrees to Buy Bear Stearns for $2 a Share - CNBC
- Two Dollars/share, or an "Orderly Liquidation"? - Ritholtz / The Big Picture
- Buying Bear's HQ - Ritholtz / The Big Picture
We will never have a perfect model of risk -- The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.
Home price stabilisation will restore much-needed clarity to the marketplace because losses will be realised rather than prospective. The major source of contagion will be removed. Financial institutions will then recapitalise or go out of business. Trust in the solvency of remaining counterparties will be gradually restored and issuance of loans and securities will slowly return to normal. Although inventories of vacant single-family homes – those belonging to builders and investors – have recently peaked, until liquidation of these inventories proceeds in earnest, the level at which home prices will stabilise remains problematic.
The American housing bubble peaked in early 2006, followed by an abrupt and rapid retreat over the past two years. Since summer 2006, hundreds of thousands of homeowners, many forced by foreclosure, have moved out of single-family homes into rental housing, creating an excess of approximately 600,000 vacant, largely investor-owned single-family units for sale. Homebuilders caught by the market’s rapid contraction have involuntarily added an additional 200,000 newly built homes to the “empty-house-for-sale” market. [...]
Paul Kedrosky / Infectious Greed:
Greenspan: It's Richard Thaler's Fault -- In the most bizarre, ill-timed, and poorly considered opinion column I have read in some time, ex- Fed guy Alan Greenspan blames the current meltdown on Richard Thaler. Okay, not Richard Thaler by name, but on behavioral economics, the en vogue body of work that shows how humans don't conform very well to rational economic models -- and doubly so when you most want them to. [...]
Greenspan lectures us again - Paul Krugman
- Debt Reckoning: U.S. Receives a Margin Call - WSJ
- The Greatest Speculation In The History Of Housing - Housing Bubble blog
- Goldman Sachs to reveal $3bn hit - Telegraph / UK