Tuesday, March 18, 2008
All the news is about JP Morgan Chase's steal of a deal for Bear Stearns, so just peruse your favorite news source. Both the NY Times and the Wall St. Journal give riveting accounts of how the deal came together over the weekend. Some interesting facts about the deal: Morgan originally offered a price in the low double digits, but the price dropped as Morgan looked at Bear's books and it became clear that the Fed wanted this deal. If the deal does not go through, Morgan has an option to buy Bear Stearns headquarters in Manhattan and an option to buy nearly 20% of Bear Stearns stock at $2. It is not clear what would happen to Morgan's managerial oversight and the Fed guarantees if the Bear shareholders vote down the deal. The Morgan CEO James Dimon emerges as the big winner, and no one is saying what happens to Bear CEO Alan Schwartz. Bear employees emerge as the big losers, as Bear encouraged all its employees to invest in its stock; one-third of it is owned by employees.
Conspiracy theorists wonder about the role of short sellers in bringing about the demise of Bear Stearns. More generally, there is criticism about why the government is rushing to bail out Wall St. and not helping homeowners who lose their homes to foreclosure. And finally, everyone is wondering whether Lehman is next. That firm has gone on an offensive to assure the market that its financial health is just fine.
For some of the coverage, see NYTimes, Aftershocks of a Collapse, With a Bank at the Epicenter and At Lehman, Allaying Fears About Being the Next to Fall; WSJ, The Week That Shook Wall Street:
Inside the Demise of Bear Stearns and Lehman Finds Itself In Center of a Storm.