J.P Morgan to Buy Bear Stearns, Government to Help
by D. Cupples | For fiscal year 2007, according to Forbes, Bear Stearns CEO Alan Schwartz's compensation package exceeded $88 million (nearly $36 million was in cash), despite the firm's highly questionable health.
Yesterday, Bear Stearns agreed to sell itself to JP Morgan for a mere $236 million (about $2 per share) -- and the Federal Reserve will help with financing. This is most unfortunate for the shareholders, especially given that a crop of executives have likely taken hundreds of millions of shareholder dollars over the last few years. The New York Times reports:
"Bear Stearns, pushed to the brink of bankruptcy by what amounted to a run on the bank, agreed late Sunday to sell itself to JPMorgan Chase for a mere $2 a share, narrowly averting a collapse that threatened to cascade through the financial system.
"The price represents a startling 93 percent discount to Bear Stearns’ closing stock price on Friday on the New York Stock Exchange.
"Bankers and policy makers raced to complete the deal before financial markets in Asia opened on Monday, as fears grew that the financial panic could spread if Bear Stearns failed to find a buyer.
"The deal, done at the behest of the Federal Reserve and the Treasury Department, punctuates the stunning downfall of one of Wall Street’s biggest and most storied firms. Bear Stearns weathered the vagaries of the markets for 85 years, surviving the Depression and a dozen recessions only to meet its end in the rapidly unfolding credit crisis now afflicting the American economy.
"Reflecting Bear Stearns’s dire straits, JPMorgan agreed to pay just $236 million for the firm, a figure that includes the price of Bear’s soaring headquarters on Madison Avenue in Manhattan. At $2 a share, JPMorgan is buying Bear Stearns for a third of the price at which the troubled firm went public in 1985. Only a year ago, Bear’s shares fetched $170. The cut-rate price reflects deep misgivings about the firm’s prospects." (NY Times)
Obsidian Wings gives some context:
"Bear Stearns' stock was selling at $30 at the close of business on Friday. That was a lot lower than the nearly $80/share at the beginning of this month, but a lot more than the $2/share that JPMorgan is paying. Bear Stearns' office building is valued at $1.2billion, or just over five times what Morgan will pay for the company in its entirety."
I haven't been following this mess, but I'd be willing to bet that Bear Stearns' troubles are in some way related to the sub-prime mortgage crisis and fraud. It's just a guess.
If that's the case, then it likely could have been prevented by reasonable government regulation -- something that the Bush Administration and most Wall Street players seem highly allergic to.
But when times are tough, those "free market" Wall Street Players certainly do like to have the federal government swoop in and hand out cash.
Fortunately, Congressman Waxman and his Oversight Committee are already poking around the sub-prime mess (although some Republicans on the committee don't want a probe).
Memeorandum has commentary.
Recent BN-Politics Posts:
* It's Not a Recession Till they Announce It
* CEOs Laugh All the Way to Bank Despite Subprime Crisis
* U.S. Lost 63,000 Jobs in February
* Housing Crisis: Prices are Dropping and Should Drop
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