Here's an interesting aspect of the deal that I hadn't read before. From the Wall Stree Journal: "In addition to its option to purchase Bear's headquarters building, J.P. Morgan has the option to purchase just under 20% of Bear Stearns's shares at a price of $2 each. That feature gives J.P. Morgan an ability to largely block a rival offer, says a person with knowledge of the contract." http://online.wsj.com/article/SB120580966534444395.html?mod=hps_us_whats_news
In a couple of weeks Bear will be able to tap the Fed funds directly. Until then they will be protected by JPM/Fed. By the time shareholders vote for the takeover, in a couple of months time, BSC will be in a stable situation and the takeober will be rejected. The Fed via JPM have intervened into a business that should have gone bust yesterday.
Cutten: JPM "Manipulated" the FED ? As I understand it........ It was JPM / Chase (Rockerfeller)....on this side.... and Warburg / Rothschild on the European side.... that created the FED in 1913 - in the first place. To me, it seems like just ONE Hydra-Headed Monster. Gobbling - Gobbling. .
The reason I have heard that JP Morgan Chase "had" to do the deal with BSC is that BSC and JP Morgan are massive derivatives players. And if BSC went under then this would have had caused a collapse in JP also or at least massive write downs. The derivatives time bomb will implode in 3-6months. The real value of these level 3 assets also has been discovered yet. This situation didnt form in a few months and it wont be cleared in 6 months. Especially when the FED is pumping the bubble up artificially.
Cutten you really haven't thought this through. There are holes in your logic big enough to drive a truck through. 1) Bear Stearns is worth more today BECAUSE it was rescued by JPM. On Sunday, Bear Stearns was worth $0 or $2. Do you think the people bidding on BSC today would have dreamed of making a bid for the whole company on Sunday? No way... many bidders were approached and walked away from the deal. The Fed wanted an auction and couldn't put one together because there was only one bid. Today BSC is worth a lot more because it is no longer bankrupt, it has the full faith and credit of JPM and the Fed behind it, and no longer facing a bank run. It's idiotic to look at the value today and say the Fed did the wrong thing on Sunday. 2) Even if you assume that it is impossible for a 3rd party to bid on BSC, there are still at least two parties with a strong vested interest in bidding this well above $2. Existing shareholders may wish to put together a voting block and threaten JPM with turning down the deal unless they sweeten their bid. Blackmail, essentially. They may be hoping it is worth a billion or two to JPM to shorten the fight. On the other hand, bondholders have a strong incentive to get the deal signed & sealed as soon as possible. They are getting the right pot odds to bid well over $2 even if they expect to write off the spread. Hell, even JPM itself has a rationale to buy stock on the open market to avert a possible no vote on their offer. Remember they already have an option for 20% of Bear at $2, it may be cheaper for them to buy another 30% on the open market than to raise their offer for the whole company. Disclosure: I'm short BSC at $7. Martin