How Do You Inadvertently Include A Provision Everyone Is Talking About?

Posted by ab, Mar 24, 2008 9:26AM

I asked before, but maybe a someone more familiar with the legal side can answer. If BSC shareholders don't approve the deal, does JPM actually have a legal obligation to finance the positions? Without a contract signed, couldn't they just walk away, despite what they said? Or is the deal with the BSC board binding (regardless of shareholder approval)?

Posted by guest, Mar 24, 2008 9:34AM

I wouldnt let any of these Bear retards manage the money my kids made on their lemonade stand. Most of them are cut from the Gasparino cloth to say the least. I have been on their trading floor, its a friggin joke. Id let Sykes manage dollars for me before these tools

Posted by guest, Mar 24, 2008 9:36AM

No, JPM can walk away.

Posted by guest, Mar 24, 2008 9:41AM

@ab,

It is possible that JPM would actually have that obligation, assuming that it was provided for in the merger agreement. There are a number of provisions in most merger agreements that are binding from the point the deal is signed (operating the target in good faith in the interim, limiting or eliminating dividends, etc), so this would be an unusual one, but still legally possible as far as I can tell.

Posted by Random Banker, Mar 24, 2008 9:45AM

I quote myself from the night of the call announcing this deal:

"Also there is NO WAY Bear Shareholders should approve this. JPM just wrote them a 12 month unlimited line of credit. Fucking get out there and turn around the fucking business BSC, the dumbasses at JPM just gave you the keys to the castle."

AND

" JPM clearly stated they will guarantee all contracts currently entered into and all future contracts for the next 12 months whether the deal is approved or not.. in the event that the deal is not approved it must be resubmitted to Bear Shareholders for the next 12 months....

So Bear does have access to JPM's balance sheet since JPM has to guarantee every contract they enter into.

I mean you could if I were Eddie Lampert or Warren Buffet I would organize a share holder's revolt. There is a great opportunity here for an insurrection at the expense of the Fed and JPM"

http://dealbreaker.com/2008/03/liveblogging_the_jp_morgan_cha.php

Posted by AJ, Mar 24, 2008 9:58AM

Official..

Posted by BruceWayne, Mar 24, 2008 9:59AM

@RandomBanker agreed. Only I think the Fed is making up new rules on the fly. It is almost as if they have decided that Bear will belong to JPM so help them G-d.

You mention Buffet and Lampert. What about that gerbil at Citadel or even Kravis?

On a different note, does anyone know what kind of heat Jimmy's bodyguard is packing?

Posted by Jesse Livermore, Mar 24, 2008 10:02AM

How can this be? All of the geniuses involved in this cluster fuck are from good families and went to the best schools.

"Jamie Dimon is reportedly 'apoplectic' "

This is more fun to watch than The View!

Jesse

Posted by guest, Mar 24, 2008 10:03AM

This whole thing is pretty stupid. Everyone now knows that Bear had enough liquidity to operate even after last Monday; it's just all the hedge funds and propr traders simply made an irrational run on the bank based on market speculation. As long as Bear could retain its customers, the company is worth probabaly half book, even with massive mortgage writedowns.

Posted by ab, Mar 24, 2008 10:15AM

"Everyone now knows that Bear had enough liquidity to operate even after last Monday"

After last Monday Bear had an unlimited LOC from JPM, so yeah, everyone knew they could operate at that point. BSC retaining its customers was a big if before that point.

Posted by guest, Mar 24, 2008 10:26AM

Has anyone published an actual valuation of BSC recently? Take book value, do a worse case scenario write down analysis, add in the real estate, and figure out what the actual value is on a per share basis? It's probably in the 40s on a worst case basis.

Posted by guest, Mar 24, 2008 10:30AM

@10:26 You're proposing a rational analysis, but the firm is really worth nothing if there's a run on it in the current environment where liquidity is at a premium.

Posted by guest, Mar 24, 2008 10:35AM

Its odd that anyone would be saying it is inadvertant, I assumed at the time it was there in case there was some delay to closing but in retrospect putting a year on that is a big mess

Posted by guest, Mar 24, 2008 10:37AM

Wall Street Firms Cut 34,000 Jobs, Most Since 2001 Dot-Com Bust

By Yalman Onaran

March 24 (Bloomberg) -- Wall Street banks hit by mortgage losses and writedowns have cut more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001.

Citigroup Inc., Lehman Brothers Holdings Inc. and Morgan Stanley are among the firms that have disclosed headcount reductions so far. After the Internet bubble burst, 39,800 jobs were eliminated during the same period; the number climbed to 90,000 in the next two years, according to the Securities Industry and Financial Markets Association.

The collapse of the subprime mortgage market last year and the ensuing credit contraction have saddled the world's largest financial institutions with at least $200 billion of writedowns and losses. Bear Stearns Cos., once the fifth-biggest U.S. securities firm, became the emblem of panic on Wall Street two weeks ago, when it was forced to submit to an emergency takeover backed by the Federal Reserve as clients and lenders deserted the company. More bank losses are likely, according to analysts.

``This crisis is much worse than 2001 and we don't know how long it's going to last,'' said Jo Bennett, a partner at executive search firm Battalia Winston International in New York. Job cuts ``could be more than 100,000 in a few years.''

Securities firms started eliminating positions in mortgage departments as early as last July, when rising delinquencies on home loans to borrowers with poor credit histories led to a decline in the prices of bonds tied to the loans. Between July and December, almost 17,000 jobs were lost, according to data compiled by Bloomberg.

Shuttered Lenders

Lehman's home-loan unit, BNC Mortgage LLC, employed 1,600 people before the firm closed it down in August. Mortgage lender First Franklin Financial had 2,300 employees when it was acquired by Merrill Lynch & Co. in January 2007. Merrill shuttered the business this month. All told, at least 100 mortgage companies have suspended operations, closed or been sold since the start of 2007.

This year, banks including Lehman, Citigroup and Morgan Stanley have been winnowing out employees in fixed income trading, securitization, asset management and investment banking. Administrative and technology staff have also been let go. So far, Citigroup has eliminated 1.7 percent of its workforce, while Lehman has chopped 18 percent. Morgan Stanley has cut 6.2 percent, and Merrill has eliminated 4.5 percent.

The bursting of what Glenn Reynolds of CreditSights Inc. has called the ``securitization bubble'' is affecting other industries. Lawyers who helped create mortgage-backed bonds, realtors who sold more houses as home ownership in the U.S. rose and mortgage brokers who found new customers as lending standards were relaxed are now looking for work, according to Jeanne Branthover, a managing director at Boyden Global Executive Search in New York.

Black Cars

``This is filtering down to the vendor,'' Branthover said. ``The firms Wall Street was using are also feeling the pain.''

Even the black cars that shuttle bankers and traders home from their Manhattan offices are seeing demand for their services dwindle, and the firms may have to fire some drivers, said Battalia Winston's Bennett.

Bear Stearns, once the biggest U.S. underwriter of mortgage securities, agreed to be acquired by JPMorgan Chase & Co. on March 16 after a run on the securities firm left it facing potential bankruptcy. While JPMorgan hasn't said how many Bear Stearns employees may lose their jobs, half of the 14,000 people at the company may be let go, estimates Boyden's Branthover. The two firms have overlapping businesses and JPMorgan, the third-largest U.S. bank by assets, may shut down some Bear Stearns units, she said.

Fed Action

Revenue for Wall Street brokers may decline as much as 30 percent this year, Standard & Poor's said March 21, when it cut the outlook for credit ratings at Lehman and Goldman Sachs Group Inc., the biggest U.S. securities firm. While the Federal Reserve's March 16 decision to open a lending facility for brokers may ease cash concerns, ``persisting market turmoil'' may still erode brokers' earnings, S&P said.

Goldman said in January that it may fire 1,500 people to weed out underperformers. On March 18, Chief Financial Officer David Viniar said headcount was unchanged during the first quarter and might grow in the ``low to mid-single digits'' this year, mostly because of hiring outside the U.S.

Some firms haven't fully disclosed their job cuts because they don't want to appear financially weak, according to Battalia Winston's Bennett. ``They're all dribbling people out the door, so the numbers don't show the true extent of the problem yet,'' said Bennett.

Ousted CEOs

Merrill, which didn't announce job reductions last year, said on March 5 that 70 percent of the staff at its First Franklin mortgage unit had been eliminated since July. Merrill is a passive, minority investor in Bloomberg LP, parent of Bloomberg News.

Senior Wall Street executives haven't escaped unscathed. Six chief executive officers, eight presidents or other officers and at least 19 division heads have lost their jobs as a result of the subprime meltdown. Citigroup CEO Charles O. ``Chuck'' Prince, Merrill CEO Stan O'Neal, Bear Stearns CEO James ``Jimmy'' Cayne and UBS AG CEO Peter Wuffli were the highest- ranking casualties.

Compared with the fallout after public markets slammed shut on speculative Internet companies in 2001, more high-level Wall Street executives are losing jobs in the current crisis, according to Gustavo Dolfino, president of New York-based executive search firm Whiterock Group LLC. When the dot-com boom ended, the people who lost jobs were predominantly rank and file, he said.

Human Capital

``Clearly there's a trend to make people pay,'' Dolfino said. ``Firms have also been moving lower-ranked staff from the U.S. to Asia, where they need more hands. Top people don't want to move as easily.''

Boyden's Branthover said she doesn't expect this cycle of job cuts to reach post-2001 levels. One of the lessons the firms learned from that period is that it's costly and difficult to replace human capital lost during times of distress, she said.

``A lot of support staff will be cut because those are easier to replace when the business turns around,'' she said.

The following table shows jobs eliminated by the biggest banks and securities firms since the collapse of the subprime mortgage market in July 2007. The figures are based on company disclosures.

Firm Positions Cut

Citigroup 6,200

Lehman Brothers 4,990

Bank of America 3,650

Morgan Stanley 2,940

Washington Mutual 2,600

Merrill Lynch 2,220

HSBC 1,650

Bear Stearns 1,550

WestLB 1,530

UBS 1,500

Goldman Sachs 1,500*

National City 900

Credit Suisse 820

Royal Bank of Canada 500

Fortis 500

Wells Fargo 500

Wachovia 443

Deutsche Bank 370

JPMorgan Chase 100
_____
TOTAL 34,463

Posted by Anonymous, Mar 24, 2008 10:45AM

Legal Eagle Carney....

How in the world could this be enforced? Isn't their some requirement for 'consideration' for a contract to be binding (from my bus law 101 class I took in 1945)?

Posted by Investorcluzo, Mar 24, 2008 10:57AM

appreciate the Bloomberg story, but a simple link would suffice.

now for the topic at hand - as long as we are quoting ourselves, please see the same link our dear friend @random banker notes where I mused: “…interesting to note that there is no collar”. do we know if a collar was put on this most recent merger “agreement”? it appears some people believe $10 is not going to hold with BSc up 13% above the “new deal” price. this is clearly a $hit show and further proves the point that you can make money if you don’t lose your mind when everyone else is losing theirs…btw, where is chucky g, on assignment out in queens?

Posted by guest, Mar 24, 2008 11:07AM

Among other things, isn't there pretty big consideration with the right to purchase the office building?

Posted by Random Banker, Mar 24, 2008 11:10AM

@ic:

There's no way this new price holds either. Now that the "mistake" has been openly admitted too by JPM no BSC share holder in their right mind would agree to this price either. I'm a big believer in conspiracy theories.... as I said to AJ on the night of the call... Could this all be a cleverly orchestrated plan to step in and save BSC and allow them to back out of the JPM deal once (now that) their liquidity issues have been resolved. Last issue is to get that credit rating back up....

I just don't believe Jamie is this careless. This smacks of a non-bail out, bail out

Posted by guest, Mar 24, 2008 11:19AM

This is what goes on at a wake.

Posted by Anonymous, Mar 24, 2008 11:30AM

11:07. They don't get that option if the deal is rejected.

Posted by guest, Mar 24, 2008 11:45AM

Go on stick a $10 bill on the front door to BSC, quick.

Posted by guest, Mar 24, 2008 11:48AM

Still waiting for BSC to report 'earnings' ...

Posted by guest, Mar 24, 2008 11:54AM

they will report with JPM, let's act like we've been there before

Posted by guest, Mar 24, 2008 11:57AM

i wouldn't get hung up on consideration. thre's usually boilerplate in most sophisticated agreements to the extent that "good and valuable consideration" has changed hands and courts tend to take that at face value. as for the obligation to guarantee BSC's positions, if the agreeement states it survives any vote, then it does. maybe the issue is not that the provision exists (since its existence was disclosed and debated on the call), but how it's drafted. you can imagine sloppy language that could be read to make JPM a guarantor even if, say, BSC is acquired by someone else.

Posted by guest, Mar 24, 2008 12:06PM

..is BSC, JPM's Vietnam?

Posted by guest, Mar 24, 2008 12:13PM

It is certainly embarassing, but less directly harmful to all but reputation. Maybe more like JPM's Bay of Pigs?

Posted by guest, Mar 24, 2008 12:25PM

Hey where's that S&C lawyer who was so happy to be working on this deal the night it was disclosed? I hope it wasn't you that screwed up the version control on final drafts!

Posted by guest, Mar 24, 2008 12:35PM

re consideration: consideration is generally defined as as a right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, or loss or responsibility given, suffered, or undertaken by the other. both sides of a contract must receive some consideration for the deal to be enforceable. just taking a cursory glance at the agreement, bear receives consideration in that jp morgan agrees to guarantee its liabilities. jp morgan receives consideration in the form of the option to purchase bear's building, the right to a shareholder vote on their proposal, etc. while there are certainly other forms of consideration each side will receive, all it takes is some form of consideration to create an enforceable contract.

Posted by guest, Mar 24, 2008 1:06PM

These guys got the heave ho when Salomon Bros screwed up and now they give away JPM's store. Bye bye Wachtell Lipton Rosen & Katz.

Posted by Investorcluzo, Mar 24, 2008 1:11PM

@RB: I hope you're right on JD. it would seem pretty careless to have something like this happen.

on the conspiracy theory, you may be right. although, I’m not sure they really want to get out of the deal. I get the sense that there is a bit of a smokescreen related to the as yet to be released earnings (t + 1 week...and counting). could it be that the additional $930 million added to the purchase price is equal to the earnings (pre-write downs) BSc was expected to report? talk about cussin’ mad, if I were a shareholder (full disclosure – I’m not), I’d find it hard to swallow that a company earning $1 bn in a quarter is effectively bankrupt. is jd slicker than he wants us to believe? just askin'.

Posted by guest, Mar 24, 2008 1:13PM

S&C Hater-S&C was on the Bear side of the table.

Posted by Random Banker, Mar 24, 2008 1:22PM

@IC

as they taught us in ibanking 101, earnings are not cash flow. We all know that a company can lose $1bn and not be bankrupt and certainly it could earn $1bn and be bankrupt. Especially when levered 30x

Posted by Anal_yst, Mar 24, 2008 1:32PM

I thought we were relatively clear (i.e. not at all) on the fact that the building is not what it seems, that is, it appears to be a synthetic lease with ABN AMRO (RBS, whatever), the structure, and value of which is completely unbeknownst to any of us without seeing the lease agreement, etc. If only it were so simple as "Yes, Bear owns their building"...

Posted by Investorcluzo, Mar 24, 2008 1:46PM

@rb: I agree with you – note I said “pre-write downs”. I covered financials. the earnings are what the management says they are, until proven otherwise. take a look at insurance companies, the entire balance sheet is cash/investments. earnings ebb and flow based on positive/adverse “development” – ie. management huddles up and determines that “we won’t make our earnings unless we release some reserves” (alternatively, “we don’t want to make too much this qtr, so we’ll sock some away for a rainy day when business isn’t so good”). that said, the unwashed masses known as the john q. investing public doesn’t understand this. thus, you have to make it simple for them. it’s all about optics and perception/reality, which is how we got here in the first place.

Posted by guest, Mar 24, 2008 1:52PM

Maybe BofA got the synthetic lease via LaSalle. Perhaps that is why they are writing down so much more stuff.

Posted by guest, Mar 25, 2008 2:03PM

BTW, I wasn't hating on S&C. I was in earnest. Didn't know who played for which team.