8:00. Phone lines are busy but the audio webcast is working. The slide presentation is very short. Obviously they didn’t have a long time to put this together.
8:05. Details follow what has been reported. All stock deal.
8:09. No MAC clause in purchase agreement. Guess its hard to imagine what could possibly be a MAC for Bear Stearns. Could things get any worse? JP Morgan has protections against other bidders but, they needlessly stressed, they don’t expect competing buyers to enter the scene. No kidding.
8:10. JP Morgan putting a guarantee over Bear Stearns trading positions. Meant to reassure counter-parties. Stop the blood loss.
8:17 It sounds like the prime brokerage, fixed income and energy trading.
8:19. Short presentation. Blogging the question period after the jump.
8:18. First question: Is Bear Stearns still in business. “Bear Stearns is aboslutely open for business, that’s the purpose of the guarantee we put in place,” JP Morgan spokesperson says.
8:19. What happens to the guarantee if shareholders don’t approve the transaction? The guarantee covers all transactions currently in place and all those put in place in the future. Even if the transaction does not close, guarantee will apply to every transaction put in place up through the rejection by JP Morgan shareholders. It applies through the life of transactions, JP Morgan says.
8:24. Good question about how to reconcile the alleged $80 per share book value and todays $2 per share price. JP Morgan doesn’t say it directly, but Bear’s liabilities must be severe. Somewhere Meredith Whitney is smiling.
8:27. JP Morgan says it didn’t find any serious risk management problems. Describes Bear Stearns as a well-run company.
8:29. People are trying to get to details of this guarantee. Covers all trades on the books, all trades that could get put on the books from now until the deal falls apart (assuming it does), and then stays in place over twelve months.
8:31. Individual shareholder is disgruntled. You can almost see the thought bubbles: “Who let this guy on the call?” He asks about Bear Stearns and is told, “You’ll have to ask Bear that question.” Shareholder fires back: “I vote not to approve this sale.” Awkward silence. “Next question!”
8:32.
Credit Suisse analyst asks about what’s left of prime brokerage business after counter-parties ran for exits. JP Morgan says its too early to get into details but they are confident about health of franchise. Uh-oh.
8:35. Bear Stearns does own it’s building, which means JP Morgan is getting a huge piece of midtown real-estate as part of the deal. By our math (which is shaky even when we haven’t been drinking all day), that means either the building or the business is worth something like negative $400 million.
8:36. And that’s all folks. Done and done.
First Bitches!
So Bear’s counterparties are guaranteed, but not its senior debt holders?
Which category do money-market funds holding Bear CP fall into?
JP Morgan rules NYC! No kidding
The run on Citi and @#$%man Sucks just started
Could this be a way for Bear to stabilize its business in the immediate term, so that it can solicit higher bids?
This is insane, their HQ building is worth 4 times what JPM is paying for the entire company.
still no explanation of the massive difference between reported book of $80 and transaction of $2 unless i’m missing something…
Why would shareholders ever approve this deal?
dude these guys are not backing any securities…this is just to shore up bears fledgling business!
OMG they let an individual investor ask a question?!?! They never do that.
donkey on phone – “i vote not to approve the sale”
JPM – “ok, next question”
the individual investor = amazing
someone needs to screen these calls
that was hilarious
The Bear shareholders should reject the deal and use 12 month of JPM guarantee to get the business back on its feet. Also did anyone hear the “individual investor” on this call. Hilarious. They need to hold more open calls like this.
Jimmy Cayne, I hope you die of cancer.
HAHA who is this individual investor??
“well I uh, vote not to approve the sale….”
The better part with the individual was the JPM guy saying “You’d have to ask Bear Stearns that.” That’s what you call a bitchslap.
Unless Bear’s balance sheet is actually made up of a billion “powerball” lottery tickets, the $2 per share is bizarre. What happens to JPM’s stock tomorrow?
carney, let us handle this and just add to the comments buddy
hastily throw together conference call unsurprisingly results crappy conference call…surprised they got a few legit analysts on the phone amidst some jokers (e.g. outstanding ‘individual investor’ haha)
On the discrepancy between $2 and $80: “It’s an art, not a science, and can’t be reconciled penny for penny.” BWAHAHA
omg i cant believe that chick just asked if they owned the building
“This is insane, their HQ building is worth 4 times what JPM is paying for the entire company.”
You clearly have no understanding of a balance sheet.
Balance sheets have liabilities as well as assets.
Hah! The building question! Love it
CS research headline: JPM values Bear Stearns business at negative $750 million
I didn’t catch the name of the last caller, butt assuming she’s an analyst @ Credit Suisse, shouldn’t she know that BS owns 383 madison…
How much of bear’s workforce will be cut? What will happen to 1st year analysts coming in?
So the answer to “Why only 2$ per share?” as I understood it was because BSC would have been wiped out without a buyout and so JPM could name any price above 0$ that they wished. Is that correct? Is it safe to assume that nobody else gave a qualified offer of 1$ per share and got outbid?
8:37 – they’re fucked. They’re all fucked.
its not like there was a bidding war. the fed prob said “listen JPM you need to buy this” and they offered $2. pretty good luck for JPM. they get whatever they need from BSC and trash the rest.
lol who was the clown on the call with first question from some marketing firm…? Did anyone else hear that? He asked if Bear would still be buying office supplies or something…
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.
JP Morgan king of New York
Short GS buy JPM
RB – Dimon’s not an idiot… And actually, I wonder how much he cares since the Fed’s backstopping everything
I think the first guy from the marketing firm was asking if bear would still be open for business, if they’d still be buying and selling bonds. Which isn’t really the worst question to ask of Bear.
uhm, manhattan real estate is toast. real estate is priced at the margins. and the many of the players at the margins that have pushed things up over the past few years — the hedge funds, the investment banks, etc. — are now toast.
AJ:
I know he’s no idiot. Though I doubt the Fed would have let him walk away. However their back stone is only $30bn. I doubt Dimon cares much either. But if I were a Bear shareholder I would just use the 12 months of access to JPM’s balance sheet to sure up my own operations. The Bank run has been averted. JPM is no longer needed.
8:47. Jamie Dimon enters 383 Madison for a glass of Champagne
bold comments ENGAGE!
RB: How do you equate “JPM guarantee” with “access to JPM’s balance sheet”? The JPM guarantee doesn’t count for shit if counterparties and clients see any risk of the deal not going through – they will stop doing business with Bear, and move their assets elsewhere.
Headline should read:
JPM Goes 2 Bid on BSC and Gets Hit!
Night bitches.
– Dave Chapelle
we should all get together like this every sunday night. we can rotate each of us holding a conference call about whats on our minds. up first is ‘girl’.
This guy’s currently working at Bear and may need to brush up his resume soon. Any suggestions or reviews would be great, looks like he’s going to need it!
http://razume.com/resume/view/322
Uh no “guest”. 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
what happens to Citi, they next?
LEH?
@ big r- happy to oblige
6 of one – half dozen of the other…
its like 1998 all over again…
I don’t think JPM has all that much risk from Bear trying to shore itself up then pulling out of the deal. All JPM has to do is announce that they were considering not guaranteeing Bear’s transactions and the house of cards would collapse. Dimon’s going to have to ram this shareholder vote through really fast though…
My Experience with Bear Stearns
- I get into an argument with a girl that I had a thing with that works in Bear Stearn’s back office. In retaliation I run down to the headquarters and piss on the revolving door I knew she enterered every morning. The next day the first hedge fund implodes.
- On a Thursday night I send Rich Marin an email introducing myself by telling him we have a mutual friend. The next day Rich Marin is fired.
- I am invited to a dinner being held by a writer for tv. I meet Warren Spector and his wife. A week later he is fired.
From here on out I promise to use my powers only for good. Unless of course anyone here wants me to take a piss on the entrance to 85 Broad Street…
I think they are actually expecting the shareholders to reject the bid.
The market crisis may tide over by then, and post rejection JP may even raise their bid. There is NO WAY in hell that they could have managed to value BSC’s portfolio in 2 days. This is a floor bid to soothe the markets somewhat.
leh baby leh
In two weeks Bear won’t need JPM anymore anyway. AND JPM is contractually obligated to guarantee Bear , they can’t just consider not guaranteeing them anymore
VOTE THE DEAL DOWN!!! Dimon is stealing it. I can’t believe Schwartz couldn’t use the fact that he is holding the entire Western (and Eastern) world’s markets in his palms to negotiate $2 worth of crumbs!!
JUST SAY NO!!!
What about the idea that the $2 per share value may incorporate the expected future value of transactions that Bear could potentially do before the deal closes? In other words, it’s not just about what the firm is worth now but conceivably the risk that JPM could be taking by backstopping BSC, in all of its wounded glory, for the next 3-4 months? That aspect of the deal has me scratching my head (i.e., why would JPM do it?) save for the fact that they are getting the firm for a song …
– Anon4life
yeah, considering the likely beat-down current position of JPM’s balance sheet, the only way they would enter into a $2 buy-out of BSC is if they were 100% sure they are buying BSC below FMV. I guess you need the $2 price to reach that level of assurance. But, I would expect some other entities to show up to the table in the next few days. The thing I just do not understand for the life of me is why nobody showed up to Lazard’s meeting yesterday. No other entity was even remotely interested in buying Bear? Where was Goldman, where were the other banks?
This is just too funny. People who were too lazy to go to work everyday at a car dealership so they decided to work two days a week selling houses and the poor people they sold them to have destroyed the banking industry.
Any word on a BSC investor call?
Yeah, I like that Bear hasn’t said anything. Their website says they won’t be announcing Q1 earnings anymore tomorrow so no questions then…
I don’t see how this transaction is going to fly. From all the articles it appears the only other bidders were JC Flowers and KKR. I understand BSC has some major liabilities but if I was a shareholder I would not be happy with a closed auction like this. Like one of the other commenters said above, this is probably just a floor. I bet the fed put ‘em up to this.
LTCM all over again.
Whats going to happen the college kids who signed on as summer analysts for Summer ’08?
Any word on Jimmy Cayne?
he lost…
Jimmy Cayne packing a bowl of kind bud right about now.
The idea that the $2 per share is a floor makes more sense to me – in other words, about as close to $0 you could make it with the expectation that after the dust settles, the value goes up. Like someone else mentioned, how could JPM value all of BSC’s balance sheet in two days?
If that is the case, then, the resulting market turmoil (if it’s based on the idea that BSC’s liabilities must be HUGE) is an over reaction?
Go long canned goods and ammo baby
Whats going to happen to all the analysts new and old?
The whole $2 per share thing seems insanely low (without seeing their balance sheet). Could it be they are hoping share holders reject the deal in hopes of allowing Bear some time to try and get their business back in order along with giving the Monday morning markets what they were looking for?
Real stretch here but any chance the ‘individual investor’ was a plant meant to give the rejection some momentum?
analyst beatings will continue until morale improves (or profitability resumes)….
The $2 per share is to show the market that Bear is worth something and not going bankrupt. The sky is not falling. I mean, it sounds stupid, but that’s a powerful signal.
– Anon4Life
JPM, pushed by the the FED and the treasury shored up the markets, but I bet doesn’t actually want Bear. When the spreads tighten, Bear will be back on their feet, clearly worth more than $2 a share, shareholders will reject the deal, and everyone will be back at square one.
Most employees will probably get the boot, like Drexel. Tough luck guys.
since DB hosted drinks in memory of the fallen spitzer, when/where is the BSC memorial?
oh my…oh my! the drama does not get any better than this!
@9:54 no way. BSC is gone forever. see previous examples of drexel and first boston and realied bear is not going back to square one ever again
so what happens to Bear’s brokers? can i open an account please?
Big R,
That’s a good question. We’re open to suggestions. Maybe Black Bear Lodge near Gramercy?
There’s no way Bear can survive outside of JPM’s grasp. Anyone who can jump ship will do so. Then there will be the mass firings. No counterparty in their right mind will do business with BSC, with or without JPM’s backstop. Prime Broker clients will leave quickly (if there are any left). By March 31, BSC will be an empty shell.
But the falling dominos have been stopped. And the Fed is showing how they’re going to do it now and in the foreseeable future.
14,000 employees / $270 million = $19,285 per employee.
Hell, even the janitors make more than $19K a year.
Guess it’s time to get rid of those overpaid SMD’s :)
The true value is $2 + the value of JPM backstop for BSC for 12 months.
There is not way that the numbers went down from ~ $20 at 5:30pm (as being reported) to $2 all of a sudden. Most probably they could not get to a price but with the feds pushing for a decision before Asia market open, JP bid $2 on the stock and agreed to provide 12 months worth of backstop.
One you factor that in, I am sure that it is closer to the high teen range (at least as far as they think).
Also, it has been reported that JP has some bid protection – so no one can come and bid $4 tomorrow. Also, once the structure comes out – I am sure that you will see some huge fee for JPM if the deal gets voted down.
So I think the there is too much panic around. Bear DID NOT sell for $2. They effectively sold for more. Unfortunately that does nothing for the equity holders as of now. My money is on a re-bid from JPM after more due dilligence. This was the feds trying to prevent armageddon.
The PB business is worth nothing, all of their good clients ran for the door this week…
Mark the occasion…get your BSC T-Shirt
http://www.zazzle.com/ducks1222/products
JPM will get outbid???? Um, how many parties interested in bidding on BSC will get $30B of gap financing from the Fed for illiquid assets so they won’t completely F their capital ratios????
I thought a group of “bankers” would have been able to figure that out.
We all should have known better. Lots a drinking and not a lot sleeping tonight in the Big A.
I can speak on the behalf of the average employee at Bear… utter shock, sadness & much vodka. And not Goose or anything good since who knows if we’ll have jobs in a month.
But on the bright side of things … is JPM business-casual? I’m sick of wearing a tie – what a farce!
i’m toying with the idea of hosting a charity event benefitting discarded Bear employees and the sufferers of restless leg syndrome. If i charge about 20$ per ticket any chance I can raise enough for a rival bid?
Shareholders will only reject the offer if a better one is presented. The $20B in Fed non-recourse funds makes it hard to outdo JPM. If they do not find another suitor ASAP and still choose to reject, margin calls will eat BSC alive.
JPM will take on the carry costs and risk of declining asset values with no market to dispose in. If the markets clear up at all, or if the bleeding just stops here, they might find some longer-term cash flow or buyers of the assets at a premium in the future. But I must say, if they’re wrong about the true book value of all the assets (which go farther than those presented on the call), man, they are screwed.
JP is already looking into a plan to pull out of the BSC building and release the empty space at market or close to market rent. I would expect some downward pressure of NYC office rents in the very near future. Might be a good time to sign that 10 year lease you’ve always wanted…
This is just bullshit. It’s odd that in one of these situations you can lay blame on one individual. But this is entirely attributable to Jimmy & his losing all his wealth doesn’t really make me feel better. He better hire some bodyguards with the money he has left b/c I think there are going to be a lot of people who’d like to get the hurt on there.
Summer analysts, first year class? Who gives a fuck. This is horrible. Lots of people with families to support and/or several years under their belt are going to be shown the door because certain divisions got greedy. I personally worked with many people from their custodial side that were good honest people just trying to make a living. It’s fun give the due comeuppance to the guys who think they are BSD’s because they can move some paper. But a lot of average Joe’s are going to get fucked badly here, and this isn’t going to be the end of it.
again, why would shareholders reject the offer? They have no idea what the balance sheet really looks like – if there is a C11, and all those illiquid (and liquid) assets come flooding into the market, they’re likely to get a fraction of their current mark-to-market. All of the ibanks are heavily levered entities – the equity will get zero. The $2 bid is basically a token amount – maybe it’s the estimated cost of filing a bankruptcy?
@10:40 pm, thanks for the reality check. You have to imagine that people who have worked at BSC for most of their careers have just seen their future plans shot to hell.
the 28-day $30B gap financing was given last week. Bear still had a couple of weeks to put a deal together with a different entity. i don’t know the terms of the gap financing, but why the rush?
did the nikkei stop trading? bloomberg.com is showing a flat line on the nikkei markets…
Bear has 12 months to but something together here. Why should the reject the bid? Because by the very nature of the bid a value of more than $270mn has been conferred upon Bear. The only reason they were worth so little was because of the bank run. THE BANK RUN IS OVER.
Bear does NOT own their building. Why does everyone keep saying they do? From the 2007 10-k:
The Company’s executive offices and principal administrative offices
occupy approximately 1.1 million square feet at 383 Madison Avenue, New York,
New York under an operating lease arrangement. At the end of the lease
arrangement, which expires on August 10, 2012, the Company may request a lease
renewal. In the event the lease renewal cannot be negotiated, the Company has
the right to purchase the building for the amount of the then outstanding
indebtedness of the lessor or to arrange for the sale of the property with the
proceeds of the sale being used to satisfy the lessor’s debt obligation.
the japanese market has two separate trading sessions, one in the morning and one in the afternoon (Tokyo time obviously…)
..always wondered what End Times would look like.
It’s been real.
Fed cuts discount rate by 25bp to 3.25%
will BSC keep the risk arb desk?
Omg… this can’t be happening! Is it time to start studying to become a high school teacher yet??
JPM has a huge fixed income ops already. If you are in BSC fixed income, good luck. Hope Jamie Dimon is generous with severence…
Random Banker, the bank run is over? Your reasoning doesn’t make any sense whatsoever. Yeah, it’s over if JPM owns BSC. Remember, the deal is supposed to close in 90 days. If the shareholders reject the deal (and the vote is likely to happen in the next month), then BSC is back in the same place – not enough capital to be liquid. If JPM isn’t going to own BSC, why would they guarantee anything after that point of knowledge? Yes, JPM would is clearly guaranteeing a contract entered into from now up until the shareholder vote (even if the contract expires 1 year from now), but they are no longer going to write any new business on behalf of bear once the shareholders reject it. If you think that in the next 90 days they credit markets are getting better, you are deluding yourself. You keep talking like JPM is providing unlimited liquidity to BSC for the next year regardless of anything – that would make absolutely no sense. If the shareholders rejected the vote and BSC went into Chapter or their financials situation continues to deteriorate, do you think JPM is still guaranteeing trades? Why would JPM do that?
@11:20pm Live pictures from outside 383 Madison show employees leaving the building with boxes and bags full of their belongings already because they know they will not have jobs tomorrow. I doubt alot of employees will even show up tomorrow.
There is huge redundancy between BSC and JPM, most will be laid off. JPM just wants whatever assets and business relationships are left after the dust settles. They do not want the employees.
They say they want prime brokerage and global clearing but they have already been decimated and will continue to loose clients this week.
This is worse than Enron, this is truely an unparalleled event in this country.
383 Madison and Metro Tech will be ghost towns by the end of this week.
1. Who owns the Bear Stearns building at 383 Madison then?
2. Anyone hear Goldman gonna report like 3BN loss?
3. Anyone have any bushmills, i’m all out?
I realize I’m late to this party but just listening to the call now. real price jpm is paying is closer to $43 – $50 per share when you build in the $5-$6 billion in “transaction costs” which means they are taking a very large mark against the book. while it’s not clear how much will be allocated to litigation/consolidation, but I’m fairly certain it will be a small piece of the total. I’m not sure the investors could argue against the price in the light of that fact. that also includes severance, so it appears they intend to give the employees who get shown the door a little kiss (I bet the people that got RIF’d last year are happy now – if they sold their stock). also interesting to note that there is no collar on the transaction price, so if jpm takes a hit tomorrow, $2.00 could be $1.50. also interesting to note that the management from jpm is effectively taking over tonight, unlike cfc/bofa which will not be involved in ops until the deal closes.
@ girl: I’m in for your benefit. given that the employees own 23% of the firm, you’ll have a head start on your counter offer.
BSC doesn’t own its bldg? Well, then Bloomberg, CNBC, everyone is getting it wrong. Yeah, maybe the 07 10-K shows a lease, but I would guess it is an OPCO/PROPCO structure where BSC still owns the entity that owns the bldg. Just a guess, but everyone and their brother is saying that BSC owns their building.
All this talk about Bear “getting back on its feet” before the shareholder vote is nonsense.
Who are their clients?! Would you use Bear as a prime broker? There’s no getting back on your feet without customers…
The swaps on Lehman are going skyrocket tomorrow.
Thats it… I’m selling everything
I am familiar with the specific situation. BSC does not own 383 Madison.
$2 IS A FLOOR. FED WOULD HAVE TO ALSO OFFER THE $30 BIL FACILITY TO OTHER PARTIES. IF THERE WAS AMY MATERIAL BREAK UP FEE, IT WOULD HAVE BEEN DISCLOSED. MIGHT BE FUN TO PLAY CALL OPTIONS TOMORROW.
Why are LEH swaps going to skyrocket, specifically?
guest @ 11:35,
Can you enlighten us? What is the deal on the bldg?
Wow on this craziness. Makes me damn glad I turned down my analyst offer. I would be screwed right now. Got to love a recession proof job; tax advisory. Death and taxes baby.
A prior poster brings up a good question. Is this an enron-like event? Very clearly, it is.
Enron was fairly isolated. This week’s going to suck on Wall Street. There’s gonna be rumors, and huge default swaps… I won’t be surprised if another bank tumbles this week.
And then there’s the Fed Meeting – which should be good for a one day rally (maybe). Low rates don’t mean a damn thing if nobody is lending…
if the bldg is not owned by bear, is their debt on the bldg? was the mortgage thrown into a CMBS pool? i guess JP would be responsible for all of BSC’s obligations, including the master least of 383 Madison to 2012. However, wonder about the ramification of the CMBS pool or pool(s) that 383 Mad was thrown into. maybe cmbs will see some further widening this week because of this. we will all learn a lot in the next few weeks…scary, scary stuff…bloomberg or horror film?
Between catching up on the BS cc, watching Adult Swim, and musing as to whether the Fed’s beggar thy neigbhor policy will work, I think I’ve come up with a way solution to the whole liquidity issue.
Legalize It, mon. The revenue from the taxes alone would be enough to balance the FY2008 budget. Many other benefits
include boosting diverse related industries from reggae bands to blacklight manufacturers.
We could expect a short term inflationary spike in consumer staples such as doritos and burritos, but that risk would be more than ofset by lower commodity prices for everything from fuel (less people zipping along at 90mph) to non-acapulco gold (hippy chicks=less gold jewelry).
Not to mention eco-friendliness of hemp which will surely reduce global warming and the medicinal value which just may save medicare.
We all know its starting to hit the fan, do we want to hear riots in the street or Floyd in our vans?
I turn this over to you my brethren.
We may be going to (an economic) hell in a bucket baby….
Just saw this on Bear Stearns Web site:
BEAR STEARNS FIRST QUARTER EARNINGS ANNOUNCEMENT SCHEDULED FOR MARCH 17, 2008 WILL NOT OCCUR
NEW YORK – New York – March 16, 2008 – In light of entering into an agreement to merge with JPMorgan Chase, The Bear Stearns Companies Inc. (NYSE: BSC) will not be announcing its first quarter 2008 financial results on Monday, March 17, 2008, as previously scheduled.
on the propery front, here is some clarity from the 2007K:
The Company has entered into an operating lease arrangement for its world headquarters at 383 Madison Avenue in New York City (the
“Synthetic Lease”). Under the terms of the Synthetic Lease, the Company is obligated to make monthly payments based on the lessor’s
underlying interest costs. The Synthetic Lease expires on August 10, 2012 unless both parties agree to a renewal prior to expiration. At the
expiration date of the Synthetic Lease, the Company has the right to purchase the building for the amount of the then outstanding indebtedness
of the lessor or to arrange for the sale of the property with the proceeds of the sale to be used to satisfy the lessor’s debt obligation. If the sale of
the property does not generate sufficient proceeds to satisfy the lessor’s debt obligation, the Company is required to fund the shortfall up to a maximum residual value guarantee. As of November 30, 2007, there was no expected shortfall and the maximum residual value guarantee was
approximately $570 million.
@11:39 – Lehman’s swaps shot up last week when word of a Bear bailout broke. Here’s a link from Reuters:
http://www.reuters.com/article/etfNews/idUSN1440132020080314
Lehman (which is truly an excellent bank in my opinion), has the misfortune of being among the least capitalized. As I recall, LEH’s equity base is somewhere around 22 billion. That’s more than BSC’s, but they both have a comparable Level 3 Asset/Equity ratio. In November, they held about 159% Level 3 Assets/Equity ratio. BSC was actually lower – 154% And Level 3 is poison right now…
Now Lehman’s management is top notch. But the problem with having low capital is that there’s much less room for error. Bear faced the a similar problem (with grossly inept management). Some of the bigger banks (Goldman, Morgan) have even higher Level 3/Equity base ratios. But they have more capital… more room to make a mistake or two.
Generally, LEH avoided subprime holdings – which, obviously BSC did not do. But I’m afraid Lehman is going to catch Bear’s cold. I think its an infinitely better bank, but I do see higher swaps on a terrible week on wall street.
thanks for the clarification Investorcluzo, although i am still a little confused. why are bloomberg and others missing this?
Who’s next? LEH? C? I cannot believe how much money Lewis just lost. That might be the worst trade of all time
Once JPM absorbs Bear’s prime brokerage and clearing units, how many floors at 383 Madison do you think they could sub lease out? Lots of NY commercial RE guys IM’ing tonight about the commissions on that one. The vultures are circling…
My guess is the individual investor on the call was Joe Lewis.
@11:56 – yeah… talk about a nightmare. He turned a 900 million dollar investment in to 21.6 mil(based on a sale price of $2 per share).
All the warning signs where there too.
Bang goes another holiday cocktail party.
“synthetic lease”. BSC owns the building – a synthetic lease is basically an off-balance sheet way to own the building – you get the tax benefits of the lease expense but have effective ownership of the building without having the put the assets on your balance sheet.
So, again, who owns the building?
Also, I was eating din during the call, so maybe I missed this…JPM seemed to dance around this during the q&a as well, are they guarantying i.e. assuming all of Bear’s debt? Are they going to take-out all of Bear’s $60bn +/- of LT Debt? Am I missing something?
Shit, forgot this:
Investment bank Goldman Sachs will announce asset writedowns of $3 billion when it posts earnings on Tuesday, Britain’s Sunday Telegraph newspaper reported, without naming sources.
The company will report a fall of about 50 percent in first-quarter earnings, the newspaper said.
Goldman
Goldman Sachs Group Inc
GS
156.86 -8.58 -5.19%
NYSE
Quote | Chart | News | Profile
[GS 156.86 -8.58 (-5.19%) ] will take a hit of around $1.6 billion in its leveraged loan business, $1.1 billion in connection with assets owned by its private equity arm and will have to writedown the value of its stake in Industrial & Commercial Bank of China (ICBC), the story said.
Goldman invested $2.3 billion for its minority shareholding in ICBC, which is listed on the Hong Kong and Shanghai stock exchanges. Shares in ICBC have fallen around 14 percent in the last two months.
Goldman will point out that its exposure to the sub-prime mortgage market remains minimal, the paper said, according to unnamed people close to the bank.
Goldman Sachs was not immediately available for comment.
bsc effectively owns the damn building, lets stop discussing that.
is schwartz gonna go to jail? that fool said that everything was fine on Friday
Thanks DT. I agree with everything you say. With regard to mgmt/Level III, I’d like to know how hedged that exposure is. With the large reclassifications they made last year, and their conservative nature, I’m assuming a significant amount is.
The 2billion unsecured credit line was a good sign, definitely not a bail out.
I agree cds spreads will probably jump tomorrow, I’m just trying to decide if they should. (I’ve been long and wrong on LEH for a good while now.)
“synthetic leases” were all phased out after Enron in 2003
Anal_yst: They were specifically asked about this, and JPM said they are guaranteeing all of BSC’s trades with counterparties, but not unsecured senior debt holders.
@12:09 – There’s really no telling if LEH “should” go up or not tomorrow. It’ll be pandemonium… This kind of market disruption fuels wild speculation
Keynes said “The market can stay irrational longer than you can stay solvent.”
I like LEH a lot too… Maybe when things cool off a bit, they’ll be a great buy. But right now, I’m scared every financial. There’s just too much systemic risk in the sector right now.
Thanks for the clarification, figured they must have said something about it and that makes sense…good point by Investorcluzo that there doesn’t seem to be a collar on the price, only a fixed conversion ratio…a few interesting trading opportunities come to mind…
anyone else taking this in and drinking heavily? i am. go bear – fight, fight, fight!
@11:21:
They seem to be doing it because the fed is encouraging them and they think the deal will go through. Does JPM have the right to refuse to guarantee Bear’s obligations? It didn’t seem that way from what was said on the call. They said they would continue to guarantee obligations for 12 months regardless of the outcomes of the shareholder vote.
go long BSC calls once the market prices in the $2 value in the morning!
The 12 month guarantee provided by JPM is really coming from the Fed. The Fed cannot provide such guarantee technically and hence they are doing this via JPM.
as far as i can tell, LEH leveraged loan positions are 10x BSC, ABS/CDO is 2x BSC, residential mtg exposure a little higher at LEH as well. LEH much, much better managed firm of course. But news I’m hearing is that last wednesday, GS decided they would no longer face off against BSC, and that they plan to do the same this week to LEH. Could be trouble.
As others have mentioned, I cannot imagine why any BSC shareholder would approve $2, since you might as well risk $0 and hope for some other outcome.
i cant really believe the guy is playing bridge. is that for real?
Yeah…I’m one of those poor college kids who was “supposed” to work for BS. No news from them yet but let’s just say I’ll be cold-calling like a maniac come tomorrow.
-BS SA’08
snipped:
This is just too funny. People who were too lazy to go to work everyday at a car dealership so they decided to work two days a week selling houses and the poor people they sold them to have destroyed the banking industry.
–>>> Bullshit…those poor working stiffs didn’t do it. It was the PhDs and MBAs who created the CDO mess at the banks, creating the credit to fund this monster. And the dunces at the ratings agencies and monolines that rubber stamped this garbage. Oh yeah, let’s not forget the geniuses at the Fed, the Treasury, and the White House who went along for the ride.
The BSC building should be a lease-back, which is a mortgage structured as a lease and is very common in real estate. So BSC effectively owns the building subject to some financing.
I’m a lawyer happy I have a stable job, despite my lower pay, and was wondering if anybody knew what firms were going to be working on this deal? I haven’t heard anything from my end yet (S&C) but I’d love to be in on this. Anyone know?
From WSJ:
“For the Bear executives and advisers — including Lazard Deputy Chairman Gary Parr and veteran takeover lawyers Peter Atkins of Skadden, Arps, Slate, Meagher & Flom, Sullivan & Cromwell’s H. Rodgin Cohen, and Cadwalader Wickersham & Taft’s Dennis Block — it became increasingly apparent a bankruptcy was imminent absent a sale.”
I guess you’ll get to share the sleepless nights required to cook this turkey. Have fun.
When shit like this hits the fan it makes those sleepless nights not sound so bad knowing I have my 200k check waiting for me at the end of the year. Feel bad for all you wall street monkeys out there, hopefully it doesn’t hit too hard.
On a side note a friend of mine offered to get me an associates position @ BS last year, no joke. I seriously thought about it before deciding that while I might get paid a little more it wasn’t worth the increased hours + loss of job stability. You can’t make this stuff up.
Can we consider that this transaction is not a deal in the common sense, but in the classic sense? Can we consider this as occurring in the tradition of J.P. Morgan stepping in to act as a central banking apparatus in a time of crisis? What we are viewing here may not be a capitalist grab – Dimon stealing Bear for $2 a share – so much as a socialist save, whereby JPMorgan acts as an extension of the Central Bank to allow Bear Stearns a grace period in which to reconstitute its business. This seems the only way to understand the transaction and the value debate surrounding it.
Can we consider that this transaction is not a deal in the common sense, but in the classic sense? Can we consider this as occurring in the tradition of J.P. Morgan stepping in to act as a central banking apparatus in a time of crisis? What we are viewing here may not be a capitalist grab – Dimon stealing Bear for $2 a share – so much as a socialist save, whereby JPMorgan acts as an extension of the Central Bank to allow Bear Stearns a grace period in which to reconstitute its business. This seems the only way to understand the transaction and the value debate surrounding it.
BSC tanks from $172 to $2 while Jimmy Cayne smokes a bowl and plays bridge. Classic shit. Next we’ll find out one of Clients 1-8 was a BSC exec.
no parachutes: http://news.yahoo.com/s/nm/20080317/bs_nm/bearstearns_compensation_dc
Several have suggested that this move leaves some room for Bear Stearns to get out of this, jockey for a new acquirer, or whatever — no way. First, even if there are guarantees, I don’t believe that covers Bear Stearns backdoor access to the discount window. Second, I would be my bottom dollar that the foremost question in the minds of the upper management is not generating shareholder value, but avoiding prosecution. These guys are not going to play games with the government. Some people are going to end up in prison before this is all over, and the trick for these ripe targets is to not be one of those people. Happy talk and bs balance sheets are enough to put you away for th rest of your life.
Is there anyone who thinks that their balance sheet is not bs? All this talk that they have assets that are “hard to value” are bs. Their assets are worthless — yes, maybe someday they’ll be worth something, but that prospect is surely well known and has not yet enticed buyers into the market. What’s hard is facing up to the fact that they’re worthless. I’m sure that nobody is talking about discounting other assets because they might go down someday.
well, bitches, I’m outta here as my BSC 50 & 60 march puts are worth something now. Thank you to BSC management for speeding up my retirement plans.
Good bye and good luck!
Why would any bear shareholder accept this? Wouldn’t it be worth it to risk the stock going bankrupt – that way everyone else on the street can feel the pain that bear shareholders feel. The difference between $2 and $0 is minimal and is not worth the satisfaction of watching the rest of the economy go to shit
Hey S&C lawyer: You’re new aren’t you? Who do you think pays your bills? Firms like yours live and die on Wall Street’s fate, and you’ll be on the chopping block unless you are senior or really, really valuable.
If you want a tip from someone who has a little success in this regard: find a practice that Wall Street clients turn to when they need to save a buck. (M&A ain’t it.)
Shockingly enough calls to Bear Stearns switchboard are being answered with a recording “You have reached Bear Stears, all our operators are currently busy…….”.
Did they layoff the switchboard operators already???
So…just how incompetent was the internal valuation control group at BSC in valuing their financial assets for the book of $80 to go to $2 after a day and a half of due diligence by JPM?
Another one of those college kids who is probably screwed right now.
What would happen to the stock once the deal is completed?Would it still trade
as a subsidiary?Or it will be absorbed
By JPMorgan?
Guest @ 6:40 AM: You don’t get it, if BSC fails then the whole financial system fails and takes down or severely impairs everyone else. Can you imagine what the impairment charges would be like for GS, JPM (why do you think they did the deal???), LEH and the others?
You also seem to lack a fundamental misunderstanding of leverage. Look at hard you get whacked with a traditional margin account when asset values drop now amplify that by 20 or 30 and you soon realize how quickly your $84 book value can drop to $0.
Guest @ 12:14: JPM is offering roughly .05 shares for each BSC share so you are now the proud owner, or will be soon, of JPM. I would buy a few shares of BSC and have the certs sent to you, framed they would be nice in an office and an ever present reminder that leverage cuts both ways.
http://news.yahoo.com/s/nm/20080317/us_nm/bearstearns_lawsuits_dc
@ 9:30. In case you haven’t noticed lawyers have rarely been laid off in economic downturns and even then only in very small numbers. We may not get as high of a bonus as last year but I’m not getting canned either. You think they could afford to start cutting M&A lawyers left and right? Where would that leave the firms when the economy picks up? Get with the program son, I’m not the one who needs to be worried about a job.
The new answer to “does a bear shit in the woods”, is no…it shits on Wall Street. Thx for helping screw the economy.
Is this not still a live blog post?
the deal will never get approved by the shareholders and JP Morgan knows this that is why they set it at 12 months that they will cover bears debt. It gives them time to put together a deal that will make shareholders of Bear Stearns approve the deal. I say for every 4 shares of Bearns they get 1 of JP Morgan might be what it takes to get the deal done.
great theory chief except that nobody is covering Bear’s debt.
as long as we are having screwball theories, I think the Fed is buying all these shares of BSC so that it can vote to approve the deal and that is why the stock is up so much
What on earth is the fed going to do with all of the securities it is taking as collateral? Is it equipped to sell / manage them? Does it even have a sense of what it has for collateral? How did it get comfortable with whatever value it attributed to all of the un-mark-able shit?
–Distressed Dude
hello??
I’ve spoke to many of my friends at S&C and this thing is getting done, and soon, is what they tell me. Take that for what it’s worth.
Hey Carney. So why do you put the Gasman’s pic at the bottom of all the comment screens? You licking his pussy?
Rothschilds win once again, ha!