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Latent Defects

The news that Bear Stearns, suddenly it would seem, has become the subject of a number of SEC inquiries, including anti-competitive bidding in municipal securities going all the way back to 1990, violation of consumer protection laws and several other kitchen sinks, is sort of, well, amusing.
That reserve fund for legal issues that JP Morgan set aside is going to get some use, I suppose. It is easy to forget that JP Morgan took quite a gamble by acquiring a firm with potentially significant undisclosed liabilities (including, it would seem, SEC investigations of activity going back two decades) almost blindly. Add to this that there is no real provision for "hold backs," what must be a very weak set of representations and warranties and who knows what else lurking in the various closets at Bear's headquarters. It's easy to point to "book value" or some similar metric to complain that Jamie got a steal. But it's also naive.
Personally, I suspect we will find that JP Morgan will profit handsomely from the deal. But then, they were there at the right time, knew the business well and had the resources to execute. Who can begrudge them that?
Either way, you own it now, Jamie.
Bear Stearns Receives SEC Notice [Reuters]