Bear Stearns is done, and the speed of its collapse is nothing short of stunning. A news story just up on the Wall Street Journal's website says that Bear Stearns, which just got bailed out by the feds on Friday, will announce either a sale to JP Morgan or a bankruptcy filing before the markets open in Asia on Monday. In a frightening sign of instability, analysts worry that the failure to resolve the Bear situation before markets open could lead to a "financial crisis":
Bear Stearns Cos. was closing in on a deal Sunday afternoon to sell itself to J.P. Morgan Chase & Co., as worries deepened that the financial crisis of confidence could spread if Bear failed to find a buyer by Monday morning.
People familiar with the discussions said all sides were pushing hard to complete an agreement before financial markets in Asia open for Monday trading. "None of these things is done until they're done," Treasury Department spokeswoman Michele Davis said Sunday afternoon. "But I think everyone's expectation is sometime in the early evening hopefully" the deal will be done.
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Federal regulators also are trying to prevent Bear's crisis from mushrooming into a systemic threat to the stability of financial markets and other securities firm, for which confidence is essential to their ongoing operations. Unwinding Bear also would be a nightmare because it trades with nearly every firm on Wall Street.
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Bear also has been preparing for the possibility of a bankruptcy filing, with that as the likeliest scenario if an acquisition by J.P. Morgan falls apart, according to a person familiar with the situation. Such a filing might even occur before financial markets in Asia open for Monday trading.
Bear's office building is now worth more than its financial services business. Its shareholders will see most of their value wiped out, and its employees' future looks bleak:
A price substantially below Friday's close could value Bear at just a tiny fraction of the market cap reached at its all-time peak in early 2007. Terms likely will factor in the value of Bear's Madison Avenue headquarters, which could be valued at around $1.2 billion based on going market rates. That could make Bear's banking franchise worth roughly $1 billion -- a pittance for a firm that was regularly making $1 billion to $2 billion in net income during the middle of the decade.
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Any deal would all but wipe out Bear Stearns shareholders, whose shares have not traded below $20 since 1995. The pain would be most acute for Bear's own employees, who were seeped in a culture of firm ownership -- and own about a third of the outstanding shares.
Over the weekend, some Bear employees were hoping a foreign bank would emerge as the winning suitor, since that might mean fewer job cuts than by a domestic buyer. But those prospects dwindled, leaving J.P. Morgan in the prime position to acquire Bear.
What we are witnessing here is nothing short of a total freak-out panic. A massive financial institution is selling itself for virtually nothing, and if it fails, it risks causing a global financial crisis which will bring other major banks and financial institutions down with it. It's impossible to look at this turn of events and not believe that things are much much worse economically than we've been previously led to believe.
Update [2008-3-16 19:28:27 by pontificator]: JP Morgan buys Bear Stearns at fire sale price:
Bear Stearns, facing collapse because of the mortgage crisis, agreed Sunday evening to be bought by JPMorgan Chase for a bargain-basement price of less than $250 million, the two companies announced.
That is ridiculous. The Wall Street Journal was reporting a sale for $2.1 billion just hours ago. $250 million is less than one quarter of the value of Bear Stearns' freaking office building. They should have just sold it for $1 and gotten it over with. In Wall Street terms, selling an entire financial services firm like Bear Stearns for $250 million is not much different than selling it for $1.