Bear Stearns

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cdm__IHB

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Wow, $2.00 per share. Well, the good news is that we just had our first run on a bank (institutional run on the banks assets, as opposed to a consumer run, a la the great depression), and things went down in a fairly orderly fashion - all things considered. JP Morgan made out like bandits, and the Bear Stearns employees bit the bullet (they held 30% of Bear Stearns Stock.



Anyone willing to guess who will be next?



C'mon Awgee, Graph, and the other experts!! Lets here your predictions!
 
<p>Twern't my personal predictions, but CR's (including the Blogsters). Lehman is almost as bad as BS according to the Calculated Risk folks.</p>

<p>I personally thought Countrywide Or Wamu would go first.</p>

<p>If you have a couple of hours to read stuff go over to Calculated Risk.</p>

<p>They got a visitor count of 850 and more on a Sunday evening. I personally will buy groceries and gas tomorrow.</p>

<p> </p>
 
Holy Sh*t people, this is bad. Real bad. I mean really, really bad.





The initial avalanche was started by three Bear Stearns funds becoming illiquid one year ago. Now phase 2 has begun: The run on investment firms. BS (in more ways than one) has been in business for 85 years. THAT WAS BEFORE THE GREAT DEPRESSION. This firm rode out the dark times of the early '30's and yet it has become dust in the wind in a matter of days!





The FED just cut rates on a SUNDAY! WTF! This is not good.





Holy sh*t!
 
There are two things that are significant about this deal.





First of all, the Fed has guaranteed JP Morgan against up to $30 billion in losses from Bear Stearns toxic paper. (Hence my Richard Nixon quote above)





Secondly, one of the main drivers behind the credit crunch is the lack of clarity of the asset backed securities held by all the players. Everyone knew they were holding junk and were worried that trading partners were holding junk too. If Bear Stearns was only worth $236 million, what is everyone else worth?





MER and LEH are most likely the next firms to go (under).
 
<strong>What Richard Nixon quote? </strong>

<p><strong></strong></p>

<em>We are all Keynesians now. </em>

<em></em>



<a href="http://www.time.com/time/magazine/article/0,9171,842353,00.html">http://www.time.com/time/magazine/article/0,9171,842353,00.html</a>



<a href="http://www.cato.org/pub_display.php?pub_id=5362">http://www.cato.org/pub_display.php?pub_id=5362</a>
 
This run on the bank is caused by the market panic. We saw this on Enron (fraud, etc caused confidence lost among investor, then run on the bank followed), now we saw this on BS. Lehman's CEO cuts short on his India trip, probably just want to make sure if th is run of the bank happens to them, at least he is there to try to avoid it.



man, this is really bad...I think the fed is going to cut at least 1% on their discount rate this Tuesday, which will further depreciation the $. We might see our gas price go to $5 dollar in the summer!
 
>Lehman's CEO cuts short on his India trip, probably just want to make sure if th is run of the bank happens to them, at least he is there to try to avoid it.





Maybe he just wants to be first in line.
 
Awgee, can you elaborate?





Just for the sake of reference, here is a list of Level III Assets from last November:





http://www.minyanville.com/articles/index.php?a=14774





<p>It's been an active day behind the scenes as we chew through the dew and sort it all out. It is worth mentioning that the discussion we had earlier regarding the <strong><a href="http://www.minyanville.com/articles/gs-hov-leh-c-ms-goog/index/a/14766">November 15th FASB Rule 157</a> i</strong>s picking up steam behind the scenes.





If we look at the major institutions and divide their Level III assets by their equity capital base, we arrive at the following calculations:


</p>



<strong>Citigroup:</strong> Equity base: $128 billion, Level III: $135 billion. Ratio: 105%

<strong>Goldman: </strong>$39 billion, Level III: $72 billion. Ratio: 185%.

<strong>Morgan Stanley: </strong>$35 billion. Level III: $88 billion. Ratio: 251%.

<strong>Bear Stearns:</strong> $13 billion. Level III: $20 billion. Ratio: 154%.

<strong>Merrill Lynch:</strong> $42 billion. Level III: $16 billion. Ratio: 38%.

>

<p>Again, whether this "matters" remains to be seen. What I will offer, with some degree of certainty, is that Hank, Ben and the rest of the den are fully aware of this dynamic. That's likely why we saw such aggressive actions from global central banks and, to that end, why the Treasury is pushing the super-conduit emergency bailout plan.


</p>

So you know and so it's said, I spent some time today chewing through FASB documents with our Minyanville accountant (think "Dave" when Kevin Kline tried to balance the budget). <strong>The November 15th date isn't a drop dead reporting date, it's simply a date of implementation going forward regarding the recognition of fair value.</strong>





Many of these disclosures won't "hit" until next year although, according to a study he shared with me from Deloitte, only six percent of companies (across a wide range of industries) have assessed how FASB 157 will impact the valuation of their assets and liablity.





Stay tuned on this---it may not be near-term business (and it may get Fannie Maed away, so to speak) but it's at the heart of the mark-to-market matter.





R.P.
 
Do you get the sense Paulson brought all the other investment banks together and had them draw straws for who had to take the toxic waste from Bears Sterns?
 
JPM is the most vulnerable and Paulson and Bernanke and whomever the power players are said, "You're it."<p>

If one goes down, they all go down. They are all leveraged and if one falls, they all fall. If you are asking, do I have the numbers for the off ballance sheet OTC derivatives? No, I don't.<p>

By most vulnerable, I mean JPM has the highest OTC deviative to reserve ratio. GS probably has the lowest and is probably calling the shots.<p>

I looked for some puts to buy for hours on Friday night, but everything seemed so overvalued. Ha-ha. Now they seem like a steal. But, alas, live and learn.<p>

Good luck everyone. I think it is going to get ugly.
 
IR, i don't think so.



If you read their investor power point this evening, JPM is paying $6 plus billion to get the ultimate $1 billion annual earning (after tax). That is about a 4 x EBITDA multiple. Given the fact that most of the exposure is taken by the Feds, I can't image this is a bad deal for Chase. I guess the wild card will be the $30 billion exposure that the Feds is providing. Not sure if that exposure number goes up, Feds will step up after the fact.



Given the fact JPM had 1.5 days to do the due diligence, i am sure they throw in the kitchen sink into contingencies. JPM is no doublt taking a huge risk...but the chance they losing money is probably low...
 
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