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Thread: Bear Stearns Fallout

  1. #1
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    Default Bear Stearns Fallout

    2 bucks is 1% of what they were worth 16 days ago. Think about that. From 23.6 billion to 236 million in half a month. Wow.

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    That is just crazy. If I had a couple of hundred million dollars lying around (, more like a couple hundred cents) I would have bought them.

    Heck, just getting that Class A headquarters building alone for that price would have been the bargain of the century.

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    AN - even sweeter when you consider that the fed is backing the risk up to 30 bill and cut the borrowing rate for jpm.

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    Quote Originally Posted by antinimby View Post
    That is just crazy. If I had a couple of hundred million dollars lying around (, more like a couple hundred cents) I would have bought them.

    Heck, just getting that Class A headquarters building alone for that price would have been the bargain of the century.
    Not arguing they're not worth more, but bear in mind that a bank that a shop taht gets taken over transits its laibilities over too.....

    The current valuation, given Bear's obvious phisycal assets and other valuable financial assets is that other stuff is worth a large net negative.

    kinda sad to see a name like Bear Stearns go...

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    Troubled Outlook for New York City Economy Turns a Lot Grimmer


    nytimes.com

    By PATRICK McGEEHAN
    Published: March 18, 2008


    The outlook for New York City’s economy and its main engine, the financial services industry, had already taken a bleak turn before the sudden failure of Bear Stearns, the fifth-largest firm on Wall Street.


    Investment banks and brokerage firms started cutting their payrolls last fall as the weakening market for mortgages translated into huge losses.

    Employment in the city’s securities industry dropped by about 8,000 jobs from August to January, a decline of about 4 percent.


    Now, with the impending loss of several thousand high-paying jobs at Bear Stearns, city officials and economists are bracing for the downturn to steepen. How deep it will be and how long it will last are open questions.
    “Who knows?” said William C. Thompson Jr., the city’s comptroller. “We had been preparing for tougher times. This means things are going to get a little tougher. We just don’t know how many jobs are going to be lost because of this.”


    Bear Stearns had about 14,000 employees, and as many as 8,000 of them worked in the city. Last year, those workers collected more than $3.4 billion in pay and benefits, or an average of about $242,000 per employee.
    Bear Stearns was one of the 25 largest employers in the city and accounted for about one of every 25 jobs in the city’s securities industry.



    It was not the first major Wall Street firm to collapse. Drexel Burnham Lambert and Kidder Peabody fell more than a decade ago. But Bear Stearns was a bigger component of a more consolidated industry.


    On Monday, officials of JPMorgan Chase, which agreed to buy Bear Stearns and stave off a bankruptcy, declined to estimate how many of the jobs would be saved. But representatives of the firm did not dispute reports that the sale would probably result in the elimination of most of them.
    Already, the rescue has implications for the redevelopment of Lower Manhattan. JPMorgan announced last year that it would build a headquarters for its investment-banking operations at the site of the former Deutsche Bank building, where there was a deadly fire last year.
    But JPMorgan officials have now decided to move that unit instead to Bear Stearns’s glass tower in Midtown Manhattan. Government officials who were briefed on the revised plan said on Monday that they expected JPMorgan to honor its commitment to the World Trade Center area by moving other employees there.


    The comptroller’s office estimates that the city collects $20 million in taxes for every $1 billion paid out in cash bonuses. In 2007, year-end bonuses for city residents totaled about $30 billion, producing about $600 million in income tax revenue for the city.


    A significant drop in profits on Wall Street has a direct and possibly painful effect on the city and state budgets.
    “New York City and state are over-dependent on the financial industry for tax revenues,” said Kathyrn S. Wylde, president of the Partnership for New York City, a business-advocacy group. She estimated that Wall Street accounts for one-fifth of the business taxes collected in New York.
    “Even a mild downturn on Wall Street causes tremendous problems, and this is much more than a mild downturn,” Ms. Wylde said. “This is potentially a sustained period of significant losses. That translates into the need to significantly revise budgets.”


    Even generally optimistic financial executives like Alan H. Fishman, the chairman of Meridian Capital, a mortgage broker, said they were unsure how long it would take the city to absorb the latest blow.
    “Nobody’s ever seen something like this,” Mr. Fishman said, referring to the fallout from the mortgage mess. “If you’d asked everybody how serious this was two weeks ago, they would have said, it’s serious but it will pass. Now they would say it’s very serious.”


    Two weeks ago, before Bear Stearns’s solvency was in doubt, the city’s Independent Budget Office forecast that Wall Street would cut an additional 20,200 jobs in the city by the end of 2009. It also projected a decline in business taxes collected by the city from $6 billion last year to $5.6 billion this year to $5 billion next year.


    Mr. Thompson, the comptroller, said that projections of overall city revenue being flat in the first half of this year may turn out to have been too rosy.
    “No matter what, looking forward, you’re not going to have a Bear Stearns to be able to grow,” he said. “We’ll have one less major firm, and that is an additional concern on top of everything else.”

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    this is getting very interesting. market is looking more and more each trading day like it expects bear shareholders to fight this buyout. bear closed today at around a 3x premium to the $2 buyout price.

    what a momentous saga this would be if bear somehow succeeded in getting out of the buyout agreement and then was able to use the new i bank fed window access to get the liquidity it needed to meet the run on friday - settle up with jpm (i.e., the fed) in that regard and then march on. would be incredible history ...

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    Quote Originally Posted by jp1 View Post
    doesnt matter if shareholders vote against the deal. part of the agreement gave JPM an option to buy the building for $1.1B minus expenses. Whatever happens, JPM gets the building.
    i wasn't making my comment in regards to the issue of the building. but since you bring up that point, the only way i see this realistically ending up with bear coming out an independent firm is that the agreement goes away, and any terms re the building are irrelevant at that point. as i understand the agreement in its current terms, its virtually impossible for bear shareholders to finally stop the deal. they'll likely need to get a court to step in, and once/if that happens, who knows what terms in this agreement survive w/o modification.

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    I don't know much about finance and investment banking but it seems to me that the current crop of Bear Stearns management really F****D UP one of the largest, well known, venerable, powerful Wall Street institutions.

    I mean, isn't the most basic principles in investment is "to diversify?" Why the heck do you put all your eggs in the same basket, which in this case is, mortgage and housing loans?

    I couldn't help but think that someone like me, who wouldn't even qualify for a janitorial job at their building would know better than most of these big shot investment bankers making millionaires.

    While I may not feel sorry for them, what I am sad is that this City now has one less financial icon to claim not to mention the financial hit to the City.
    Last edited by stache; March 19th, 2008 at 12:02 AM.

  9. #9
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    Default Bear Stearns Fallout

    ^ i'm not saying that they couldn't have used better risk management, but what actually did them in is quite scary b/c it could've happened to any i-bank. basically, one of their major hedge fund clients had to get out of all of its trades in order to meet margin calls from its own counterparties/clients, which made it necessary for bear to draw way down on their liquidity reserves. word got around the street that this was happening and many of its other large institutional clients feared that they would get stuck in a sinking ship so all made a run in bear - this all happened over the course of less than 2 days. the fed has since stepped in and made themselves a direct lender to i-banks, so futurer similar crisis now avoided. before that, only commercial banks could draw directly from the fed, thus the need for jpm to go to the fed on bear's behalf friday (which turned into the fed effectively buying bear for jpm). lesson learned - i banks need to keep a much higher reserve of liquid assets on their balance sheet. this whole credit squeeze is most likely going to result in a new regulatory framework in which the fed or a similar entity regulates i banks in addition to commercial banks.

  10. #10
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    Diversification and risk management varies from firm to firm. Bear was, for the longest time, known as a bond shop. It actually diversified itself significantly during the 90s. And it wasn't the least diversified of the bunch: Lehman had the largest exposure to mortgages.

    Bear's collapse is proof that having good hard assets is as important as having good soft assets. As soon as the rumors started spreading, every one of their clients began withdrawing their money. One of my family members works at a private equity firm that withdrew in excess of $20bn early that Friday.

    A run on the bank, in the most traditional sense.

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    piano - bear had/has (the co is still alive afterall) a larger exposure to mbs than lehman and lehman's businesses are definitely more diversified, but the bigger differentiator between the two is lehman's risk management through hedging their exposure, and as you allude to, the larger pool of liquid assets on lehman's balance sheet. in the end, it wasn't bear's mbs exposure that did it in (in fact bear had reached a stable point in that regard following 2 quarters of heavy mark downs - many analysts on the street were looking for decent 1q results), it was its lack of liquid assets. a major fund client had to undo their trades and this triggered a run. lehman used to be as much if not more of a bond shop than bear, but learned about diversifying its business and holding a higher % of liquid assets on its balance sheet in the wake of long term capital. ironic that bear was able to skirt significant exposure to that late 90s blow-up (and in fact declined to help out) and as a result was not forced to learn the lesson that lehman did learn - the very lesson not learned that lead to bear's demise.

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    sorry about that.

    speaking of the bear building, it just seems like it was a few years ago that the crown was going up on the building ... hard to imagine that less than 10 years later the company would be history.

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    Protesters enter Bear Stearns building in New York


    (REUTERS/Shannon Stapleton)
    Demonstrators protest inside the Bear Stearns headquarters lobby in New York March 26, 2008.
    Bear Stearns has agreed to be sold to JPMorgan for about $10 a share.

    Boston Globe
    By Karen Brettell
    March 26, 2008

    NEW YORK (Reuters) - About 60 protesters opposed to the U.S. Federal Reserve's help in bailing out Bear Stearns <BSC.N> entered the lobby of the investment bank's Manhattan headquarters on Wednesday, demanding assistance for struggling homeowners.

    Demonstrators organized by the Neighborhood Assistance Corporation of America chanted "Help Main Street, not Wall Street" and entered the lobby without an invitation for around half an hour before being escorted out by police.

    "There are no provisions for homeowners in this deal. There are people out there struggling who need help," said Detria Austin, an organizer at NACA, an advocacy group for home ownership.

    Bear Stearns employees were amused and perplexed, some taking pictures. One man in the lobby applauded.

    "Homeowners, that's more than $1 trillion (in mortgage debt), you're crazy," another man in a suit screamed at a protester on the street.

    The protesters blamed Bear Stearns and JPMorgan Chase & CoCo <JPM.N> employees for helping fuel the mortgage crisis.

    Demand for mortgage debt from investment banks including Bear Stearns encouraged lenders to drop standards to create new loans. Some lenders resorted to scams and fraud to initiate loans.

    The banks repackaged and resold the debt to investors.

    "Blame the mortgage tsunami on Bear Stearns," read one sign. Another read, "Bear Stearns employees aren't worth $2."

    After leaving Bear Stearns, the crowd moved to JPMorgan.

    "We will go to their neighborhood, we will educate their children on what their parents do. They should be ashamed," NACA founder Bruce Marks said of employees at both banks.

    On March 16, JPMorgan Chase & said it would acquire its rival the Bear Stearns Co Inc. for $2 per share, in a deal brokered by the Federal Reserve aimed at heading off a bankruptcy and a spreading crisis of confidence in the global financial system.

    On Monday, JPMorgan raised its offer to about $10 a share to appease angry stockholders who vowed to fight the original deal. Bear Stearns traded at $11.25 a share at 3:30 p.m. on Wednesday, up 2.8 percent.

    As part of the deal, the Fed agreed to guarantee up to $29 billion of Bear Stearns assets.

    The agreement has raised concerns that the U.S. government is prepared to help rescue a failing Wall Street bank while declining to bail out millions of home owners facing the possibility of foreclosure.

    (Editing by Daniel Trotta and Cynthia Osterman)


    © Copyright 2008 The New York Times Company

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    There is probably enough posts in this thread to create a new one over in News and Politics.

  15. #15
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    Bear Bailout. What a joke. Who exactly is getting bailed out again? The employees? The shareholders? I'm genuinely curious.

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