Bear Stearns, One Day to Oblivion
Earnings reports from Goldman Sachs, Lehman Brothers and Morgan Stanley have appeased market concerns. With this in mind, one has to wonder if Bear Stearns could have lasted another day, how might its shares have recovered.
(Stocks in article: NYSE: BSC, NYSE: GS, NYSE: LEH, NYSE: V, NYSE: FNM, NYSE: FRE, NYSE: VZ, NYSE: DFS, NYSE: MS, NYSE: TMA)
With Goldman Sachs (NYSE: GS), Lehman Brothers (NYSE: LEH) and Morgan Stanley (NYSE: MS) all reporting EPS that were better than analyst expectations, one has to wonder where Bear Stearns (NYSE: BSC) might have been today. Late last week, Bear moved its earnings report forward to Monday from its Thursday scheduling, and it probably had the right idea. But, after its fire sale, it moved the report back out indefinitely.
Here's what's up. Bear probably had some decent news to report as well. Instead of worrying about scheduling, Bear should have focused on getting a press release together on Friday, and reported earnings before the weekend that ended up fostering its downfall. The sense of urgency should have been there, and its clear that they understood it since they moved the earnings report forward to Monday. Over the weekend though, the Fed likely strong-armed and scared Bear's management into a deal for the sake of the financial system. Meanwhile, BSC shareholders got screwed over.
With 30% of the shareholder ownership controlled by employees, we suspect shareholders would be well-advised to now shoot down the deal that is stripping them of their pants, and show who the real boss is. What's left to lose anyway... The downside is not much, another two bucks!
There were a lot of bonehead decisions that came to play in this one, all of which were driven by fear. First and foremost, someone started and spread a destructive rumor that turned Bear from Wall Street pillar to pariah overnight. The fifth largest giant on Wall Street was chopped up for less than the building that housed it. Of course, any buyer of Bear has to bear it's risks, and thus the reasoning for the blockbuster price.
Even so, Bear's shares are trading well-above the deal price, and that usually indicates the strong expectation of a competing offer. CNBC has openly called that possibility into doubt, saying that Fed intervention effectively killed it. They offered possibility that debt holders are buying shares to insure the shareholder vote swings their way.
However, the New York Post published an article today that says Bear Chairman Jimmy Cayne and significant shareholder, Joe Lewis, are doing their best to ressurrect their lost boatload of capital. The article, also summarized at Reuters, says the two have approached some significant private equity and banking capital... like the kind that could be moving BSC shares higher. We would go so far as to say the buying is either coming from existing shareholders or these newly approached White Knights. The Greek suspects the Bear Stearns story has not come to the nascent tragic end that was first reported.
A lot of folks are angry that the Fed even acted at all, and we want to outline why they did for you. Bear Stearns was highly levered in positions that threatened spreading the company's disease throughout capital markets. At the same time, an unstable Bear, meant investors in Bear's asset management vehicles might draw significant capital due to the prisoner's dilemma.
The prisoner's dilemma is when two criminals agree not to implicate each other and to claim innocence. In the situation, if both prisoners stay quiet, they both go free. However, if one rats out the other, and the other stays quiet, one goes to prison and the rat goes free. If both prisoners lose their cool, they both go to prison. Thus, the dilemma. What will the other guy say in isolation...
Investors in Bear Stearns managed portfolios might keep the capital in play, but if other investors drew capital in significant numbers, the funds would have to liquidate holdings, pressuring the investments held through significant forced sales. As a result, even loyal investors would get nervous and sell as well. The activity could spill over into other securities and other portfolios might also start selling off. In other words, there existed potential to trigger a mass selloff in the entire market. This is just one reason why the Fed intervened.
That's not going to appease the only loser, Bear Stearns shareholders. Considering the whole spark of the turmoil might have been a false rumor, the government might be wise to correct the situation. It's been rumored that the Fed scolded bankers not to spread false rumors about their competitors, and that seems to imply the possibility of that occurance in this instance. We have no information to help place blame, but we welcome it if a reader has an idea. Comment to this article anonymously if you like, and help us shed light on who might be to blame. The SEC would like to know also...
Bear Stearns shareholders, say a prayer. You still have a chance to recover some wealth. We feel for you here at The Greek.
(disclosure)
(Stocks in article: NYSE: BSC, NYSE: GS, NYSE: LEH, NYSE: V, NYSE: FNM, NYSE: FRE, NYSE: VZ, NYSE: DFS, NYSE: MS, NYSE: TMA)
With Goldman Sachs (NYSE: GS), Lehman Brothers (NYSE: LEH) and Morgan Stanley (NYSE: MS) all reporting EPS that were better than analyst expectations, one has to wonder where Bear Stearns (NYSE: BSC) might have been today. Late last week, Bear moved its earnings report forward to Monday from its Thursday scheduling, and it probably had the right idea. But, after its fire sale, it moved the report back out indefinitely.
Here's what's up. Bear probably had some decent news to report as well. Instead of worrying about scheduling, Bear should have focused on getting a press release together on Friday, and reported earnings before the weekend that ended up fostering its downfall. The sense of urgency should have been there, and its clear that they understood it since they moved the earnings report forward to Monday. Over the weekend though, the Fed likely strong-armed and scared Bear's management into a deal for the sake of the financial system. Meanwhile, BSC shareholders got screwed over.
With 30% of the shareholder ownership controlled by employees, we suspect shareholders would be well-advised to now shoot down the deal that is stripping them of their pants, and show who the real boss is. What's left to lose anyway... The downside is not much, another two bucks!
There were a lot of bonehead decisions that came to play in this one, all of which were driven by fear. First and foremost, someone started and spread a destructive rumor that turned Bear from Wall Street pillar to pariah overnight. The fifth largest giant on Wall Street was chopped up for less than the building that housed it. Of course, any buyer of Bear has to bear it's risks, and thus the reasoning for the blockbuster price.
Even so, Bear's shares are trading well-above the deal price, and that usually indicates the strong expectation of a competing offer. CNBC has openly called that possibility into doubt, saying that Fed intervention effectively killed it. They offered possibility that debt holders are buying shares to insure the shareholder vote swings their way.
However, the New York Post published an article today that says Bear Chairman Jimmy Cayne and significant shareholder, Joe Lewis, are doing their best to ressurrect their lost boatload of capital. The article, also summarized at Reuters, says the two have approached some significant private equity and banking capital... like the kind that could be moving BSC shares higher. We would go so far as to say the buying is either coming from existing shareholders or these newly approached White Knights. The Greek suspects the Bear Stearns story has not come to the nascent tragic end that was first reported.
A lot of folks are angry that the Fed even acted at all, and we want to outline why they did for you. Bear Stearns was highly levered in positions that threatened spreading the company's disease throughout capital markets. At the same time, an unstable Bear, meant investors in Bear's asset management vehicles might draw significant capital due to the prisoner's dilemma.
The prisoner's dilemma is when two criminals agree not to implicate each other and to claim innocence. In the situation, if both prisoners stay quiet, they both go free. However, if one rats out the other, and the other stays quiet, one goes to prison and the rat goes free. If both prisoners lose their cool, they both go to prison. Thus, the dilemma. What will the other guy say in isolation...
Investors in Bear Stearns managed portfolios might keep the capital in play, but if other investors drew capital in significant numbers, the funds would have to liquidate holdings, pressuring the investments held through significant forced sales. As a result, even loyal investors would get nervous and sell as well. The activity could spill over into other securities and other portfolios might also start selling off. In other words, there existed potential to trigger a mass selloff in the entire market. This is just one reason why the Fed intervened.
That's not going to appease the only loser, Bear Stearns shareholders. Considering the whole spark of the turmoil might have been a false rumor, the government might be wise to correct the situation. It's been rumored that the Fed scolded bankers not to spread false rumors about their competitors, and that seems to imply the possibility of that occurance in this instance. We have no information to help place blame, but we welcome it if a reader has an idea. Comment to this article anonymously if you like, and help us shed light on who might be to blame. The SEC would like to know also...
Bear Stearns shareholders, say a prayer. You still have a chance to recover some wealth. We feel for you here at The Greek.
(disclosure)
posted by The Greek | 4:00 PM
1 Comments:
You need to stick to the facts..... Consider this:
Bear is actually being taken over with a PREMIUM to its market cap from friday 5.5bil...
JP has set aside over $6bil to cover the potential transactions and litigation expenses that will occur due to Bear Stearns dimise that along with the per share takeout offer would bring the value of this takeover at about $7billion !
and the only asset of value remaining is the Bear Stearns building at about $1.4 which is already pledged to JP and JP if it chooses to walk away still retains the ability to acquire upto 20% of Bears shares at $2...
So you want a white knight to pay more than $7billion and not even get the building..lol not to mention the backing of the FED...lol
Stick a fork in it... its done.
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