i assume that there were billions in assets on their balance sheet related to the loans they have to collect. those will be / are being written down, as well, the company comes with millions in liabilities that JP Morgan will have to assume (ie: risk), this affects the price.
also, when you value a company, you care primarly about expected future returns... and in this case - well, things are not looking so good.
-- Edited by miguel at 12:05, 2008-03-17
yep.. there were 30 billion dollars in collectible loans on the balance sheet listed as assets that faced a high risk of not being collected. JP Morgan didn't want to include these assets as part of the valuation (rightly so) and the Fed ended up providing the guarantee for them.
so the feds bailed out bear stearns to the tune of 30 billion dollars. taxpayers paying!
but can the feds afford _not_ to bail bear stearns out... probably not, their bankrupcy would have caused pandemonium in the markets (if you think now's bad...)
now it'll be interesting to see who else goes down, other banks may need to be bailed out. i won't say that fraud went on, there's no evidence of bear sterns cooking its books yet - their stock was over 150$ a year ago so the market was responding to the risk, but the market obviously underestimated it.
But I would like to know why, on Friday, investors thought Bear's financial assets were worth $3 billion, when, in fact, they were worth something closer to -$3 billion something that the principals at Bear surely must have known for quite some time. If there's no fraud involved in that, then the word has pretty much lost all meaning.
Copyright 2008
Yes, I would qualify this as fraud and an outright lie that Bear Stearns portrayed while probably scrambling in the background to stop the ship from sinking.
i assume that there were billions in assets on their balance sheet related to the loans they have to collect. those will be / are being written down, as well, the company comes with millions in liabilities that JP Morgan will have to assume (ie: risk), this affects the price.
also, when you value a company, you care primarly about expected future returns... and in this case - well, things are not looking so good.
Imagine losing this much money practically over night!!! Geez!!! _____________________________________________________ In the deal crafted on Sunday for Bear Stearns, JPMorgan Chase agreed to pay a mere $2 a share for Bear less than one-tenth the firm's market price on Friday....The sale price includes Bear Stearns's soaring Madison Avenue headquarters.
....The cut-price deal reflects deep misgivings about Bear's future and the enormous obligations that JPMorgan is assuming in guaranteeing the firm's obligations. In an extraordinary move, the Fed will provide financing for the transaction, including support for as much as $30 billion of Bear Stearns's "less-liquid assets."
On Friday, Bear's ****tive market value was about $4 billion. Subtract the value of its physical assets (that soaring headquarters building), and its financial assets were valued at around $3 billion. What is it today?
Well, at $2 a share it's about $270 million. Minus the value of the Fed lifeline, which is.....hard to calculate. But it's a lot.
So: On Friday Bear's financial assets were supposedly worth $3 billion. Today they're worth, let's say, -$3 billion. Or maybe -$10 billion. Who knows?
For now, I won't argue with the Fed arranging this bailout. Maybe it had to happen, and maybe it will prevent some kind of larger systemic collapse. At the moment, that's more important than assigning blame.
But I would like to know why, on Friday, investors thought Bear's financial assets were worth $3 billion, when, in fact, they were worth something closer to -$3 billion something that the principals at Bear surely must have known for quite some time. If there's no fraud involved in that, then the word has pretty much lost all meaning.
