Bear Stearns likely goes bankrupt

[Greg Bernhardt]

Bear Stearns likely goes bankrupt!

WOW! After the Bear Stearns CEO goes on CNBC two days ago and says there is no liquidity problem and their financials haven't changed, today sought assistance from the fed and JP Morgan to bail them out. Stock down 45% so far today! Common stock is thought of as useless. Pensions gone. Tragedy. Will be likely bought by JP Morgan now for pennies. Also calls for insider trading last month. SEC should investigate both CEO and insiders. BSC and C have analysts. They saw this coming for everyone BUT themselves? No, I think C and BSC shareholders have been lied to.

Interesting note: jimmy cramer, pumped this stock when it was $80, last month. whoops

 

[Astronuc]

About this time last year, BSC stock was about $160/share, and now it's about $30/share.

Bear Stearns gets help from Fed, J.P. Morgan
Broker admits its liquidity 'significantly deteriorated'; mulls alternative options

SAN FRANCISCO (MarketWatch) -- Bear Stearns Cos. said Friday that it got short-term financing from the Federal Reserve and J.P. Morgan Chase after the brokerage firm's liquidity "deteriorated significantly" during the past 24 hours.

. . . .

J.P. Morgan also said it's working with Bear to secure permanent financing or "other alternatives" for the brokerage firm.

"Our liquidity position in the last 24 hours had significantly deteriorated," Alan Schwartz, chief executive at Bear, said in a statement. "We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.

"Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity," he added. "We have tried to confront and dispel these rumors and parse fact from fiction."

Despite those efforts, Schwartz said "market chatter" had undermined Bear's liquidity.
Bear has been hit hard this week by growing concerns that it's struggling to trade with some counterparties. Some market participants have been worried about Bear's exposure to the dwindling mortgage business and its holdings of securities backed by home loans. Trading is the lifeblood of brokerage firms, so when counterparties pull back trouble often ensues.

Bear built a business focused on originating mortgages and repackaging them into mortgage-backed securities and collateralized debt obligations, reaping profits from the whole real-estate financing process.

. . . . .

I don't suppose they'll have to give back those bonuses they paid themselves.

 

[Greg Bernhardt]

http://www.bloomberg.com/apps/news?pid=20601087&sid=a9aawiNihxCk&refer=home

Joseph Lewis lost nearly a billion dollars on this, oh man

 

[Astronuc]

From that article -

``The problem is Bear's business model is broken,'' said Richard Bove, an analyst at Punk Ziegel & Co. ``They won't be able to get the earnings to the 2006 level for another five to six years. That's a good reason to sell the stock.''

If BSC doesn't declare bankruptcy, then it might be a good long term investment, that is if they fix their business model.

After the big write-downs, some financial companies might be good bargains.

Apparently Citibank is looking at selling some assets.

Goldman Sachs seems to be only solid ground, since they stayed away from the subprime market. JP Morgan is probably pretty solid.

 

[Jimmy Snyder]

A long time ago, Morgan Stanley told us to sell Microsoft short, while Bear Stearns said to buy it. My wife and I talked it over and decided to go with Morgan Stanley and take a short position. But the stock kept going higher and higher. Eventually, we had to drop our shorts and go with Bear Stearns.

 

[Astronuc]

Shorting Bear Stearns yesterday would have been a good move. But who would've known yesterday that 24 hrs later, BSC would announce a severe liquidity problem. It would seem, someone must have realized yesterday or even the day before that there were problems - someone is just running the company on hope and prayer.

 

[Art]

From that article -

If BSC doesn't declare bankruptcy, then it might be a good long term investment, that is if they fix their business model.

After the big write-downs, some financial companies might be good bargains.

Apparently Citibank is looking at selling some assets.

Goldman Sachs seems to be only solid ground, since they stayed away from the subprime market. JP Morgan is probably pretty solid.

I'm not sure you can say anyone is safe at the moment.

Northern Rock in the UK had nothing to do with sub-prime mortgages or their derivatives and still took a pasting because banks wouldn't lend to each other and their business model was based on inter-bank loans.

Financial institutions rely totally on confidence and all it takes now is the merest hint of a rumor regarding liquidity for that confidence to instantly disappear. It's hard for depositors and investors to have confidence in financial institutions when these same institutions no longer have confidence in each other.

 

[fourier jr]

someone's running the whole country on a hope & a prayer

 

[Astronuc]

Reflections on 1907

Bear Stearns' bailout has echoes of 1907 panic
J.P. Morgan, the banker and the company he founded, have played key roles

. . . .
In 1907 J.P. Morgan rallied his fellow bankers to help faltering banks and trust companies, which had been shaken by poorly timed investments. He convinced rivals that they had to band together or else risk a market collapse that could destroy them all. Ultimately, the bailout helped avert a financial crisis in the nation's banking system.

The latest credit crunch took a turn for the worse Friday. Stocks fell sharply after Alan Schwartz, Bear Stearns' chief executive, said the company's liquidity position had deteriorated significantly in the previous 24 hours. Bear Stearns has been rocked by its exposure to the subprime mortgage mess.

The news unnerved markets because the CEO earlier this week had denied rumors that the beleaguered Wall Street firm was facing a liquidity crisis as other banks reportedly refused to engage in transactions with it. Bear Stearns' rapid downward spiral highlights that banks, unaided, can go under quickly when their liquidity is in doubt during a crisis of confidence.
. . . .

Others are waiting for other shoes to drop, and apparently there are a lot of shoes that could drop.

S&P thinks the worst is over and the economy should be on the rebound. Others think the current economic woes will continue into 2009.

 

[Jimmy Snyder]

We have tried to confront and dispel these rumors and parse fact from fiction.

Maybe that's his problem.

 

[Astronuc]

One man's fact is another man's fiction - or something like that.

'I should walk over and make a bid for their building, which is really nice.'
— Barry Ritholtz, Ritholtz Research

Ritholtz Research is next door to BSC.

QUOTES OF THE DAY on MarketWatch
'Ridiculous, absolutely ridiculous.'
— Bear Stearns CEO Alan Schwartz, March 10, addressing liquidity-crunch speculation

'Our liquidity position in the last 24 hours ... significantly deteriorated.'
— Schwartz, March 14


Is Lehman Brothers next?

Bear Stearns wilts, traders smell trouble at Lehman
Other financials also hit, including UBS and Citibank

 

[Jimmy Snyder]

One man's fact is another man's fiction - or something like that.

But is one person's 'parse' another's 'separate'?

 

[lisab]

Looks like the Carlyle Group reported yesterday that they were having trouble:

http://www.chicagotribune.com/business/chi-fri-global-markets-mar14,0,2097447.story

And this story presumes a link between Bear Stearns and Carlyle:

"Bear Stearns is one of largest players in the US mortgage market which is struggling under the strain of the sub-prime crisis and the ensuing credit crunch. This flows on from the collapse and winding up of a mortgage based Hedge Fund operated by US private equity group Carlyle Capital, where Bear Stearns is thought to be one of the Fund's creditors."

http://www.easier.com/view/Finance/Investments/Funds/article-168496.html

Wonder how many more are going to fall like Dominoes...

 

[turbo]

Why does the Fed (taxpayer money) step into prop up a mis-managed company? The "too big to fail" concept is a myth. Let the fools fail, and smarter, leaner, companies will start up to pick up the slack, and hopefully make better decisions. The bail-out of the over-extended savings and loan industry was shameful. These jerks got to engage in wild speculation, make obscene amounts of money as long at they were guessing right, then scream for a bail-out when it turned out they were over-extended and highly leveraged when the market turned against them.

 

[Greg Bernhardt]

Why does the Fed (taxpayer money) step into prop up a mis-managed company? The "too big to fail" concept is a myth.

Our taxes dollars hard at work helping bail out the billionaires.

 

[Astronuc]

I seem to remember during the last down turn in the economy, there was something about a millionaires' rescue fund to which people could contribute. One could pick a millionaire to support with a personal donation.

 

[Ivan Seeking]

Some people are starting to mention the D word... but that happens every time that we have a serious downturn in the economy. I can still remember the fear on peoples faces on Black Monday.

 

[russ_watters]

Some people are starting to mention the D word...

Who?

 

[russ_watters]

Why does the Fed (taxpayer money) step into prop up a mis-managed company? The "too big to fail" concept is a myth. Let the fools fail, and smarter, leaner, companies will start up to pick up the slack, and hopefully make better decisions.

I agree. All this does is encoruage risky behavior, while sending good money after bad. The Philly Enquirer interviewed a pair of economists from Drexel and Penn and they said the same thing. Short term, it keeps the downturn milder -- and so far, this one looks every bit as mild as the last one -- but long term, it makes the next one (and the next one and the next one) worse.

 

[turbo]

I agree. All this does is encoruage risky behavior, while sending good money after bad. The Philly Enquirer interviewed a pair of economists from Drexel and Penn and they said the same thing. Short term, it keeps the downturn milder -- and so far, this one looks every bit as mild as the last one -- but long term, it makes the next one (and the next one and the next one) worse.

That's something that the neo-cons don't get, Russ. They are deathly afraid to let market forces and competition play out in downturns. If they profess to believe in the value of a free-market economy, why do they fear allowing the market to operate? If Bear Stearns failed, there are a lot of enterprising individuals and groups willing to sweep in and pick up the pieces. If Morgan ends up owning Bear Stearns with taxpayer-funded guarantees, it will only consolidate risks and expose us to more dramatic failures.

Real conservatives would understand these concepts, Russ. There are few real conservatives in the Republican leadership anymore, and they are shouted down by the radicals who are bent on looting the US treasury.

 

[Ivan Seeking]

Who?

I've been hearing reports for a few days now. One was sent to me
http://www.independent.co.uk/news/b...t-fears-for-next-great-depression-796428.html

I've heard mention in a number of news reports; Mark Shields mention it on The News Hour yesterday; this morning David Broder stated on Meet the Press that "this is getting scary. The people who understand economics far better than I do will tell you the more they know, the more concerned they are about where we're headed economically." So there is a certain amount of fear out there.

 

[lisab]

A line from a radio talking head I heard today, analyzing the Bear Stearns bail-out:

"The profits are private, but the risk is socialized."

As far as Black Monday, the Asian markets open in about an hour. Don't know about you all, but I'll be watching them.

 

[Ivan Seeking]

"The profits are private, but the risk is socialized."

Heh, that's pretty good.

 

[Astronuc]

http://news.yahoo.com/s/ap/jpmorgan_bear_stearns

NEW YORK - JPMorgan Chase said Sunday it will acquire rival Bear Stearns in a deal valued at $236.2 million — or $2 a share — a stunning collapse for one of the world's largest and most venerable investment banks.

The last-minute buyout was aimed at averting a Bear Stearns bankruptcy and a spreading crisis of confidence in the global financial system.

The Federal Reserve and the U.S. government swiftly approved the all-stock deal, showing the urgency of completing the deal before world markets opened.

Bear Stearns shares close Friday at $30 a share. At their peak, the shares traded at $159.36.

The Fed will provide special financing to JPMorgan Chase for the deal, JPMorgan Chase said. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets. Risky bets on securities tied to subprime mortgages — loans given to customers with poor credit history — crippled Bear Stearns, the nations' fifth-largest investment bank.

At almost the same time as the deal for control of Bear Stearns was announced, the Federal Reserve said it approved a cut in its lending rate to banks to 3.25 percent from 3.50 percent and created another lending facility for big investment banks. The central bank's official meeting is on Tuesday. Before the emergency move to lower the discount rate, which is the rate at which banks lend each other money, the Fed was widely expected to again cut its headline rate by as much as a full point to 2 percent.

. . . .

Ouch! Somebodies are going to lose quite a bit of money considering BSC closed at 29.91 on Friday.

It will be interesting to see how the markets react tomorrow to this development.

And why is the Federal government intervening rather than allowing market forces to correct the problem?


So where was the fiduciary responsibility?

 

[lisab]

Gulp.

Hang on, folks. The Nikkei has dropped over 4%...

http://www.reuters.com/article/tokyoMktRpt/idUST29188420080317

 

[Greg Bernhardt]

Bear Sterns went from $160 to $2 in a year. WOW. Smells crooked to me. Some investigation needs to be done. This could easily turn into a domino effect. LEH next? You really can't trust any bank right now.

 

[russ_watters]

I've been hearing reports for a few days now. One was sent to me
http://www.independent.co.uk/news/b...t-fears-for-next-great-depression-796428.html

I've heard mention in a number of news reports; Mark Shields mention it on The News Hour yesterday; this morning David Broder stated on Meet the Press that "this is getting scary. The people who understand economics far better than I do will tell you the more they know, the more concerned they are about where we're headed economically." So there is a certain amount of fear out there.

I just don't get what they are afraid of. The markets are only down 10% or so from their highs and if we are in a recession, it's taken a year to get there since the housing market started to tank. So far, this doesn't even compare to 2000-2001 (-2003), which was about the mildest recession ever. And that was prompted in part by the worst bear market since the '70s, a complete economic shut-down for a week, and the S&L crisis.

 

[Ivan Seeking]

You really can't trust any bank right now.

...This is all about confidence. The more the central banks do, the more the banks seem to ignore what's going on."

Mr Taylor added that the problems unravelling at Bear Stearns are just the beginning: "There will be more banks and hedge funds heading for collapse."

One of the problems facing the markets is that, despite the Fed's move last week to feed them another $200bn, the banks are still not lending to each other.

"This crisis is one of faith. We are going to see even more problems in the hedge funds as they face margin calls," said Mark O'Sullivan, director of dealing at Currencies Direct in London. "What we are waiting for now is for the Fed to cut interest rates again this week. But that's already been discounted by the market and is unlikely to help restore confidence."

Mr O'Sullivan added that the dollar's free-fall is set to continue and may need cuts in European interest rates to trim the euro's recent strength against the dollar. "But the ECB doesn't like cutting rates," he said. [continued]

http://www.independent.co.uk/news/b...t-fears-for-next-great-depression-796428.html

 

[Greg Bernhardt]

I just don't get what they are afraid of.

You don't think all the other banks are also holding toxic waste? We will see other banks in trouble.

Alan Schwartz said everything was fine, then next day it collapses. What about all the people buying up BSC 30 puts on tuesday for 20 cents... think they knew something?
The whole business market is so corrupt it makes me sick.

 

[russ_watters]

You don't think all the other banks are also holding toxic waste? We will see other banks in trouble.

Perhaps, but if there hadn't been a run on the bank last week, this might not have happened. Unless this turns into a general panic, others shouldn't suffer the same fate. Apparently BS had it coming due to much bigger than typical exposure to the subprime meltdown.

I guess the question really is - have we seen the last from the likes of Citibank or do they have another shoe?

Alan Schwartz said everything was fine, then next day it collapses. What about all the people buying up BSC 30 puts on tuesday for 20 cents... think they knew something?
The whole business market is so corrupt it makes me sick.

Could be. If that's true, though, I think it makes it tougher for this to be a general problem rather than an isolated case. An article I just read really blasted the former CEO for being more into golf and bridge than running his company.

 

[Moonbear]

Perhaps, but if there hadn't been a run on the bank last week, this might not have happened. Unless this turns into a general panic, others shouldn't suffer the same fate. Apparently BS had it coming due to much bigger than typical exposure to the subprime meltdown.

That really is what did them in...panic. Not much you can do to prevent investors from panicking.

 

[Jimmy Snyder]

A line from a radio talking head I heard today, analyzing the Bear Stearns bail-out:

"The profits are private, but the risk is socialized."

It's a paraphrase from the book "What's the Matter with Kansas" by Thomas Frank. He wrote "Socialize the risk, privatize the profits". I vaguely remember hearing a similar sentiment perhaps by G.B.S.
I agree with the sentiment. The government should not be bailing anybody out of their bad investment decisions. This goes for the big and the small. If a bank robber suggests to you that you to rob a bank and you do it, it's your own fault. The same goes for buying a house you can't afford on the advice of duplicitous lenders.

 

[Poop-Loops]

It's a paraphrase from the book "What's the Matter with Kansas" by Thomas Frank. He wrote "Socialize the risk, privatize the profits". I vaguely remember hearing a similar sentiment perhaps by G.B.S.
I agree with the sentiment. The government should not be bailing anybody out of their bad investment decisions. This goes for the big and the small. If a bank robber suggests to you that you to rob a bank and you do it, it's your own fault.

The same goes for buying a house you can't afford on the advice of duplicitous lenders.

Uhhh... sure, at that point you go back to "privatize the profit, socialize the risk".

You're saying that Ponzi schemes shouldn't be illegal because people should watch out for it on their own?

 

[Jimmy Snyder]

You're saying that Ponzi schemes shouldn't be illegal because people should watch out for it on their own?

No, I'm saying that if the operator of a Ponzi scheme talks you into running a Ponzi scheme of your own, then you should suffer the consequences of your own actions.

 

[turbo]

This guy has got it right. The Fed is using our money as a piggybank for investment firms, banks, hedge funds, etc. It's time to let market forces drive corrections and let failing businesses fail. The "free market" is a myth in this country and until we get some fiscal conservatives in government it will remain a myth.

http://www.huffingtonpost.com/charles-r-morris/hero-of-wall-street_b_91806.html