$2 a Share for shares that were trading about $60 last week! Amazing things you can do with $2 per share in a bearish market.
Over the weekend Bear Stearns showed its empty wallet to the Fed and managed to convince US Treasury Secy Henry Paulson for a bailout plan.
And over the weekend, the Federal Reserve cut its discount rate by 25 basis points and offered to lend money to several financial firms, in an effort to prop up the US financial sector. Well, a lot of props have been put already (refer our previous posts on US Banking sector crisis).
With the help of further cut in discount rate, JP Morgan Chase offered to buy rival investment bank Bear Sterns for $2 a share, with a total value of $236 million. It could have been 99 cents per share as well, but no, that would look too bad! The deal occurred Sunday night, with the US federal government acting as a catalyst to avoid a bankruptcy.
For anyone who’s been looking at Bear Stearns, Cash flow problems have been brewing for the last few months – they had clearly over leveraged themselves – and this weekend did it.
To quote AP news:
JPMorgan Chief Financial Officer Michael Cavanagh did not say what would happen to Bear Stearns’ 14,000 employees worldwide, or whether the 85-year-old Bear Stearns name would live on after surviving the Great Depression and a slew of recessions. He told analysts and investors on a conference call that JPMorgan was most interested in buying Bear Stearns’ prime brokerage business, which completes trades for big investors such as hedge funds.
This CNN report has more info:
JPMorgan inherits some liabilities as well. For example, about $16.5 million property liability in the form of lease rental agreement that Bear Stearns had signed in London with the Canary Wharf Group (CWG).
This news over the weekend has resulted in hard falls of various stock indices across Asia as well. The Indian Sensex fell 951 points today (6% drop in one day).