JPM Deal: Buy Bear Stearns HQ, Get iBank (almost) Free!

With the $2 deal now gone, and a new $10 deal agreed upon, the agitation has begun for a $15 deal.

I am considering the $10 deal as buying the HQ property for $1.1B, and getting the rest of the firm for a mere billion bucks.

But those who think they should be pushing their luck may want to be a bit cautious. At a certain point, JPM may just say, "thanks for the building, you’ve got 90 days to vacate . . ."

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  1. michael schumacher commented on Mar 24

    that this is how the “bankers” do business as the empire is crumbling down around them is a total travesty. The fed is allowing BSC to blackmail them into a “better deal”..

    This is a bailout…….does no one else see that??????


  2. Ant commented on Mar 24

    Concur. I am as anti-bailout as they come, but I agreed with Barry last week that this was not a bailout of BSC so much as an orderly liquidation.

    On renegotiation of price, the Fed should have pulled their (illegal, btw) 30 billion dollar subsidy. The 3% reduction is a joke. This is no longer an orderly liquidation, it is an illegal transfer of US Taxpayer wealth directly to Wall Street players.

  3. michael schumacher commented on Mar 24

    MS 48.79 -.88

    The next shoe to be bailed out………

    I’m sure we will all be told how wonderful that will be.


  4. Steve commented on Mar 24

    Call it whatever you want, but it prevented a total collapse of the financial markets and the Fed knows it. Do you think the US taxpayer would have complained about the lack of Fed intervention if US markets were down 20% on the day?

  5. Ben commented on Mar 24

    Am I the only one who is not getting this.

    If you have a deal at 2 bucks why would you raise it? Let them sue they are going to sue anyway. A deal is a deal my friend. Sometimes people get a good deal deal or a “steal of a deal”.

    Something is off here.

  6. A. Melmotte commented on Mar 24

    At $2 one could plausibly make the excuse that this was an “orderly liquidation” orchestrated by the Fed.

    At $10 this begins to look like a bailout.

    A price of $10 per share implies that there was sufficient value remaining in B-S that the Fed badly mishandled the negotiation of the “rescue” by JPM. Even though JPM has now offered to assume liability for the first $1bil of Bear’s outstanding liabilities, this still leaves the Fed to cover the remaining $29bil using taxpayers’ money. JPM’s “increased” liability in the revised deal is a token; a fig leaf that cannot disguise the now-evident nature of the transaction.

    The controversy surrounding the agreement by JPM to assume resposibility for B-S’ losses *regardless of whether the sale was successfully concluded or not* adds another wrinkle. As others have noted, this element of the bailout plan was discussed by management during the Sunday evening conference call. For anyone at JPM to now claim that this was “inadvertent” implies that JPM management are either disorganized or disingenuous – or both. It should also call into question just how much exposure JPM has taken on, particularly is the financial markets experience continued uphevals in the months ahead. If the deal that was assembled is this haphazard, can their due diligence – conducted over no more than a few days – have been any more thorough?

    Would it really have been so bad to simply let Bear fail? It was evident for many years that Bear-Stearns, though large, was at best a mediocre performer, delivering indifferent service to its prime-broker and clearing clients, led – if one can use the term – by a complacent management that was more than pleased to collect exaggerated compensation when things were easy. If the firm is really worth $10 a share, then why didn’t its management attempt to either drive a harder bargain or court another last-minute suitor?

    Viewed at a distance, the hastily arranged marriage between JP Morgan and Bear-Stearns is increasingly coming to look like a political and financial fiasco. I have an uneasy feeling that a reactionary Fed, acting to prevent a short-term disruption of the financial markets by arresting the collapse of a major bank, has only postponed the reckoning once again.

  7. Diarmuid commented on Mar 24

    Ben – I’m totally with you. While I’ve absolutely no doubt that Jamie Diamon knows what he’s at (he is the best Financial CEO around), this new deal doesn’t make sense.

    Why are JPM now willing to take the first $1B hit?

    Also, so what if another bank came in and got another deal through (how I’d never know) JPM would still be sitting pretty in their new $1.1B HQ (across the road from JP’s other 2 key buildings) ….oh and a 20% stake in BSC

    And who exactly would be interested in taking on 80% of BSC less it’s $1.1B HQ with full exposure to it’s downside? I know Joe Lewis and Co aren’t the happiest campers in the world right now, but even with his business sense he could figure out that the above is not an attractive deal. What JPM got was!

    If anyone can break this down I’d appreciate it!

    Oh and Bloomberg TV said Thursday that therer was major rumors on Wall St about a brokerage firm (not Lehman) under pressure. Any ideas?

  8. Stuart commented on Mar 24

    State sanctioned raping of BSC…. Market rigging at the highest level it is.

  9. Ant commented on Mar 24


    Yes, I’m familiar with the argument. “If we go down, we’re taking the market with us.”

    In other words: “we’ve taken hostages.”

    There is a reason the US has an official policy of not negotiating with terrorists. The basic logic is that if you give in to terrorist demands, you’re guaranteeing that you’ll have to do it again and again – – and you put everyone in that much more danger as a result.

    I think the same logic applies here. So the market corrects. Severely, even. When did the Masters of the Universe on Wall Street become such a bunch of pansies that this became “unthinkable?”

    As for what would the taxpayers think – – the ones I know are a hell of a lot more worried about the fact that it costs them 2-300% more to go grocery shopping then it did just a couple years ago. They could care less about a 20% market correction – they’ve just finished experiencing a > 50% drop in their purchasing power, without being given a choice about whether or not they wanted to play.

  10. Tom O commented on Mar 24

    “Why is JPM willing to take the first Bill hit?”

    Because the freaking Fed is going to take the next 29, and JPM is making out like a bandit at taxpayers expense. What’s it up- 30% or so in a week?

    That’s the way you do it, money for nothin…

  11. Stuart commented on Mar 24

    As I mentioned on an earlier post, we’re going to get inundated with treasuries…

    From Lee Adler:

    The Treasury stunned the market on Monday with the release of a gargantuan auction calendar totaling $136 billion raising $52 billion in new cash this week as US Government finances continued their headlong collapse. This was $30 billion more than the Treasury Borrowing Advisory Committee had estimated for this auction in its report issued January 31. The auctions included $20 billion in CMBs that were not on the TBAC’s radar at all just 7 weeks ago. That sent Treasury prices careening lower and yields soaring.

  12. rmk commented on Mar 24

    it’s not as simple as that barry. don’t forget the $6 billion that JPM estimates the deal will cost them in likely litigation expense, integration costs, further writedowns (they’re on the hook for the first billion), severence costs etc. The raise from $2 to $10 per share really only increased the total purchase price from about $6 billion to about $7 billion. take a look at the JPM slide presentation that went out along with the deal announcement for the exact figures…the media seem to completely ignore these costs in their stories.

  13. rmk commented on Mar 24

    oh, and don’t forget, i’ve heard that the building is not owned by Bear free and clear…there is several hundred million dollars of complex financing backed by that real estate on Bear’s books that JPM is taking on…

  14. Melmotte commented on Mar 24

    Me again –

    So the Fed is only on the hook for $29bil in the “revised” deal. Does anyone really doubt the likelihood that JPM will manage to use up every single penny of those funds “cleaning up” the Bear acquisition?

    I’m getting tired of politicians proposing bailouts for the “victims” of the credit crunch. On the one hand, the Fed bails out reckless – or merely foolish – banks and IB’s. On the other, populist politicians of all stripes propose “rescues” of home-renters facing foreclosure.

    In both cases, the money that is offered for use is ours.

    What happens to the rest of us? Those of us who have played by the rules, saved our money, avoided reckless spending and debt, read the fine print before signing, and shied away from buying things we knew we couldn’t afford failing divine intervention (or another bubble)? It strikes me that we’re in the majority, and yet we remain silent while the pols penalize us.

    Those of us who rent property still can’t afford to buy at current price levels, yet officials propose bailouts and forebearances that would have the effect of supporting housing prices at their current -exaggerated – levels. The fed is expending its reserves – our tax dollars – to support financial institutions that behaved recklessly while their management earned exhorbitant incomes. Bernanke and the guvs cut real rates to zero, ensuring that my hard-earned and carefully conserved savings are worth less and less. Meanwhile, a falling dollar has fueled inflation forcing me to pay more and more for basics like food and fuel, and crippling my ability to consume.

    What’s wrong with this picture? Have any of these assholes ever read anything by Schumpeter? For that matter, have they ever read an economics textbook? Am I the only one who feels like he’s getting screwed for NOT being stupid for the last several years?

  15. Gary commented on Mar 24

    This is beginning to smell like a mushroom farm fertilized with fish guts and chicken sh*t.

    The Fed could have set their back stop elsewhere and let BSC fail. That maybe would have scared some sense into the greed mongers. And another 20% down on the market would go a long way toward clearing out volatility.

    From orderly liquidation to bailout. Moral hazard indeed.

  16. curmudgeonly troll commented on Mar 24

    if I’m buying real estate, I’d rather get free granite top counters or a swimming pool thrown in.

    or a toaster.

  17. maximo commented on Mar 24

    With this latest move we no longer have the moral high ground to criticize nations like China. This is pure state capitalism. Does that mean the front door of Bear Stearns will read: Property of the People of the United States?

  18. wally commented on Mar 24

    Has the Fed agreed to any new deal? Change one term, change them all, would be my attitude.
    When the billions start flying this fast and loose, there is funny stuff somewhere.

  19. Melmotte commented on Mar 24

    Barring any new revelations – I think the key element behind the “revision” of the terms of JPM’s absorbtion of Bear-Stearns was the agreement by JPM to assume Bear’s liabilities regardless of whether the deal was completed or not. How the geniuses at JPM let this one get written up I don’t know. Certainly, it puts a dent in Dimon’s halo.

    Given that the Fed had guaranteed $30bil to support the acquisition, just who exactly did Bear’s proponents think was going to step forward with an offer of more than $2? Who could possibly have competed with a guarantee like the one Bernanke gave Dimon? For that matter, who would want to? It’s no more realistic to think that Bear’s management could assemble a better proposal, with or without the assistance of Lewis (whose due diligence, in retrospect, looks no better than JPM’s).

    That said, I can’t understand why JPM felt compelled to sweeten the deal, unless reducing the acrimony (and lawsuits) is really that important. Even at $2, with the backing of the Fed it was as good as a done deal. A pity JPM agreed to back Bear’s losses; without that, they could have walked away from the deal and the angry Bear shareholders. Now, to placate the B-S crowd, Dimon feels compelled to grease the ways. The only possible reason I can see for this is defensive: if the deal had failed at $2, JPM would still be stuck with the s**t from Bear’s book. Now, with the deal more likely to proceed without opposition at $10, when the full scope of JPM’s exposure becomes apparent, Dimon can at least go to the shareholders and say “look at what a shiny building I bought”.

  20. Sanjay Bigglesworth commented on Mar 24


    It will be interesting to see if there is any way to track JPM’s use of the Fed backstop in the coming months/years.


  21. A. Melmotte commented on Mar 24

    @ Sanjay – I’m presuming that JPM’s use of the Fed’s guarantee will be made public, albeit quietly, and not all at once.

    If Bear was really as deep in the s**t as they say, I suspect that Dimon & Co will make use of this facility within months, not years.

    @ RMK – you’ve got some good points, there. Still, this deal smells increasingly like “bailout” to me. With this latest change, it makes the Fed’s liquidation of Bear look about as “orderly” as Gordon Brown’s nationalization of Northern Rock.

  22. Lawrence Yun commented on Mar 24

    We have lost our government. The treasury has been looted, the Constitution trashed. People don’t seem to care. They’re too busy out shopping. How many mom-and-pop Americans do you think play the market? Seen the volume of trades lately?

    Why would anyone do this?

    Money – or should I say, wealth.

  23. larster commented on Mar 24

    The fed is not telling us what kind of crap they are accepting in the TAF. Do you suppose we will be able to track the JPM backstop? Better to think of it as a taxpayer colonoscopy w/o the anesthetic.

  24. edhopper commented on Mar 24

    What about the sales last week of BS at $6. I am sure a lot of folk sold off, instead of waiting for the $2 sale to JP Morgan. Now they find they lost out on another $4 a share. Was there something the buyers new (inside perhaps) that the sellers didn’t.
    There is cause to look into this.

  25. njdoc commented on Mar 24

    michael schumacher said,
    “This is no longer an orderly liquidation, it is an illegal transfer of US Taxpayer wealth directly to Wall Street players.”

    This is it in a nutshell. This is what it has always been, but it is more apparent now. Wall Street has been playing a game of financial “brinkmanship” with the Fed for years. Every time there is a crisis, they threaten mutually assured financial destruction, so the Fed always blinks. But it’s obvious that JPM stole 30 billion dollars of our treasure to bail out Bear Stearns. This has gone past crony capitalism. There have been so many political figures that have entered the finance sector, that tough political-economic decisions are not being made. (e.g. look at the Carlyle Group). Our political/economic landscape has begun to look very much like Japan. That is why I believe that this type of transfer of wealth from poor to rich is a form of feudalism. We must all pay tribute to the Lords of Wall Street! All those kids who died in Iraq died for the United States of Wall Street. I hope the parents will happily transfer their savings to The Street!

  26. JGFY commented on Mar 24

    F’n B – Orderly Liq My Ass!
    History will harshly judge Treasury & Feddies illegal windfall gift of BSC to JPM. And why did the deal have to ink over the weekend with no due diligence or competive bids – to save the Asian markets from meltdown! WTF? And just for grins let’s throw in a $30B non-recourse govt loan to boot? Criminal. This entire financial cluster F&!# can be directly traced to Greenspun, C and JPMs bank deregulation efforts that culminated in the repeal of Glass-Steagall in 1999. Anyone still think our banking systems the envy of the world?

  27. dave commented on Mar 24

    Well, as someone else pointed out, the salaries, bonuses and golden parachutes were saved for everyone involved, who also happened to be large campaign contributers. Later this week, when the deal is negotiated again to $15, then $20, even the stockholders will be made almost whole. And why shouldnt BS be worth more, now that the Fed has unloaded the toxic sludge?
    This fall, Paulson resigns as Treasury Secretary and takes a seat on the board of JPM.

  28. Tom O commented on Mar 24

    This deal was sold to us as vital to the survival of the global financial system/ If it was all the vital, why are a small group of shareholders capable of holding us the world for ransom? Why is only the Fed being asked to pay it? Why isn’t there some coincident requirement that a insurance funds of some kind be established so the participants that most directly benefit from this fiasco can in time pay for it. Why hasn’t anyone been indicted for fraud. Why hasn’t anyone been fined? Why hasn’t anyone been forced to disgorge their profits?

    This is either a crisis or it’s not. If it’s a crisis, the entire government has to be involved, has to be responsible, and it has to be a public process. Secret weekend deals that enrich private companies and give speculators the opportunity to make billions of dollars in profit from taxpayer subsidized stock prices will lead to catastrophe.

  29. Shane commented on Mar 24

    This is what happens when you give the gov. an inch . . . they will take it 100 miles.

    Before you tell me the Fed is not the government . . . when you have an organization given money making power, granted a monopoly by the elected government, that determines monetary policy (dropping interest rates and BS-“buyout” IS monetary policy), it is in effect the government.

    “Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.”
    George Washington

  30. Royce commented on Mar 24

    At what point does Bernanke develop an appropriately-sized set of balls to accompany the power of his position? I wish they’d find him with a hooker so we could get someone who isn’t willing to just rollover whenever the howls start coming from Wall Street.

  31. me commented on Mar 24

    I never had confidence in Paulson, but I am now losing confidence in Dimon, Bernanke and Geithner. They are just grasping and screwing those of us that played by the rules.

  32. ChangJ commented on Mar 24

    This change in the deal is utter travesty for the supposed free market capitalist system that these same investment banks have been championing for years.

    When push comes to shove, the government steps right in and holds their hands and say everything will be all right.

    Whoever did the contract and not realize the massive loophole that allowed JPM to hold the liability and backing for BS without guaranteed deal closure should be fired. This is the only reason why they were free to hold the deal hostage essentially. A bankrupt company is worth nothing.

    I guess whining, holding your breath, and stomping around sulking still works, even at the top levels of the financial system.

  33. Ken H. commented on Mar 24

    they will serve this turd up and the taxpayer will eat it like they always do. No need for shadow op bailouts, straight up right in your face.

    Reminds me of how they will serve up candidates for this election. You have a choice you know. Get everybody you know to write in another candidate.

    We have become so predictable.

  34. Tom O commented on Mar 24

    I Want Ber Nan Na Kee (to the tune of, what else, Money for Nothing)

    (Ethereal background voice, strangely reminiscent of Sting.)
    Send in Bern an na kee
    Send in Bern an na kee

    (Bitchin Guitar intro….)

    Look at those good suits, working on a weekend
    Gettin money from Ber nan a kee
    Not a bailout, that’s not what they’re wantin
    They want Bear for two bucks and the building free

    Not a bailout, that’s not what they’re wantin
    not asking for a bailout, no
    Just want a little for the bond guys
    Just a little for the board

    They’ve really screwed the shareholders
    Guys who paid one seven three
    They ain’t asking for a bailout,no
    They’d rather do the work for free

    It sounds like there are a few share holders
    That have a little beef with them
    Six bucks a share on Friday evening
    On Monday morning it’s gone up to ten!

    They ain’t asking for a bailout,
    They’d rather do the work for free

    (Another bitching guitar solo)

    They’ve really screwed the stockholders
    The guys who paid one seven three
    They ain’t asking for a bailout,
    They’d rather do the work for free

    I never took the class at B-school
    that taught me how to play this game
    LEH is dropping… 20 and a quarter
    I never should have shorted then
    What’ up there. Oh no- LEH is spiking
    My 401k looks like 2001

    Not a bailout, that’s not what they’re wantin
    They want Bear for two bucks and the building free
    They’ve really screwed the stockholders
    The guys who paid one seven three
    They ain’t asking for a bailout,
    They’d rather do the work for free
    (more guitar, dog howling)
    Not a bailout, that’s not what they’re wantin
    They want Bear for two bucks and the building free

    (Repeat, fade

  35. pft commented on Mar 25

    Beautiful move.

    Announce a takeover at 2 dollars a share.

    Allow shares to trade while a deal is being finalized (normally doesn’t trading gets suspended/).

    Sucker those small guys thinking they are only going to get 2 dollars a share and get them to sell out at 4-6 dollars, while JPM sucks them up. Reducing the number of investors who will be involved in a class action suit.

    Announce a new deal at 10 dollars a share, still a steal. Those still holding sigh in pleasure, forgetting they still got ripped off, and forget the suit. Those who sold at 6 dollars, open window and jump.

    Couldn’t have planned this fraud any better myself. Sheer genious.

  36. rmk commented on Mar 25

    oh, i agree 100% that this is a bailout and an absolute mess. i just pointed out those figures because I also don’t think JPM is getting as good a deal out of it as the original post implied

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