Yesterday’s announcement that JP Morgan Chase was purchasing Bear Stearns for $2 per share, or about $236 million was a great deal for JP Morgan and a lousy one for Bear Stearns shareholders.
The Federal Reserve helped negotiate and finance the deal in an effort to prevent widespread panic that the credit crisis was going to take down other financial companies, deepening the problems. Had the Fed waited one day, however, the markets would have found that both Lehman Brothers and Goldman Sachs, two Wall Street powerhouses, had earnings that, although reduced by the sub-prime exposure, beat most analysts’ estimates. It seems that the carnage on Wall Street might just be limited to a handful of companies that were particularly aggressive in this space.
So who wins in this situation? Only time will tell if this, and other Fed moves, helped stave off or shorten a recession. Certainly, JP Morgan stands to benefit TREMENDOUSLY. Bear Stearns headquarters building, which they own, is worth TWICE what JP Morgan paid for the whole company. Many analysts feel that the fair market value of Bear Stearns is somewhere around $40 per share. Lawsuits are sure to follow so I guess, at the end of the day, the attorneys, as always will come out the big winners.
As I write this, we are less than 30 minutes from the Fed announcing what most people think will be a 1/2 to 1% cut in the Fed Funds rate.
I’ll keep you posted.