The 85-year old Bear Sterns has fallen! Purchased at a basement price of USD 2 a share, the US investment bank was bought out by JP Morgan for a measely USD 236 million.
How can that be, when the assets of Bear Sterns are worth more than that?! Here’s what I gathered from today’s MSN Money article:
* Last week, Bear had a book value in the USD 80 range, and the company was expected to report an earnings of USD 2 a share (which didn’t happen).
* The Bear Stearns building alone is estimated to worth about $1.2 billion.
* Bear’s prime brokerage business is worth $3 billion and its asset-management business is worth $1.3 billion, according to Sanford Bernstein analyst Brad Hintz in this afternoon’s note.
From USD 150 to almost 0. Unbelievable.
According to the article, Bear shares plunged 47% on Friday, and another 85.5% today after the company announced that it had obtained financing from JPMorgan and the Federal Reserve Bank of New York. The below is a appropriate shocking reaction:
“One reaction is shock that a company that reaffirmed its book value at around $84 on Wednesday can be worth $2 per share four days later on Sunday,” Deutsche Bank analyst Mike Mayo said.
Another agreed: “For Bear’s stock price to go to effectively zero, contrary to market expectations, even at the close on Friday, tells us that something is systemically very wrong and we’re at a very dangerous moment,” said David Goldman, portfolio strategist at Asteri Capital to Bloomberg News.
The news places 14,000 Bear Sterns employees out in the dirt. What will happen to their livelihood? Wait, if it’s so easy for Bear Sterns to be in this deep shit, then where does that leave us who are their peers in the investment banking industry who are also saddled with mortgage-backed debts?
Fortunately, though my company’s been hit particularly hard (so no, I do not work for Goldman Sachs), we are still optimistic of the future. Shit happens — how you handle it makes all the difference.
Regardless, the news is shocking. How can one company so big last week fallen so hard in such a short period of time? What’s more, how can anybody value the company for so little?
Personally, I think amidst of the panic, JPMorgan got itself a great deal.
At a mere USD 200+ million, which is well worth below Bear’s book value, they have eliminated a competitor, tapped into its valuable labor and asset resource, and after the smoke clears, will find themselves in an even better position to compete with the rest of us.
My boss says it right when he told us today, “This is a golden opportunity — as more clients are getting increasingly confused on what to do in today’s unpredictable markets, it’s the perfect time for us to seize opportunities to hold them by the hand and lead them. They need us to help make the right decisions when they’re getting more confused. This (turmoil) shall pass, and if we can seize the opportunities of today, we can well reap the benefits of tomorrow.”
I believe him.
Which is why I’ve yet to pack my parachute and prepare for a good fight.
In dismal moments such as these, it’s important to look at the team you’re fighting for. And though we’ve equally sustained a few injuries ourselves, am confident that at least, my team’s ready to fight a good fight.
And hopefully, I can learn and take advantage of these opportunties at work as well.
Happy week everyone!
2 thoughts on “OMG.”
The flip side of crisis is opportunity. Life is always yin and yang, always a duality.
True. True. Just hope we’re all smart to profit from it! 🙂
Thanks btw for posting about the Fed. Very insightful. Enjoyed reading from it!