Bear Stearns Meltdown Timeline

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I usually don’t pay attention to short-term market moves, but I just can’t take my eyes off of this Bear Stearns train wreck! The recent timeline is almost amusing (assuming you don’t hold BSC shares…):

January 12th, 2007
Share price was $171.51.

March 10th, 2008 – Monday
Closed at $62.30 per share. From Bear Stearns CEO via Bloomberg:

“Bear Stearns’s balance sheet, liquidity and capital remain strong,” Chief Executive Officer Alan Schwartz said in the company’s statement. Alan Greenberg, the former Bear Stearns chief executive officer and current board member, told CNBC that the liquidity rumors were “totally ridiculous.”

March 11th, 2008 – Tuesday
From Jim Cramer via CNBC’s Mad Money:

Dear Jim: Should I be worried about Bear Stearns in terms of liquidity and get my money out of there? -Peter

Cramer says: “No! No! No! Bear Stearns is not in trouble. If anything, they’re more likely to be taken over. Don’t move your money from Bear.”

March 14th, 2008 – Friday
Closes at $30 per share. Federal Reserve gives emergency loan to Bear Stearns. CEO Schwartz clarifies earlier statement:

“Our liquidity position in the last 24 hours had significantly deteriorated. We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.”

March 16th, 2008 – Sunday
JP Morgan agrees to acquire Bear Stearns via a share exchange for the equivalent of $2 per share. The money for this is provided by the Federal Reserve Bank, which agreed to cover any potential losses if the loan defaults. Huh? How come I don’t get no-lose deals like this?

Now What?
Will this help contribute to a full 1% drop in the Fed Funds rate on Tuesday as is expected by the futures market? If so, it may be a good time to lock in some bank CD rates today. As for me, I’m going to have to re-read all those articles on why timing the market is bad. 😉

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Comments

  1. “Huh?” is what I’m thinkin’ too. I’m so confused. Who on the BSC side agreed to $2? What happens if a BSC stockholder doesn’t want to sell his/her shares for $2?

    I suspect that a year or two from now, if we look back on this deal, we’ll wonder how the $@#$ JPM got away with such a ridiculous steal – they’re expected to make (after taxes) 4x the purchase price in 12-18 months!

  2. Wow thats scary!

    The last paragraph just makes me angry. So much for my “high yield” savings account”. Its sad that everyone who ran up all this credit debt gets the gift of lower interest rates meanwhile the people who are trying to save their money get shafted.

  3. Thanks for that excellent summary, Jonathan! The only thought that crosses my mind at the moment is “there it is, yet another piece of the American empire crumbling away”. I’m very glad this economic mess is happening, actually – it will expose raw greed and the stupidity of these economic “pundits” for all to see.

  4. I don’t get it — please explain more. Why is Chase buying Bear Stearns at $2 a share, when they closed at $30 on Friday? I know they lost half their value (and why is that anyway? — what’s the liquidity problem?) during last week, but why are they selling themselves at a 15 times discount? What’s the real deal?

  5. How the mighty have fallen…

    Something to keep in mind is that BS (that’s right!) was one of the more aggressive investment banks on Wall St if memory serves me correctly so although this isn’t a positive event by a long shot, I wouldn’t start assuming that banks will start suffering the same fate.

    As for market timing – it’s still luck of the draw – there were undoubtedly some investors who bought some BS last week thinking they were getting a great deal. It was pretty cheap after all. 🙂

    Mike

  6. Some said over the weekend that the stock price was $0

  7. Maybe timing the market is bad under average conditions. Perhaps the demise of the dollar is so eminent that taking money out of US securities is not timing the market as much as preparing for the obvious? Im not preaching doom and gloom since I havent done the analysis. However, my friends have all been getting out of US stocks and cash for the past 2-3 years. Two years ago, I was wondering why they were buying so much gold and oil – since then, both have nearly doubled. Today, they are still buying up gold and oil. There is so much negative press on the US economy and dollar that it wouldn’t surprise me if the DOW crashed below 10k. Where to put your money?????? Not Bear Stearns, ha.

  8. Note to self:

    Stop listening to Jim Cramer. I think this was the final straw!!

  9. someone needs to bitch slap cramer

  10. cramer- wall st hack. only cares about his buddies on the street..
    his buddy- ‘hey jim can you pump up stock xyz, i wanna sell some tomorrow, just say something like- stock xyz…booYAH!”
    cramer- ‘booYAH buddy, any other stocks?’

  11. Well…….I’ve always said this and I’m gonna keep sayin’ it…..

    It never fails that folks think they’ve got the market beat. And every once in a while, you find a diamond in the rough (Peter Lynch?) but too many people will always try to tell you they’re up 30% on the year, 5 years, 10 years and I just don’t buy it.

    My father in law adores Cramer and will surely frown when we talk of this fiasco. Of course Cramer will DENY, DENY, DENY based on the fact that he was ONLY GOING BY THE NEWS COMING DOWN THE PIPE.

    Well, Cramer, buddy….you just got pwned!! 😉

  12. Dan Isaacs says:

    Bah, if you are looking to Cramer for anything more than general advice then you have no right complain if he’s wrong. he’s entertaining, and that’s why I watch/listen to him. Not because he’s wise.

    I gotta say, there are likely quite a few big-name financial institutions that couldn’t make a margin call. Bear was just the first to fall. There will be many more.

  13. lol @ gt’s Cramer skit, that was right on the money, so to speak.
    Wall street “darlings” will come under HEAVY scrutiny now for sure, as the forthcoming Bear Stearns lawsuits start to reveal AGAIN just how much liability the company’s are keeping off the Balance Sheets. Just like Enron did w/ the invesment banks before it crashed.

    This (Bear Stears debacle) will only end up adding another layer to the accounting regulations in financial statements — that’s good news for me as a CPA candidate, but not-so-good news for US stocks as a whole, especially as the attractiveness of owning US securities continues to decline. Adding another layer to the already heavily regulated securities market will only increase the cost of doing business in US, right in the midst of the inflationary pressures that are also increasing the cost of doing business in the US. Not good.

    I think the Fed will also come under heavy scrutiny on their emergency bailout, the ONLY benefactor of which will be JP Morgan Chase — since they’re now able buy BSC for $235 million (before litigation costs). Why should we subsidize JPMs discounted purchase of BSC?

  14. FundInvestor says:

    I’m going to have to re-read all those articles on why timing the market is bad.

    ——
    Jonathan,
    Let me add a little bit more quagmire to this. I am sure you have read it before but now that you are re-reading Buy and Hold you may want to re-read market timing too. I am so confused, this market is testing my conviction of “buy and hold” every passing week.

    http://www.fundadvice.com/fehtml/mtstrategies/9410.html

  15. Well when there is only one bidder I’m surprised it didn’t close for .50 cents. Bear was bankrupt and insolvent, I would have let it die a sorry death.

  16. I think, this once again raises questions about accountability of the Corporate America.

    This whole Bear Stearns, JP Morgan and Fed drama is questionable. What was the reason for such a fast track takeover (blessed by Fed) and why JP Morgan Chase and why not some other institution ? How did they arrive at $2/share valuation ?

  17. I’ve seen some great Cramer videos compiled of his advice to do things he later denies. Pretty funny. But in a sad way, because there are people who actually think he’s a good stock picker.

    Thanks for the overview, Jonathan, I don’t follow individual stocks, so it’s nice to see a timeline and understand what people are talking about. 🙂

  18. Cramer is as good as most other stock pickers. You know the chicken pecking and the dart thowing methods right? However the monkey stock picker (Mr. Monk seriously) does better.

  19. I think I might start my own mock dart portfolio and track its progress vs my real portfolio. I probably wouldn’t like the results.

  20. bear was not keeping money off the balance sheet. it is not the same as enron.

  21. At least BS’s Chairman is still enjoying his bridge tournaments as his company melts down:

    http://www.reuters.com/article/bankingFinancial/idUSN1649428620080317

    Also, agree with everyone re: Cramer. What an idiot.

  22. Jake – Your comment is about as convincing as CEO Schwartz’ statement about BSC’s balance sheet and liquidity and carry as much weight as Jim Cramer’s comments. The lawsuits will reveal plenty… and the partner’s at the BIG 4 firm that audited BSC are definitely worried.

  23. shaneofstrength says:

    Not positive, but i think the caller’s question on the show was about the bank itself, in which case your money would be protected. If it was regarding the stock, that should be extremely painful for his viewers/listeners.

  24. it was basically either accept a buyout of $2 a share or file for bankruptcy…Not to defend Cramer or anything but I don’t think too many people saw this coming.

  25. How the mighty have fallen…

    Something to keep in mind is that BS (that’s right!) was one of the more aggressive investment banks on Wall St if memory serves me correctly so although this isn’t a positive event by a long shot, I wouldn’t start assuming that banks will start suffering the same fate.

    As for market timing – it’s still luck of the draw – there were undoubtedly some investors who bought some BS last week thinking they were getting a great deal. It was pretty cheap after all. 🙂

    Mike

  26. Dan Isaacs says:

    Yeah, if it was at all obvious that this was gonna happen, Cramer would have been so rich off of his shorting of BS that he could buy CNBC.

  27. For the record, and I myself have seen Cramer change his mind on a dime more4 than once but the question was in regards to an account with Bear and the reason Cramer defended it like he did is the account regardless of what happened or who bought Bear is covered by the SPIC and the person will not lose a thing. Also, on Friday Creamer said that the Bear stock was worth $0 but that the accounts would be covered and that the debt and preffered holders will be paid. And if you will check the preferred stock actually went up, today

  28. Great catch on another Cramer deception

  29. So, I just put our entire savings into a 4.00% CD. I’m sure this news is going to contribute to at least another 3/4 point cut to the Federal Funds rate.

  30. To those confused as to how the arrived at 2 dollar per share, heres a simulation:

    BSC: Damn, we’re really in the hole. We might have to declare bankruptcy.

    JPM: No, I’ll help you out and buy your company.

    BSC: For 30 a share?! sure!

    JPM: No, do I look stupid? How about 2 dollars?

    FED: Hey, I’ll even give u the money for it.

    JPM: Really? I’ll def do it now!

    BSC: SOLD!

    As for the investors, a number are already talking about suing for fraud. Big companies like Legg Mason will get paid, you and me will see nothing!

  31. anonymous-duder says:

    First of all, Cramer is an idiot. Entertaining, but an idiot. I think that is the whole premise.

    Today my Econ professor was talking about this whole thing. His take, not mine (I’m inclined to believe it though):

    Bear was one of the biggest real estate players.
    A collapse of Bear would’ve triggered an instant shockwave in the stockmarket.
    “Too small to live, too big and important to die.”
    Bernake (sp?) and his coherts set this up and pushed it through around 5pm on Sunday to beat the opening of markets in Tokyo (7pm) in order to avoid any effects. It was an 11th hour hour, very obscene because bailout Ben needed to stop any further slide.

  32. I’m sorry. I missed the part about where 200 billion dollars of tax money went to bail out a company so that was sold at a fraction of it’s value a year ago. Can I get that money back? I didn’t vote for that. I want my money. Somebody raked in some serious dough on this deal, and it stinks to high heaven. Apparently Hooker-man Spitzer was the highest opponent to this “deal”. It all makes sense now, FOX News runs a story on how Spitzer’s whore was on “Girls Gone Wild” yet somehow forgot how Spitzer’s removal allowed for this deal. Man, I’m so tired of being played for a sucker.

  33. Hi All –

    I work with a law firm that is investigating Bear Stearns, and whether the company protected employees’ interests during the recent stock collapse. Many Bear Stearns employees saw their retirement accounts decimated by recent events, and some are questioning whether Bear Stearns acted appropriately.

    Specifically the firm is looking into whether Bear Stearns lived up to its fiduciary duty to employees who held Bear Stearns stock as part of the company’s pension plan.

    If you are a Bear Stearns employee and are concerned that the company’s actions hurt you or your pension plan, you may want to contact Hagens Berman Sobol Shapiro (www.hbsslaw.com/bsc or info@hbsslaw.com) to learn more about the investigation or call the firm at 206-623-7292.

  34. I hate to be the “bear”er of bad news, but the top Bear Stearns execs DUMPED their stock in 2006. They rode out 2007 to cover their tracks, and then went into hibernation in 2008. The public was duped. It is well known that…”Bears often lay down false tracks and are notorious for doubling back on anything tracking them. “

  35. A primary reason that bailing out Bear was necessary is that BSC is a major securities clearing firm, providing service to many other brokerage firms. A bankrupt Bear would basically have put many other firms out of business, or tottering on the precipice of failure. A Snowball rolling down the hill!!!!

    Told to me – Seems Bear’s major loss exposure was based on the way it packaged mortgage securities for sale to investors…giving interest return guarantees.

    I don’t guarantee the accuracy of the foregoing statements.

  36. This issue has been bothering me for a while now. Bear Stearns collapse is not sudden issue just happened over night or over the weekend. This matter requires some thorough investigation to not to the roots of the problem only, but the end result to this deal that seems done in heaven.

    How come as soon as Bear Stearns collapse over the weekend another company J P Morgan comes to the rescue to buy it! How J P Morgan first new about what will happen to Bear Stearns that morning and be that fully prepared and ready to offer to buy it? Is it by sudden they knew that Bear Stearns is going down or someone inside already knew that this going to happen and such information passed to others? How come J P Morgan is the only one who wants to buy it? Why we do not put Bear Stearns on the block to the highest bidder? It might be there other company or even a group of companies want to get a piece of the pie.

    Why is it this deal get that much attention from official to make this purchase? Why not these officials who want to help the deal and pour in it such a huge some of tax payers money run it them self instead? Why J P Morgan wants that deal so bad that they up their bid five folds in a matter of week? Why? Why? Why?

    Someone or some entities are getting a huge some of green and the rest of us just believe the prime mortgage melt down is the cause. How foolish is that.

  37. jane doe says:

    i know nothing of the subject but would appreciate an explanation if anyone would be so kind. if i had an IRA with bear stearns, will my investment be effected? will i have lost my money?

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