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For me, I just find it unfathomable that management would either bet the farm on some very high risk investments, or equally bad, bet the farm on investments they did not fully comprehend. This is such an extreme case of mismanagement that investors the world over can not believe it was possible. As a matter of fact it seems so impossible that it is probably what kept many of us faithfully invested. Many of us take investment risks, some more than others, but to bet the whole farm? To bet your future existence? This is financial insanity.
Is this just a case of greed causing blindness? If so why was it so contagious among some firms and not others?
It seems to me that the reported $2 per share purchase price that JP Morgan Chase (NYSE: JPM) is paying for Bear Stearns (NYSE: BSC) would not have been enough to buy the brand name last year, never mind the whole company. What we are witnessing is the strong (until JPM reports some surprise) taking advantage of the weak. It also exemplifies how bad the market is, that no other buyer has stepped in at these fire sale prices.
I also do not understand why management was so slow to act over the course of the last year as the picture became more clear as to how bad things were getting in the credit markets. Perhaps they were in denial. Do we give them the benefit of the doubt as to why they kept telling the market they did not have a liquidity problem until last Friday morning when we all woke up to hear they did? Did they actually believe all the trash they were telling us?
It looks like the strong will become even stronger after the market shake-out ---or even more appropriately, the market shake-down. We should not forget that the assets that Chase is buying are impaired now, but likely will be worth some number of billions of dollars more as the credit and liquidity problems work themselves out over the next few years.
Even though this might make JP Morgan Chase look like a good buy right now, since the stock is down and there is so much possible potential, we all have thought this about other institutions, including Bear Stearns, only to watch things fall apart as we are taken by surprise, as new disclosures of mismanagement and untimely decisions are made public.
Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in BSC.
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Reader Comments (Page 1 of 1)
3-17-2008 @ 4:46PM
Useless comment said...
I guess that JP Morgan is hoping to turn around this Bear market.
3-17-2008 @ 4:53PM
william lindblad said...
Deja Vue? Suggested reading - J.P. Morgan (in the flesh) and the banks, ca. 1909. As time goes by, the current seems to be similar, however this is on a grand scale in comparison. So far, the casualty list includes Northern Rock, Bear Sterns, a few European banks and one in Ireland. Granted conditions vary, but all have had some kind of government intervention. Citicorp & Countrywide are making it on private. Throw in the bond, hedge funds and the MMA's that have trouble and it is pretty obvious that all is far from known. Of late the stock market is having some wild swings but generally manages to turn upward in the last hour. Is this investor optimisim or is it stabilization buying. I assume some of this is corporations buying their own as this would be good sense given the falling dollar and many are cash heavy. The Fed is going to cut again and the dollar slide is a foregone conclusion. Buyback programs are going into high gear as most stocks are at lows. The big question is how long before this reaches the practical end and the market moves lower and at this point, does foreign investment stay - or take flight?
3-17-2008 @ 7:02PM
argyleeagle said...
Serves the greedy Bear Stearns bastards right. They deserve to go under. Karma is hell, Bear Stearns - turnabout is fair play , and I am getting the last laugh !
3-24-2008 @ 4:17AM
B. Harrison said...
The basic principle of the "free market economy" is that those who take the risks, bear the results (profit or loss).
A taxpayer "bailout" of this affair is totally unconscionable. JP Morgan Chase is certainly NOT ENTITLED to a tax payer subsidized "windfall profit" in their "purchase of Bear Stearns for a $2.00 per share pittance . . . and that isn't even for cash; it was for a "stock trade value".
Bear sterns should simply be put into bankruptcy; and let the chips fall where they may.
The principle of the "free market economy" are either valid in good times and bad times . . . or it is merely a political tool being used by the financially irresponsible.