I don’t really think this was as much of a bailout as you might think. They fascilitated a merger and at the same time made sure the markets had something to rely on. Bear Sterns shareholders were only paid $2.00 per share...effectively JPMorgan Chase got them for nothing. Where’s the bailout in that other than to make sure money market funds didn’t have to break the buck by losing on faile Bear repos. JPM Chase now makes good on those obligations and all Bear shareholders lose everything.
I wonder how many margin calls that's going to trigger.
From article: The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks.
This is what I'm asking about, not just the Bear Stearns "fire sale." The bailout of perhaps dozens or hundred or more will likely be in the offing...
JP Morgan got a steal of a deal if I got the facts right. They pick up Bear for next to nothing, and the Fed guarantees some $30 Bn in dicey assets that no one is able to price. It is a bailout of the banking system, but it is not a bailout of the Bear Stearns shareholders. They are essentially wiped out, getting $2 a share for something that sold at 70 or 80 a week ago, and up to 170 a year ago. No one knows what the true worth would be without the Fed guarantee that JPM is getting, but it would probably be negative. That's why the guarantee had to be made for JPM to be able to make the deal.
It also makes me think that JP Morgan Chase be in better shape than the other big guys. You didn't see a bidding war, or multiple offers from other investment houses (Goldman, Merrill, Morgan, Lehman) or money center banks (Citi, HSBC, etc.).
Except the C-level execs who probably get golden parachutes.
Cheers!