Bear Stearns Poll Results

The results from my first blog poll are in. Just as a reminder, the question I posited last week was "Why is Bear Stearns trading way above the JP Morgan offer price of $2.00 per share?" Forty four votes were recorded and the winner by a plurality was that "People are stupid." The results:

Short covering 4 (9%)
A higher bid will come 12 (27%)
Bondholders protecting themselves 11 (25%)
People are stupid 17 (38%)

As we all know now, a higher bid did come in, in this case from JP Morgan, the original bidder. So it would seem that people aren't that stupid after all.

New Poll on Bear Stearns

I just added a poll to the blog just to the right of this post. There have been many reasons offered to explain why Bear Stearns stock is trading way above the $2.00 per share offer (or $2.34 offer based on the closing price of JP Morgan on 3/18/08). Please vote, and if you have any other theories make a comment.

Bear Stearns Mystery Caller

I was just reading the JP Morgan - Bear Stearns transcript and read toward the end an exchange from a mystery caller that the transcript identified as an individual investor called "Brian."

Brian

I was just wondering how this valuation helps the Bear Stearns shareholders as they go through Chapter 11 and the orderly liquidation of the assets of the company?

Answer

I’m afraid you’d have to ask that question to Bear Stearns.

Brian

I vote not to approve this sale.

A disgruntled employee perhaps?

Bear Stearns sold for $ 2.00 per Share?

The Wall Street Journal is reporting that JP Morgan Chase is buying Bear Stearns for $2.00 per share. This must be a joke - the Headquarters alone is worth $1.2 billion, which is four times the reported deal value of around $226 million. Bear Stearns would be better off filing for Bankruptcy and then taking a chance that after it liquidates and sells its assets and settles its liabilities, it would return more than $226 million to shareholders. By the time Bear sold its assets the market for mortgage backed securities may even have unfrozen.

JP Morgan vs. Citigroup

If you take a look at the capital ratios of the these two banks, it speaks volumes about what is going on. These numbers are preliminary but here they are:

Citigroup

Tier 1 Capital Ratio - 7.1%
Total Capital Ratio - 10.9%

JP Morgan

Tier 1 Capital Ratio - 8.4%
Total Capital Ratio - 12.6%

You can look up capital ratios for any bank by going to this web site:

http://www2.fdic.gov/idasp/main.asp

The info is always a quarter behind, but it is useful nonetheless to see the trends.