1) Sure, executives always talk up their deals. But really, this sounds like a fantastic coup for J.P. Morgan. They get Bear, which as a going concern was worth roughly $10B not long ago, for next to nothing. According to JPM execs, Bear was being candid when it insisted its books were fundamentally sound, and the crisis was just a liquidity issue. Much of the risk JPM might not have been comfortable with has been laid off on the Fed....
2) ...Somehow, something happened over a period of 24 hours that changed Bear from a slightly tarnished name that yet sell itself for a decent price to an urgently distressed asset. I've yet to hear a convincing account of how that went down. (Lawyers have already been called to look into this, and JPM has set aside funds for litigation.)
3) The Fed is financing, and bearing the downside risk, on roughly $30B of Bear assets. About $20B of those are mortgage-backed securities, the rest are unaccounted for. Many of us — perhaps reasonably, perhaps hysterically — view Bear's derivative portfolio rather than its mortgage-backed securities as the greatest concentration of risk. Is it possible (and I am asking here, I really don't know!) that an "in-the-money" derivatives portfolio could be viewed as an asset, and pledged to the Fed?>>>MORE
Tuesday, March 18, 2008