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What is going on at Bear Stearns ?
- Thread starter Andy Nguyen
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JPM & the Fed are in talks for a rescue package, possible buy from JPM
http://www.nytimes.com/2008/03/14/business/14cnd-bear.html?ref=business
Time to long BSC. The market is over reacting.
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Hey guys check this article out. 55000 puts with strike 30 were traded on Tuesday...
http://www.thestreet.com/_aol/s/who...EE&cm_ite=NA?cm_ven=AOL&cm_cat=FREE&cm_ite=NA
http://www.thestreet.com/_aol/s/who...EE&cm_ite=NA?cm_ven=AOL&cm_cat=FREE&cm_ite=NA
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Dealers now demand upfront payment to sell cds protection for Bear. 11% + 500bps meaning to buy 10M default protection for 5 years, you pay 1.1M upfront and 500K each year.
Earlier, it traded at 680 bps without upfront payment.
What difference a day makes.
Earlier, it traded at 680 bps without upfront payment.
What difference a day makes.
Sanket Patel
i do stuff
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Can't help but wonder if there will be a Bear Stearns come Monday.
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It may become Bear Chase Morgans
In all seriousness, while all of us are amazed by the developments at Bear Stearns, keep in mind that this may have dire consequences on many of us who work or looking for work in the financial industry.
Something happens to Bear will have domino effects on other firms and the general markets. Deteriorating market condition is never a welcome sign for MFE graduates even at good programs like Baruch, NYU, CMU
I guess I learned today that things can change overnight and job today, gone tomorrow so I don't take anything for granted.
Lehman said that it will cut 1400 jobs (5%) so Bear is not the only thing we should worry about.
In all seriousness, while all of us are amazed by the developments at Bear Stearns, keep in mind that this may have dire consequences on many of us who work or looking for work in the financial industry.
Something happens to Bear will have domino effects on other firms and the general markets. Deteriorating market condition is never a welcome sign for MFE graduates even at good programs like Baruch, NYU, CMU
I guess I learned today that things can change overnight and job today, gone tomorrow so I don't take anything for granted.
Lehman said that it will cut 1400 jobs (5%) so Bear is not the only thing we should worry about.
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A good summary of the events today.
http://biz.yahoo.com/ap/080314/bear_stearns_q_a.html
Bear Stearns' S.O.S. to Fed Raises Worries About Which Bank Might Be Next
NEW YORK (AP) -- After Bear Stearns Cos. said Friday it will have to borrow money through JPMorgan Chase & Co., backed by the New York Federal Reserve, investors are curious: What does this mean for other banks, and who might be next?
Q: Is this going to happen to other investment banks?
A: Nobody knows for sure, but it could. Until proven otherwise, the market will probably act as if there are more near-collapses to come -- just as it did on Friday, when investors sold off their bank holdings and sent the Dow Jones industrial average down 200 points.
"Even though Bear was probably on the fringe, pushing the envelope anyway, traders are saying that because it happened, it could happen to somebody else," said Brandon Thomas, chief investment officer for Portfolio Management Consultants, the investment arm of Envestnet.
Q: Which other institutions might need funding?
A: Bear Stearns has been the weakling among the five reigning Wall Street investment banks: Bear, Merrill Lynch, Morgan Stanley, Lehman Brothers and Goldman Sachs. Many market watchers will recall that last spring, Bear was the first of these institutions to reveal big problems with mortgage-linked debt when it had to pump cash into two hemorrhaging hedge funds.
Also, Bear is the smallest of the five big investment banks, the least diversified, and the biggest issuer of mortgage-backed securities.
But Lehman Brothers Holdings Inc. appears to be an investment bank that investors are very worried about right now -- mainly because it is the investment bank that is most similar to Bear in structure and exposure. Its stock dropped more than 14 percent on Friday.
Banks gave Lehman a vote of confidence of sorts, however, on Friday -- Lehman Brothers said its new credit facility was "substantially oversubscribed," and that some of world's largest banks participated.
Other banks certainly have their own troubles -- Merrill Lynch, for one, wrote down more than $14 billion in the fourth quarter as the value of bonds and debt backed by souring mortgages fell.
However, "there's not the same questioning of their franchise. It's not anyone saying, what are they going to do for a living next year," said Tanya Azarchs, S&P banking analyst. "At the same time, though ... the markets are very nervous, very skittish. Asset prices are very volatile. The repo markets are very tight, very illiquid. When the repo markets are illiquid, things can get very unpredictable."
The repo, or repurchase, markets are temporary loan markets that are relied upon by banks, hedge funds and other investors to invest their extra money or borrow against collateral.
Q: What will happen to Bear Stearns?
A: Few industry experts believe the 28-day loan will be enough for Bear to become liquid on its own again -- most are viewing it as delaying tactic as Bear and the Fed figure out how to proceed.
It is possible Bear will be bought, perhaps by JPMorgan. If that happens, the buyer would have take over Bear Stearns' $176 billion worth of distressed securities and its $42 billion in loans -- not a rosy prospect for even a healthy bank. Furthermore, there are regulatory issues that may arise if a commercial bank wants to buy Bear's troubled assets.
Another scenario is that the Fed attempts to organize an orderly winding down of Bear Stearns into a much smaller company by selling off its assets.
Q: How is Bear's loan different than other steps troubled financial institutions have taken?
A: Bear Stearns is not the first company to seek out cash -- Citigroup Inc., Merrill Lynch and Morgan Stanley have pulled in several billion dollars by selling stakes to outside investors, including foreign governments, while the bond insurer MBIA Inc. sold a significant stake in itself to JPMorgan, Lehman Brothers and other investors.
But Bear Stearns' agreement with JPMorgan is not a stake sale -- it's financing planned and backed by the U.S. government.
Q: Why can't the Fed just let Bear Stearns collapse?
A: Typically the Federal Reserve bails out struggling commercial banks, but because Bear Stearns is inextricably linked to a huge number of institutions, a failure could cause "a ripple effect," said Ali Samad-Khan, head of operational risk management consulting for the Enterprise Risk Management practice at Towers Perrin.
"They probably fall into the too-big-to-fail category," he said. "The fact is, they recognized that this is an important enough issue for them to get involved in."
Bear Stearns is interconnected with other banks, hedge funds and investors that are its "counterparties." Essentially, if Bear can't meet obligations to these counterparties, those counterparties will lose their money.
Big banks like Citigroup Inc. could see big losses but are probably large and diversified enough to survive them. But smaller players on the edges -- particularly hedge funds -- are at risk of going under if Bear can't repay them. A Carlyle Group fund has already said it is near collapse. Failing hedge funds could be another hit to major banks, who have lent huge amounts of money to the funds.
http://biz.yahoo.com/ap/080314/bear_stearns_q_a.html
After Bear Stearns, Who May Be Next?
Bear Stearns' S.O.S. to Fed Raises Worries About Which Bank Might Be Next
NEW YORK (AP) -- After Bear Stearns Cos. said Friday it will have to borrow money through JPMorgan Chase & Co., backed by the New York Federal Reserve, investors are curious: What does this mean for other banks, and who might be next?
Q: Is this going to happen to other investment banks?
A: Nobody knows for sure, but it could. Until proven otherwise, the market will probably act as if there are more near-collapses to come -- just as it did on Friday, when investors sold off their bank holdings and sent the Dow Jones industrial average down 200 points.
"Even though Bear was probably on the fringe, pushing the envelope anyway, traders are saying that because it happened, it could happen to somebody else," said Brandon Thomas, chief investment officer for Portfolio Management Consultants, the investment arm of Envestnet.
Q: Which other institutions might need funding?
A: Bear Stearns has been the weakling among the five reigning Wall Street investment banks: Bear, Merrill Lynch, Morgan Stanley, Lehman Brothers and Goldman Sachs. Many market watchers will recall that last spring, Bear was the first of these institutions to reveal big problems with mortgage-linked debt when it had to pump cash into two hemorrhaging hedge funds.
Also, Bear is the smallest of the five big investment banks, the least diversified, and the biggest issuer of mortgage-backed securities.
But Lehman Brothers Holdings Inc. appears to be an investment bank that investors are very worried about right now -- mainly because it is the investment bank that is most similar to Bear in structure and exposure. Its stock dropped more than 14 percent on Friday.
Banks gave Lehman a vote of confidence of sorts, however, on Friday -- Lehman Brothers said its new credit facility was "substantially oversubscribed," and that some of world's largest banks participated.
Other banks certainly have their own troubles -- Merrill Lynch, for one, wrote down more than $14 billion in the fourth quarter as the value of bonds and debt backed by souring mortgages fell.
However, "there's not the same questioning of their franchise. It's not anyone saying, what are they going to do for a living next year," said Tanya Azarchs, S&P banking analyst. "At the same time, though ... the markets are very nervous, very skittish. Asset prices are very volatile. The repo markets are very tight, very illiquid. When the repo markets are illiquid, things can get very unpredictable."
The repo, or repurchase, markets are temporary loan markets that are relied upon by banks, hedge funds and other investors to invest their extra money or borrow against collateral.
Q: What will happen to Bear Stearns?
A: Few industry experts believe the 28-day loan will be enough for Bear to become liquid on its own again -- most are viewing it as delaying tactic as Bear and the Fed figure out how to proceed.
It is possible Bear will be bought, perhaps by JPMorgan. If that happens, the buyer would have take over Bear Stearns' $176 billion worth of distressed securities and its $42 billion in loans -- not a rosy prospect for even a healthy bank. Furthermore, there are regulatory issues that may arise if a commercial bank wants to buy Bear's troubled assets.
Another scenario is that the Fed attempts to organize an orderly winding down of Bear Stearns into a much smaller company by selling off its assets.
Q: How is Bear's loan different than other steps troubled financial institutions have taken?
A: Bear Stearns is not the first company to seek out cash -- Citigroup Inc., Merrill Lynch and Morgan Stanley have pulled in several billion dollars by selling stakes to outside investors, including foreign governments, while the bond insurer MBIA Inc. sold a significant stake in itself to JPMorgan, Lehman Brothers and other investors.
But Bear Stearns' agreement with JPMorgan is not a stake sale -- it's financing planned and backed by the U.S. government.
Q: Why can't the Fed just let Bear Stearns collapse?
A: Typically the Federal Reserve bails out struggling commercial banks, but because Bear Stearns is inextricably linked to a huge number of institutions, a failure could cause "a ripple effect," said Ali Samad-Khan, head of operational risk management consulting for the Enterprise Risk Management practice at Towers Perrin.
"They probably fall into the too-big-to-fail category," he said. "The fact is, they recognized that this is an important enough issue for them to get involved in."
Bear Stearns is interconnected with other banks, hedge funds and investors that are its "counterparties." Essentially, if Bear can't meet obligations to these counterparties, those counterparties will lose their money.
Big banks like Citigroup Inc. could see big losses but are probably large and diversified enough to survive them. But smaller players on the edges -- particularly hedge funds -- are at risk of going under if Bear can't repay them. A Carlyle Group fund has already said it is near collapse. Failing hedge funds could be another hit to major banks, who have lent huge amounts of money to the funds.
alain
Older and Wiser
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The head of my group and my direct manager were in the same situation some time ago. The head of my group was a trader at Yomiuri Bank and my manager was working at LTCM since the early beginnings. We were speculating that something is going to happen over the weekend and by early next week, BSC is going to be history.
I have been through rough situations (at Bankers Trust the stock went from 130 in June to 43 in October) but this was really hard... and the traders, didn't make any easier, I wouldn't eitheri if I had the opportinity.
There was an article on Bloomberg talking about te price of the Bear Puts over the last couple of days. The March 25 Puts went from $0.05 on Wed to $.30 on Thursday to $4.10 on Friday... 70 fold... and the volume went through the roof with an ivol over 300 at some point. Talking about wild rides!!!
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I was working for Lehman Bros. when Drexel went out of business at the end of the junk bond era. What shocked me then was the speed of the collapse. In December they handed out nice big fat bonuses and the world was fine and in the Spring they went out of business. By the time Drexel hit the headlines, it was over in a week and Bear looks to be heading off at the same pace.
The difference is Bear being in the fixed income/mortgage space has an ally in the Fed as they have an interest in seeing this resolved while Drexel was viewed more as a parasite feeding on weak American corporations and not a useful member of the club.
The difference is Bear being in the fixed income/mortgage space has an ally in the Fed as they have an interest in seeing this resolved while Drexel was viewed more as a parasite feeding on weak American corporations and not a useful member of the club.
DominiConnor
Quant Headhunter
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I agree with Andy that in times like this, there is little that can be achieved by what people say.
However saying the wrong thing can have bad effects.
However saying the wrong thing can have bad effects.
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Some of my thougths
and does anyone remember Schroders Salomon Smith Barney ??
-- I think they pretty much reflect how people are feeling
If we were to believe what has been said -- I think Bear Stearns could be the first firm in the history to be affected this much by rumors -- or rather rumors turning true like a self proclaimed prophecy ...
Well I really have to say that I am happy to have seen this Friday -- I may have lived through history... Also it stuck to me that stuff of this magnitude can happen and being young and stupid (unlike Gus and Alain) it stuck me for the stuff happens fast -- there is always the risk of blow up -- there is no risk neutral world (the world is definitely not normally distributed).... I guess the worst part of it all is that no one knows who makes this stuff happen, when will he do it or with magnitude
Well when it comes to M&A I don't think there are nationality issues -- if someone wants cash and is selling out, I don't think the regulators would have a problem.... Foreign acquisitions are not really that uncommon -- we live in 2008 where its one big world .... ABN Amro a large Dutch bank got consumed by "European friends", Heathrow is run by a consotorium lead by the Spanish, Air Italia is been taken over by Air France, and an Indian firm is bidding for Ford Land Rover....
and does anyone remember Schroders Salomon Smith Barney ??
Well once again, I don't think the governments would have a problem, its a private business matter... Pimco which manages assets of about 1.3 Trillion dollars (which is greater than the book value of lots of investment banks put together) reports to Munich !!!
Okay again opinions differ,but I don't think that would happen.... Even after the famous week yesterday, Bear Stearns (a 85 yr old firm) remains a firm with $4 bln of Market Cap, with last reported equity valuation of over $11 bln, and last reported tangible assets worth $53bln... Compare that with some of other SP500 firms -- LEN (last reported total assets, 9 bln) and QLGC (last reported total assets < 1 bln !)
I think the "fear factor" kind of reached new heights this Friday... The SP500 was down 2% (which is not really that much given the history since August -- I am sure we have seen atleast 5 when we dropped 2%) .... But I think the market sentiment is really down.... On this thread itself we have had thoughts like "Dow will go below 10000 level." and "Can't help but wonder if there will be a Bear Stearns come Monday." , "we were talking about Lehman as well."
-- I think they pretty much reflect how people are feeling
Well it has definitely not another day at business -- I guess everyone was happy that the day ended and we have the weekend !!!
If we were to believe what has been said -- I think Bear Stearns could be the first firm in the history to be affected this much by rumors -- or rather rumors turning true like a self proclaimed prophecy ...
Well I really have to say that I am happy to have seen this Friday -- I may have lived through history... Also it stuck to me that stuff of this magnitude can happen and being young and stupid (unlike Gus and Alain) it stuck me for the stuff happens fast -- there is always the risk of blow up -- there is no risk neutral world (the world is definitely not normally distributed).... I guess the worst part of it all is that no one knows who makes this stuff happen, when will he do it or with magnitude
alain
Older and Wiser
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I think you are being a little naive. These are European companies digesting other european companies or a German company digesting an american company. We are talking about a chines bank, any chinese bank which has huge ties to the chines government, taking over an american bank. It would be great for shareholders because they would have to pay an interesting premium on whatever little value Bear could have at that moment but I'm incredulous. It could happen but regulators are an interesting bunch.
and last reported Wednesday or Thursday, BSC didn't have liquidity problems... draw your own conclusion.
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probably, but bloomberg says it come down to a neighbour in need is a neighbour indeed kind of situation...
I was refering to official SEC filings but I am sure that can be settled on Monday
alain
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Holy cows,
It's not $20 a share but rather $2, which valuates Bear at 230M
Looks like it's a done deal
http://www.bloomberg.com/apps/news?pid=20601087&sid=ar0QxIGdOnWI&refer=home
It's not $20 a share but rather $2, which valuates Bear at 230M
J.P. Morgan to Buy Bear Stearns - WSJ.com
Looks like it's a done deal
http://www.bloomberg.com/apps/news?pid=20601087&sid=ar0QxIGdOnWI&refer=home
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WOW! How does that work if you shorted BSC on Friday? (I didn't, but am curious)
alain
Older and Wiser
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... REALLY CHEAP!!!
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Looks like a shotgun wedding orchestrated by the Feds:
(In the FT)
Probably the days of both unfettered financial markets and ever-more exotic financial products are coming to an end, and financial markets will be more tightly regulated and circumscribed now. You can draw your own conclusions about its implications for the need for quant work. But let's wait till the dust settles....
(In the FT)
Probably the days of both unfettered financial markets and ever-more exotic financial products are coming to an end, and financial markets will be more tightly regulated and circumscribed now. You can draw your own conclusions about its implications for the need for quant work. But let's wait till the dust settles....
