March 15, 2008
Buried Stearns
Here are some charts (long-term monthly and short-term five-minute) of Bear Stearns (BSC) and a news roundup:
Bear Stearns Shares Fall on Liquidity Speculation (March 10)
“Bear Stearns, the second-biggest underwriter of mortgage- backed bonds, said in a statement that ‘there is absolutely no truth to the rumors of liquidity problems.’ … ‘Bear Stearns’s balance sheet, liquidity and capital remain strong,’ Chief Executive Officer Alan Schwartz said in the company’s statement. Alan ‘Ace’ Greenberg, the former Bear Stearns chief executive officer and current board member, told CNBC that the liquidity rumors were ‘totally ridiculous.’
Options traders increased their bets today that Bear Stearns shares will continue to fall. Put-option volume rose to 158,599 contracts, seven times the 20-day average. Bearish bets outnumbered bullish ones, or calls, by about 2.6 to 1.
The price of today’s most-active contracts, which give the right to sell the stock at $30 before this month’s options expire at the end of next week, rose 13-fold to 65 cents. For those wagers to pay off, the shares must drop 52 percent in the next eight trading sessions.” [ed. And they did.]
Bear Stearns Gets Emergency Funds From JPMorgan, Fed
“Bear Stearns Chief Executive Officer Alan Schwartz said today that the 85-year-old company’s cash position had ’significantly deteriorated’ in the past 24 hours. [ed. That was quick.] … Bear Stearns first sold shares to the public in 1985.”
Fed Invokes Little-Used Authority to Aid Bear Stearns
“The loan to Bear Stearns required a vote today by the Fed’s Board of Governors because the company isn’t a bank … The central bank is taking on the credit risk from Bear Stearns collateral, lending the funds through JPMorgan Chase & Co. because it’s operationally simpler to accomplish than a direct loan.”
Bear Options Show Higher Odds Stock Headed to ‘Zero’
“The most-active options yesterday [March 13] were puts that give the right to sell the stock for $25 through March 20.”
Bear Stearns Has Credit Ratings Slashed After Bailout
“Standard & Poor’s lowered the securities firm’s long-term counterparty rating three levels to BBB.” [ed. As someone in the article says, their rating is irrelevant now.]
Bear Stearns May Not Resume Trading, Bernstein’s Hintz Says
“The problem is how do you re-start a trading operation? We really don’t have any examples of that being successful in the marketplace. Will you do that foreign exchange trade with Bear? Will you do that bond trade with Bear?”
Bear Stearns `Could Become Worthless,’ Meredith Whitney Says [ed. Not a helpful headline.]
…
I also thought this article was interesting; the phrase “creating the impression of losses” struck me:
Accounting Rule Jeopardizes Bear Stearns, Lehman, Whalen Says
“Why are people scared? Because they don’t know what the true value of assets are. They see the accountants forcing all these firms to write down their assets to zero, even though these things are still paying as contracted, they haven’t defaulted.
Rescind FAS 157 so if you have a real quoted price for an asset, fine, use it. Otherwise you allow companies to use historic cost. You had a transaction, you know what you paid for it, it’s a fact. All this other stuff is speculation. We are literally creating the impression of losses.
It shows you the law of unintended consequences. Everybody at FASB thought they were doing the right thing, ‘We’re going to make the world more transparent.’
It was really about making the world safe for structured finance. They thought fair value would help investors get comfortable with these over-the-counter, structured assets. When the liquidity dried up, we had exactly the opposite effect.”
March 15th, 2008 at 11:06 pm
“Create the impression of losses”? This is Orwellian. It’s also a tell that the plunge is far from over — there’s still far too much faith in the self-appointed Masters of the Universe. There is still very little despair.
The reason there are no historical prices is because the holders of the junk debt have been given so much succor by the Fed to cling onto their garbage in the knowledge that Bernanke will credulously take it onto the Fed’s balance sheet.
F the boomers …
March 16th, 2008 at 8:16 pm
I bought at 34
March 17th, 2008 at 11:17 am
$2………unreal. what else could i possibly say, or needs to be said?
March 17th, 2008 at 12:19 pm
Needs to be said: Schadenfreude.
March 17th, 2008 at 3:32 pm
chad: Brings new meaning to the term “fire sale.”
March 17th, 2008 at 3:34 pm
Chairman,
the Fed becomes more and more a directly exposed risk taker, mired in hedge fund/investment bank business. Is that still the appropriate action according to your favorite Fed (kids) site? ;-)
Cheers,
Markus
March 17th, 2008 at 4:19 pm
still holding your banks?
March 17th, 2008 at 4:35 pm
@Markus: They’re panicked like everyone else … it’s a problem to backstop things because where do you stop once you start? At the end of the day, the strong will end up holding the weak (and this is why I encouraged the Chinese to make an offer for BSC at $4 a share (100% premium to JPM’s offer).
@Brian: Yes, and aside from WM, they’re really not doing that badly (to date, lol).
March 17th, 2008 at 7:19 pm
If Bear Stearns is worth $2 a share, what are the other banks worth?
March 17th, 2008 at 9:25 pm
Jim: This is the $6.4 trillion dollar question. :)
March 17th, 2008 at 9:57 pm
what’s the over-under on who goes bust next? WM, NCC, LEH?
March 17th, 2008 at 10:02 pm
I’ve been on vacation last week, I got odd looks when I had a big smile as we discussed this fiasco. I am net short, including financials.
I was jealous of a friend who got hired at bear sterns as an entry level trader around graduation time, not anymore.
March 18th, 2008 at 7:12 am
Who’s the big winner in all this..?
85 Broad Street Mafia
March 18th, 2008 at 5:49 pm
Chairman,
are you working for Citic Group in Beijing?
“(and this is why I encouraged the Chinese to make an offer for BSC at $4 a share (100% premium to JPM’s offer).”
March 18th, 2008 at 9:02 pm
Markus: No, but I know a couple people there.